The cross-party committee has called on both regulators to launch assessments amid fears that when shopping around for personal loans and credit cards, consumers build up application searches on their credit reference files and in turn, make it harder for themselves to obtain credit.

In a report published today, entitled Credit Searches, the committee calls on the OFT to investigate the complex trade offs between the need to prevent irresponsible lending and the need to ensure consumers can search freely for unsecured credit without being penalised.

John McFall, chairman of the committee, said: "While it is right to protect consumers from potentially reckless lending; equally, they shouldn’t be penalised for shopping around for loans."

The report has been made as part of an inquiry into the impact of credit searches on credit files and unleashes several obligations on the OFT and Information Commissioner’s Office (ICO).

The inquiry will also be looking at the quality and accuracy of data held by credit reference agencies (CRAs). The committee has recommended that the Information Commissioner consider seeking assurances that data quality at the CRAs conforms with the Data Protection Act. The MPs raised concerns that credit applications, which are rejected because of incorrect data, may remain on file and affect future credit scoring.

The Information Commissioner has also been asked to consider whether it is fair for credit reference files to contain details of application searches made while credit reference files were "demonstrably incorrect."

McFall added that people should be able to afford to access their credit files and that correcting inaccurate data should be simple and easy.

He said: "There may be a case for free access, and we have asked the ICO and OFT to look at this."

The OFT has also been told to look at the information presented in credit files, and ensure that consumers can understand the data included in them. The regulator has also been asked to investigate the impact of multiple applications on the availability and price of credit to customers, as many do not end up with the interest rate that was originally advertised.

The committee said it has not received unequivocal evidence that application search data is "critical" for lenders, who can assess more than 400 indicators of a consumer’s credit worthiness. But neither did the committee receive "overwhelming" evidence that it is a major source of direct consumer detriment.

Source: Credit Today