A bill that would enforce rental payments and council tax payments as part of credit histories is progressing through the House of Lords on its way to becoming possible law.
The bill is at the report stage, the fourth of five legislative stages in the House of Lords, and will progress into the House of Commons this year.
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The bill was originally drawn up by peer John Bird, founder of the Big Issue magazine, to support consumers applying for mortgages by taking rent and council tax payments as mandatory parts of their credit histories.
The potential law, as it stands with no amendments, could improve credit scores, particularly for younger people, making them more eligible for consumer credit products like credit cards and motor finance.
According to reports, the report received cross-party endorsement during a parliamentary debate. An attempted amendment for a Financial Conduct Authority (FCA) review after two years failed, as did an attempted amendment aimed at reducing the mandatory obligation for lenders to take rental payments into account.
The Big Issue has been working in association with credit rating agency Experian on joint venture The Rental Exchange, tackling exclusion in the housing market.
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By GlobalDataFCA creditworthiness
The law would add to regulatory observance on creditworthiness, and affordability, that the FCA has been conducting.
In the middle of 2017 the regulator released an update to its motor finance review.
The FCA said that creditworthiness was comprised of both credit risk and affordability and that it sought to ensure that appropriate account is taken of affordability when it does not fully align with credit risk.
It proposed clarifying that creditworthiness includes both credit risk to the lender and affordability to the borrower.
On top of this, the FCA proposed a rule specifying the extent and scope of a creditworthiness assessment in a particular case dependent on, and proportionate to, the individual circumstances. For example it said firms would need to have regard for the type, amount and duration of the credit, the total amount payable, and the frequency of instalments.
It also proposed clarifying that the volume and content of information that must be taken into account when assessing creditworthiness will depend on the level of affordability risk, and that where there is evidence to suggest there is a high likelihood a customer will be unable to make one or more repayment under the credit agreement, then this may also be an indicator of a high level of affordability risk.
On its desired outcomes, the FCA said it wanted firms to make a reasonable assessment of whether customers could repay affordability without significantly affecting their wider financial situation. The regulator noted that it wanted to avoid being too prescriptive to avoid affecting the cost and availability of credit. The FCA said clarification would make it easier for firms to comply.
