Payday lenders will be given access to a new real-time data application to assess the situation of potential borrowers

Real-time data for payday lenders

A new real-time information sharing system about consumer’s borrowing habits will be made available to payday lenders to support their lending decisions.

The service, launched by the credit reference agency Callcredit, aims to provide loan firms, such as Wonga, with up-to-date information about the potential borrower’s circumstances.

The move comes after the Business, Innovation and Skills (BIS) Committee called in December for better sharing of up-to-date information between payday firms so they can prevent struggling borrowers from spiralling into further trouble by taking out multiple loans with different lenders.

If payday lenders do not establish better ways to quickly share such information by July, regulator the Financial Conduct Authority (FCA), which will oversee the payday loan industry from April, should mandate this as a condition of trading in the sector, the committee said.

Lenders will begin testing the system in April, with the aim of it being used to help enable more accurate lending decisions from early May.

Callcredit's real-time initiative will run alongside its existing monthly reporting service. The agency believes the initiative will have a "major positive impact on both lenders and consumers".

The new service aims to plug an information gap by giving a more timely assessment about credit risk, affordability and the risk of fraud associated with new lending applications. It will include information such as whether payments have been received as expected, any rollovers to loans and extensions to credit or changes to payment terms.

Callcredit said that although much interest in the initiative has come from short-term payday lenders, the application will also be made available to the ‘mainstream’ lending industry.

Any lender that contributes to the initiative will be able to access it and consumers will also be able to see it included in credit reports.

Wonga's head of decision science, Rael Sarembock, said: "Wonga is a business built on the intelligent use of quality data to make accurate and responsible lending decisions.

"As a long-term partner of Callcredit, we welcome their real-time data-sharing initiative and anticipate that it will assist in further improving our decision-making processes.

"Wonga will begin including information from Callcredit's real-time data-sharing initiative once it goes live as part of the comprehensive suite of data we already use in every loan decision."

Callcredit’s managing director Peter Mansfield said: "The lending landscape has changed considerably over recent years.There is a growing consensus that the availability of more frequent data-sharing is required to ensure responsible lending in certain sectors."

The whole payday lending industry is being investigated by the Competition Commission following concerns raised that some lenders appear to have been basing their business models around borrowers who cannot afford to pay back their loans on time.

Adrian Bailey, chairman of the BIS Committee, welcomed the initiative and said payday lenders should be required to sign up to it. "This is a welcome move from the industry and goes some way to meeting my committee's call for action in this area,” he said.

"The real-time sharing of data is essential if people are to be prevented from taking out multiple loans from multiple payday loan providers. However, it will not work unless all payday lenders are required to sign up to the initiative and use it responsibly."

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