Big data - the Financial Conduct Authority proposes individual borrower disclosures in relation to consumer credit firms
The Financial Conduct Authority ("FCA") is consulting on plans to require consumer credit firms to hand over a vast swathe of data on their individual customer transactions. They propose that this will include data points such as each borrower's date of birth, postcode, employment and residential status, declared net monthly income and expenditure as well as the size and nature of their loans. The proposals include requiring details of the borrower's number of financial dependants, any security provided, any penalty charges levied for late payments or exceeding credit limits during the life of the agreement, the type of goods financed, and whether any forbearance, breathing space or deferral has been allowed. Disclosure would be required per borrower of the number of months in persistent debt, any defaults, and any judgments given and enforcement orders made. It also requires data on whether any financial promotions for the product make reference to the product being available to borrowers with a bad credit history, and whether the borrower was recorded as being potentially vulnerable.
The Consultation Paper CP23/21 Consumer Credit – Product Sales Data Reporting (the CP) seeks views on our proposal to introduce three new Product Sales Data (PSD) returns into Chapter 16 of the Supervision manual (SUP).
The FCA say they gather and use a wide range of data, information and intelligence to help identify and assess risks in financial markets. While at present they mainly collect aggregated data for regulated consumer credit activities or ad hoc data collected from information requests, the newly proposed returns will require firms to provide detailed information on the initial sale and ongoing performance of individual agreements which will assist them in understanding how firms operate, and allow them to gain further insight into the market so that we can make quicker, bolder decisions.
The FCA refer to the required information under four categories:
- Core agreement data;
- Borrower and affordability data;
- Charges and fees; and
- Arrears and forbearance.
They are proposing to introduce three new PSD returns:
- Sales PSD
- Performance PSD
- Back book PSD (where the sale was prior to the implementation of this new PSD requirement).
Lenders would be required to submit Sales and Performance data on a quarterly basis, and Back Book data as a one-off submission.
The FCA estimate the "one-off" cost of change and IT cost across firms will be between £59.6 million - £103.5 million, an average cost per firm of between £80k and £138k. Ongoing costs across all firms are of £1.55 million per annum for firms to collate and report this data.
Apart from this looking like an awful lot of work for the c. 40,000 consumer credit firms, the costs estimates look rather optimistic in our opinion. Reference is made to how such granular data will give the FCA "a greater understanding of relevant markets allowing us to more effectively monitor and enforce our operational objectives of protection for consumers, protecting and enhancing the UK financial system, and promoting effective competition." The CP refers to their monitoring that firms are acting to deliver good retail customer outcomes in line with the Consumer Duty.
Commentators say, however, that the level of detail is "astonishing", and have also expressed concerns about the FCA sharing it with other government agencies. In the latter regard, the FCA has gateways by which it can share such information with other public authorities or for specified purposes under the Financial Services and Markets Act 2000 (Disclosure of Confidential Information) Regulations 2001 as amended from time to time. This includes disclosure for the purposes of criminal proceedings and investigations.
While the proposals do not require the names of individual borrowers in their personal capacity to be disclosed, a vast amount of personal data points will be provided from which it may be possible to identify individual borrowers.
How this all sits from a GDPR perspective is also relevant.
Given the time, complexity and costs involved, it will be interesting to see if the data that would be collected if the proposals go through can be put to good use.
Author: David Capps