RBI Governor says CIBIL to provide one free credit report a year — fate of many other pro-consumer r
Moneylife Foundation’s recommendation that at least one free credit information report should be provided free of cost to borrowers seems to have been accepted by the Reserve Bank of India (RBI). Recently, RBI Governor Dr Raghuram Rajan said, "By the end of the year, the CIBIL (Credit Information Bureau of India) will start providing individuals with one free credit report a year, so that they can check their credit rating and petition if they see possible discrepancies.” This was probably the easiest of our recommendations to implement and we are happy that the RBI has accepted it.
This is just one among many recommendations made by Moneylife Foundation in a memorandum submitted to the RBI on ‘Credit Information Issues faced by Retail Borrowers. The report, based on an online consumer survey and extensive discussions with all stakeholders was submitted to the RBI on 16 May 2016. Within two days, we received a response from the governor’s office indicating that Dr Rajan has gone through the letter and have forwarded it to the concerned department to examine the issue.
Our memorandum said…
“One free report a year: In line with low technology cost, make it mandatory for all CICs to offer at least one credit report free of charge to all of its individual customers every year, on demand as is done in all developed countries. Further, Credit Report should be made available to the borrower in the easiest possible manner, keeping in mind that not all borrowers are net-savvy; it should be in simple language that is shorn of jargon and easy to understand.”
Readers would know that credit information reports are used by banks and financial institutions to decide whether to approve individual loans. A person who needs this report has to pay a charge to the credit bureau currently, if he wishes to avail of a credit report. Interestingly, there are four credit bureaus licensed by the RBI. They are CIBIL, Experian India, CRIF High Mark and Equifax. The governor’s statement does not indicate whether the other bureaus will be currently exempted and only, CIBIL (Credit Information Bureau of India Ltd), which has a head start of over a decade over the other bureaus, would be sending the free report.
Incidentally, while the free credit information report (CIR) is a good first move, most borrowers are unable to understand the jargon mentioned in the report and their implication and need guidance. Since the RBI seems to have accepted one of our recommendations, it is important to restate the some of the key recommendations we have made in our memorandum
1) Clarify the seven-year rule: Defaults and settlements should remain on CIRs for a 'maximum' of seven years, rather than 'minimum' of seven years.
2) Enforce 'Obligation to Inform' Rule: A lender who submits or plans to submit negative credit information to the Credit Information Companies (CICs) should be required to inform the borrower about the same under the Obligation to Disclose rule. This, along with awareness about the consequences of being listed a defaulter may help recovery and is in the interest of lenders.
3) 'Introduce Lenders' Liability: Introduce the concept of lenders liability for errors omissions in reporting credit data to CICs.
4) Dispute Resolution: We need a process for easy dispute resolution so that borrowers are not reported as defaulters for contesting interest rate or other changes, which they think as arbitrary, and provide for expeditious resolution under the Banking Ombudsman Scheme, 2006 (BOS). The Aditya Puri Committee, set up by the RBI, has recommended that disputes against the CIC should be brought under the BOS. This too should be implemented.
5) Escalated System for Rectifying Errors: The process for rectifying mistakes in credit information reports has to be simplified. These mistakes occur due in automated de-duplication efforts or matching profiles as well as wrong reporting and mistakes by lenders. The onus for correcting mistakes is with banks, which are usually lethargic about helping those who are no longer their customers. The rectification process must offer borrowers a path of escalation to appropriate authorities, if banks are unwilling to act.
6) One free report a year: In line with low technology cost, make it mandatory for all CICs to offer at least one credit report free of charge to all of its individual customers every year, on demand as is done in all developed countries. Further, Credit Report should be made available to the borrower in the easiest possible manner, keeping in mind that not all borrowers are net-savvy; it should be in simple language that is shorn of jargon and easy to understand.
7) Awareness Campaign: Have a nationwide campaign to enhance financial literacy with regard to the credit reports and credit scores.
8) Obligation to Inform the Borrower: Mandate that every commercial bank, regional rural banks (RRBs), local area banks and financial institutions, including housing finance companies (HFCs) and state financial corporations (SFCs) should inform each borrower about the consequences of late payments or non-payments on their credit history as well as the implications of a 'settlement' on their credit reports in a clear and unequivocal manner.
The Memorandum submitted by Moneylife Foundation can be accessed at the following link: http://foundation.moneylife.in/memorandums/