A group of MPs have called for action to be taken to discover if consumers are being penalised for shopping around for the best deals on credit cards and loans.

The Treasury Select Committee raised concerns about the impact of multiple credit searchers on both the wider market and individuals. They have urged the Office of Fair Trading to launch an inquest.

It stated that being able to compare prices not only provides key discipline and competition for lenders but also allows customers to gain access to the best deals.

Credit rating anger

The majority of lenders now offer individual loan and credit card rates, under which the interest people are charged is based on the risk that they will default on the debt, with lenders normally carrying out a credit search or rating to evaluate risks a client presents.

The committee admitted that credit scoring had been sensible in the past to detect fraud but it did question why ratings still applied, especially as shopping around is more common and credit is harder to obtain.

It added that it had also not been presented with “unequivocal evidence” that credit searches were essential for loan providers, who admitted they had more than 400 indicators they could use to assess borrowers.

But the committee also said it had not seen “overwhelming evidence” that the searches were a “major source of direct consumer detriment”.

The committee recommended the Information Commissioner's Office to focus on data collection systems and data quality at credit reference agencies conformed with the Data Protection Act.

It also urged the OFT and ICO to consider whether the £2 fee charged to consumers who wanted to access their credit file was justifiable. It said that while the charge may seem modest, there were three credit reference agencies, and as regular checking may be appropriate, the costs could easily mount up.

It noted that there were complex trade-offs between the need to prevent reckless lending and the need to ensure consumers were able to search the market for the best deals, and it called on the OFT to consider the issue.

Toby Van Der Meer, managing director of a financial group stated: “We know that only 30% of people who make an application for credit are accepted. Even worse, only 20% of those that apply for credit get the rate they applied for.

“Or to put it another way, 80% of consumers who see a product won't get it and they'll be penalised for trying because they'll be even less likely to be accepted if they apply for another product.”

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.”

He added: “Many consumers have no idea why they are rejected for a loan. That is why it is so important people should be able to afford to access their credit files, and why correcting inaccurate data should be simple and easy. There may be a case for free access, and we have asked the ICO and OFT to look at this.”

Van Der Meer added that the system must be solved: “We need the OFT to act quickly on this - the situation we are in now is not sustainable for consumers.”