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The Creditworthiness Assessment Bill has had its second reading in the House of Lords with a general debate on all aspects of the Bill on the 24th November.
The Bill is now scheduled to go to Committee stage with a line by line examination, but the date for this stage has not yet been confirmed.
Summary of the Creditworthiness Assessment Bill: A Bill to require certain matters to be taken into account when assessing a borrower’s creditworthiness.
1. Assessing the affordability of a borrower’s creditworthiness
(1) The Financial Services and Markets Act 2000 is amended as follows.
(2) In section 64A, after subsection (1), insert—
“(1A) The FCA must, in making rules under this section, ensure that firms carrying on credit-related regulated activities and connected activities and those entering into or varying a regulated mortgage contract or home purchase plan take into account rental payment history and council tax payment history when assessing a borrower’s creditworthiness.”
2 Extent, commencement and short title
(1) This Act extends to England and Wales, Scotland and Northern Ireland.
(2)This Act comes into force on the day on which it is passed.
(3)This Act may be cited as the Creditworthiness Assessment Act 2017
In the second reading Lord Bird (CB) said:
“It is a great honour to be talking about poverty again in the House. Whenever I get to the House, I would love to jump up and say that we are not doing enough for the poor; we are not creating the escape ladders for people in poverty. If you look at the work that I have been doing over the last 26 years, it has nearly always been aimed at how we can dismantle poverty in the lives of the neediest. One escape route is obviously around education and housing and the opportunities that you get through work—but another thing, which is hidden, is how expensive it is to be poor. It is incredibly expensive. If you are poor, you pay more for your electricity, gas and credit. That is why this Bill is based on the work that the Big Issue has done over the last seven years, when we have been working with a credit agency called Experian. We have worked to find the records of 1.5 million social tenants and to look at ways we can reduce the cost of their credit and, we hope, move them incrementally towards democracy and justice. As we know, the poorer your life is, the less likely it is that you will be able to participate in democracy. Democracy is about choice and the poorer you are, the less choice you have.
“The work that we have been doing with the Rental Exchange looks into the ways in which people’s rent can be used when they go forward to get themselves a credit rating. Interestingly, if you are a mortgage holder, and if you pay your mortgage on time and do not miss it too often, you will automatically have a higher credit rating, because the credit agencies will look at you and say that you are a jolly good chap, woman, student or whoever. But you might have been living in social housing, or in another form of rented accommodation, for one year, five years, or 10 years. There are the boxes to be ticked at the bottom of the form saying, “Are you a tenant?” or “Are you a householder?” and, if you are a householder, that box is ticked. If you are a tenant, the paper is normally thrown away, not even considered, or you will be given a very low credit rating, because they do not take into account the fact that you are paying your rent. You could be an incredibly good tenant, paying regularly for many years—or you could be a lousy mortgage holder.
“There is this injustice, and the Creditworthiness Assessment Bill is an attempt to change the way the credit agencies look at this social morass, this social gap, this representation almost of a class line that is drawn between those who are in luck and those who are not in luck—the people we want to address. The Big Issue has done this work and is proposing to carry on with it. I am proposing that we change the legislation so that the credit service providers have to take into account the fact that people have paid their rent. There are, however, a number of problems, because some people’s credit score could go up, while others’ could go down. We need to make sure that those people whose credit is poor and will stay poor, or even get worse, are helped. What happens now is that nobody’s credit is taken into account if they are a renting tenant. We therefore do not know how we can put our arms around those people who need to be supported in credit and who do not have a credit record. These are some the considerations that need to be made. We have to be very careful that we do not help only the low-hanging fruit, so to speak. We need to also socialise and engage with those people in need of support.
“The other thing about having a credit record is that is that it means you also have a digital identity, which means that you exist. There are so many occasions in this world, and they will increase, where people do not have a digital profile. Without a digital profile, the real problem is that not only will you not be able to get credit, but there will be all sorts of other knock-on effects. The poorest among us often do not have a digital profile, and we need to address that as well.”
If this Bill is passed then it will give much greater weight to credit scoring/checking for landlords and agents when referencing potential tenants.
The practical issues are that ASTs are not considered a consumer loan or finance. Landlords and agents have no way currently of feeding back to Equifax or Experian unless a CCJ is registered with the courts.
However, last week in the Budget the Chancellor announced a £2m competition to help create technology that will allow credit scoring firms to include rental payments.
Experian has also launched a scheme for Private Sector tenants to use their rental payment history to be included in their credit file. This scheme is currrently being operated as a trial with rent management company Credit Ladder.
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