BY G A D’COSTA

Although the Credit Information Bureau (India) Limited was created to establish a database of individuals’ credit history and reliability, the system is flawed as banks usually don’t send the Bureau updated information.

IN 2005, the Credit Information Companies (Regulation) Act was introduced to establish a database of a person’s credit history and, by implication, that person’s credit reliability. A Credit Information Bureau (India) Limited (CIBIL) was established and members, namely financial institutions, were expected to upload credit information of their clients onto this database. This database was accessible to other member financial institutions so that if a client applied to a financial institution for a loan, that institution could refer to the applicants’ credit history to establish his or her credit worthiness. Based on the available information in the CIBIL database, the application for a loan could be accepted or rejected. The system was designed to identify defaulters and thereby reduce the non-performing asset loads of financial institutions.

In practice, however, this turned out to be a case of trying to run before you could crawl. The first hiccup was that the financial institutions were initially under no obligation to state the reason for refusing an application for a loan. Fortunately, this has been changed by the RBI and now the institution is obliged to state the reason for the refusal. If the reason is a poor credit history as recorded in the CIBIL database, the bank is further obliged to give you a copy of the record on which the refusal was based. This brings us to the next hurdle. CIBIL takes no responsibility for the accuracy of the information in their database. This is the responsibility of the member institutions which are expected to update the records as the loan history evolves. Here lies the root of the problem.

ACCURACY DOUBTFUL

ICICI, for example, followed the practice of updating the records on a quarterly basis. So if the last update was in June, the next one would be due in September; and if you cleared a loan on July 1 and applied for another loan on July 15, that was too bad because the CIBIL record would still show an outstanding loan, as the next ICICI update would be due in only in September; so tough luck.

To err is human and credit card companies like ICICI and SBI often make mistakes in their billing. Most of them are reasonable enough to correct the mistake in the future billing and reverse the charges. However, in numerous cases, they neglect to correct the CIBIL record entered at the time of the initial mistake; hence the CIBIL record continues to show an outstanding debt, which was the fault of the company in the first place, and which has been known to continue for more than five years. SBI credit card division, which is reported to have the largest number of complaints against it, goes a nauseating step further.

They have been known to send off unsolicited cards, and then charge the customer for the same. If you protest and threaten litigation, they will readily reverse the charges, particularly in view of recent court rulings in this connection. However the CIBIL records remain neglected, and continue to show a default. The argument used is that this is a settlement by the bank rather than a closure of the debt by paying off all dues. This argument does not hold water in the case of unsolicited cards. Attempts to set things right takes the longest time with SBI credit cards. The apparent reason being that they excel in arrogance rather than customer friendliness. It is almost as if the interests of the customer lack any mention in their training manual. Others like HDFC, it is reported, simply “forget” to update the CIBIL record when the loan has been cleared.

In response to numerous complaints, CNBC TV18 took up the issue on its programme “Beware” and got a public reassurance from the CIBIL management that financial institutions would have to update the CIBIL records within thirty days from the date a loan is closed, or face penal action. Whilst the system was designed to ferret out defaulters, it has now been recognised that as a result of institutional apathy, innocent customers have been wrongly and unfairly branded as defaulters. These individuals have rights and concerns that have to be addressed and taken cognisance of by the financial institutions.

WHAT TO DO

SO what should one do if one is planning to apply for a loan? To save yourself a lot of hassle, you should apply to CIBIL for a copy of your records before you apply for the loan. You can do so online (go to http://cibil.com/accesscredit.htm) or by writing directly to Credit Information Bureau (India) Limited, P O Box 17, Millennium Business Park, Navi Mumbai 400701. You will be asked to furnish personal details like PAN number, proof of address, date of birth etc on a consumer disclosure form and submit a Credit Information Report Request Form. There is a fee of Rs.142. If you have already applied for a loan and have been turned down, ask for the reason; you are entitled to an explanation. If the problem is a bad CIBIL report, ask for a copy of the report if you feel the report is wrong. If there is an error in the report, contact the offending financial institution, and ask for a correction; they are legally obliged to update the correction within the stipulated time. If you are unable to identify the transaction or the source of the error, contact CIBIL (at info@cibil.com) giving the enquiry control number. This is a nine digit number on your credit information report. Once the error is rectified, you can obtain a fresh CIBIL record and continue to process your loan application.

Whilst the system of a credit record database is a sound proposition, the financial institutions like SBI credit cards must be made to recognise the rights and concerns of their customers, and act more responsibly than they have done in the past.

The writer is president, Voluntary Health Association - Goa.