The Credit Reporting (Amendment) Act, having been passed into law in the Guyanese Parliament on January 14, 2015, represents the commencement of major change in the credit environment of Guyana. The previous legislation lacked many enabling features which would allow the process of credit reporting to have the desired effect on lending and the economy.
The amendment was drafted to address inconsistencies based on guidance provided from the market experiences of Creditinfo Guyana in the almost three years since the company came to Guyana at the behest of the government and the World Bank, and takes cognisance of best practices both in the credit reporting industry worldwide and also of those developed by the World Bank/International Finance Corporation.
The World Bank/IFC holds the view that credit reporting systems are vital to strengthening financial infrastructure and access to finance and that countries are intensifying their efforts to create an optimal legal and regulatory environment for these activities.
In the circumstances, the amendments to the Credit Reporting Act No. 9 of 2010 [CRA] were necessary to create a legal framework with which to:
(a) enable a Credit Bureau to operate in the market
(b) ensure that lenders, borrowers and the economy as a whole benefit from efficient credit reporting industry; and
(c) improve Guyana’s rating in the World Bank’s Doing Business Index.
The drafted amendments will ensure that the Guyanese market benefits from the Bureau‘s operations and arrives at a point where the majority of all loan applications are processed within one day; default rates decrease by at least 25%; access to credit increases; ratio rates of private credit to GDP by 7-8 percentage points and interest rates on credit facilities decrease over time
The Credit Reporting [Amendment] Act, therefore, addresses three key issues:
CONSENT
(a) Consent for Data sharing
Under the Credit Reporting Act of 2010, consumers were required to give their consent to lenders before their credit data could be shared with the Credit Bureau. Further, they were required to give this consent at each and every instance where a credit account existed. This gave rise to the following issues:
Situations where a borrower could freely choose to conceal bad credit history from potential lenders simply by refusing to give consent where bad credit history existed, referred to as ‘selective consenting’ – with potentially dangerous consequences for lenders who depend on comprehensive and accurate information with which to inform their decisions on credit.
The requirement for data subjects to visit several institutions simply to ensure that his consent could be recorded since the original law required that borrowers must give consent at every location where credit existed in their name. Realistically, this would have been burdensome.
Under the terms of the Amendment consumers are no longer required to give their consent before their data could be shared with the bureau. This means that all borrowers’ credit information throughout the lending sector will now be available in the database, effectively negating any chance of selective consenting, making a larger portion of data available for review by lenders, and thereby exponentially increasing the utility of credit reporting and risk management for vulnerable lenders.
(b) Consent to access credit reports
The Credit Reporting Act of 2010 gave clearance for lenders to access the credit bureau’s database and view reports on data subjects at will, as long as they had first consented to share their data with the credit bureau.
However, the terms of the amendment now make it mandatory for lenders across the board to first seek permission in writing from individual borrowers before accessing Creditinfo’s database for their credit report, thereby protecting consumers’ right to privacy and confidentiality under the law and also providing a more effective method of monitoring exactly when, and by whom their credit profile is seen. In this way, the new arrangement proves to be vastly superior to the previous dispensation, both in its utility to lenders and its protection to borrowers.
These provisions for consent effectively ensure that the Credit Bureau can drastically improve the scope its database that is available for use by lenders, making the service substantially more efficient and enhancing its utility as a superior risk management mechanism.
Further, in the past, various lenders were able to access the system without first informing borrowers as long as they were formal subscribers with the bureau and had reason for access under the principle of permissible purpose. Now, by requiring consent from data subjects prior to access, borrowers have direct control over who can access their records, and for what reason.
Use of the credit reporting facility for risk management
Previously, lenders were able to choose whether or not they would like to download a credit report for borrowers, and although many lenders did in fact make full use of the system, for various reasons others did not. The net effect of course, was high delinquency and default rates, particularly for these lenders and also the possibility of a corresponding negative effect on the economy became manifest.
The amendment to the act now requires that lenders in the financial sector must acquire a credit report as support for their risk management and decision processes whenever an application for credit is made or when credit facilities are being renewed. This requirement infuses a necessary and critical level of prudence and closer attention to risk factors that are sure to be represented in a more positive outlook throughout the lending sector.The use of credit reports is therefore seen as critical to ensuring more accurate risk assessment as well as identifying potential over-indebtedness issues thereby leading to responsible lending.
Requirement for reliability of credit data
This element of the Act is critical to maintaining accuracy of consumers’ information while instilling confidence in the credit bureau. Credit Information Providers who are required to upload data to a bureau are also required to ensure data quality and hence are now required to take immediate steps to verify the reliability of their credit data in instances where they are not, and are further provided with a maximum of three months to do so. Failing this, they must then provide a report to the credit bureau or the Bank of Guyana outlining the reason why they are unable to do so and take guidance from the Central Bank on the way forward.
