CIBIL - Is It Anti-Consumer ?

Just participated on a hour long TV show on a popular Hindi business channel devoted entirely to CIBIL. The panel of experts included a retired PSU bank chief and a well known politician cum consumer activist from Mumbai. The anchor and the political panelist panned CIBIL for accepting any data that the banks/NBFCs provided to them (CIBIL) and branding consumers as defaulters on the basis of such wrong data.

Suggestions were made on how CIBIL should seek confirmation from the customer before accepting any such data from the lenders. The retired PSU head also correctly suggested that CIBIL is only a reporting institution and that lenders can ignore the CIBIL report if they are satisfied with the consumers explanation of any default reported by CIBIL. What he perhaps missed is that in retail lending the consumer does not get a chance to explain his side of the story.

I was almost ignored when i tried to get in a word that CIBIL keeps records of all your payments to lenders – whether on time or not –  as reported by lenders . I also pointed out that this ensures that for 90% of the consumers their good repayment track record (now provided by an independent reporting agency like CIBIL) ensures that they get fresh loans at a good rate and speed. This is how Credit bureaus work anywhere else in the world.

Off course the banks there are under a legal obligation (Fair Credit Reporting Act in the US) to report correct and accurate information. Obviously in a country where courts can award millions in punitive damages the banks do carry out their obligations seriously.

The only role that a credit bureau plays is in making the credit reports available to the consumers themselves and allowing them to raise a dispute on any item. The disputed entries are referred to the concerned lender and the entry is deleted if the lender does not respond within a fixed time frame.

Similar provisions exist in Indian laws governing Credit Information companies such as CIBIL though such laws have just come in effect and will take time before they are implanted on the ground.

Even on we receive about 10-20 queries daily purely on CIBIL related matters. The blogosphere is also full of how this new animal called CIBIL is affecting their financial lives without giving them a chance to provide their side of the story.

Thus CIBIL is fast acquiring a perception of a BIG brother hand in glove with the banks that is out to make the helpless consumer pay up monies that are not due from him.
Clearly therefore there is very little understanding of the role that a credit information company like CIBIL plays in the market. So what has led to this wrong perception in the market.

First off course is the operational inefficiency of the banks. Bank’s machinery to deal with consumer grievances is only now acquiring some shape and form under the threat of the banking ombudsman. This leads to many disputes in loan/ credit cards and in quite a few cases the consumer is clearly right. Thus when the data provided by the banks itself is suspect any reporter of such data also comes in the circle of suspicion automatically. This has more to do with the banks then CIBIL itself.

However the perception gets magnified when CIBIL does not take active steps to dispel the wrong perception. CIBIL identifies only the lenders as it’s clients (after all they pay the bills) and perhaps see the obligation to supply the consumers own credit report to him as a  drain on its profitability.

The fact that this report would have to be supplied has been known for the last 30 months and yet they did not put into place any mechanism to deal with it as soon as the license was issued. Even now (almost 2 months + after the license has been issued) CIBIL is yet to officially give a date by which this facility will finally be available to consumers. Neither is there any word on the interim measures to provide credit reports to at least those consumers who are immediately  affected by any alleged wrong reporting by the banks.

CIBIL (and the other 3 credit information companies that have also been provided a license) will need to factor in the consumers as a significant stakeholder in the whole credit reporting process if they have to change the perception about themselves as only collection aides for the bankers.

Clearly a robust credit reporting structure benefits the consumers immensely but a consumer education drive is needed so that it does not acquire a bad name.

Any views or comments are welcome.

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