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Open Banking risks treating some mortgage borrowers unfairly, warns ratings agency

  • 17/05/2021
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Open Banking risks treating some mortgage borrowers unfairly, warns ratings agency
Mortgage borrowers may be disadvantaged by Open Banking depending on the credit rating product they use, DBRS Morningstar has cautioned.


The credit rating agency said it had become aware of a new product which promised to improve scores by linking a person’s account to subscription services such as Netflix and Amazon or taking council tax payments into account. 

The agency found the free-to-use service claims it will never lower a person’s rating and just requires permission for bank account data to be shared. 

DBRS Morningstar suggested that offering an enhanced credit score which is immune to falling would make those who sign up to the service eligible for products they would not otherwise qualify for. 

As one aspect of Open Banking is to treat customers fairly by levelling the playing field, DBRS Morningstar said this could put borrowers who do not sign up to certain services at a disadvantage. 

If lenders examine the borrower’s artificially enhanced score and find they have typical signs of being a credit risk, such as missed payments or going into their overdraft, the agency said this could lead to the borrower who does not use the service being treated as a greater credit risk.  

This will be because the potentially cleaner borrower will still have a lower score than the person whose credit is unable to be negatively impacted, according to the service’s promise. 

DBRS Morningstar said the product could affect lenders and said they should be cautious when using credit scores through Open Banking to ensure all borrowers are treated equally and fairly. 

The agency’s report, ‘Open Banking may improve credit scoring, but risks treating borrowers unequally’, said: “This could arguably be viewed as no longer providing a level playing field and brings into question the reliability of the credit score. 

“DBRS Morningstar believes that in terms of securitisation the potentially enhanced credit scores should be a neutral issue. Performance of the asset, the loan, is more important than the individual credit scores of the borrowers.” 

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