As you are perhaps aware, every bank or credit card company would be sending out data on your credit records to the Credit Information Bureau, which in turn would give you credit scores to help lenders make informed decisions.
But what if there are mistakes in these reports that could hurt consumers so that they are unfairly denied a loan or credit card? We badly need safeguards.
The Credit Information Companies (Regulation) Act does provide some.
For example, under the Act, a consumer applying for credit can ask the lender for a copy of the credit report obtained by it. Credit institutions are obliged under Rule 20 of the law’s regulations to send accurate information to the Bureau and notify the bureau within three days if there is an error discovered and act fast to correct it. Rule 10 mandates that a consumer denied credit must be sent within 30 days a copy of the report on the basis of which a loan is rejected. The law also provides for penalties to punish violators.
But consumers cannot ask for the report on their own – and there is an urgent need for that to ensure transparent dealings. Already there are complaints of errors. Sadly, a consumer gets to know of mistakes only when he or she is denied credit.
We are not alone. In the US some years ago, it was found that 25 per cent of credit reports surveyed in 30 states contained serious errors. These included false delinquencies or accounts that did not belong to the consumer. As much as 30 per cent of the reports contained credit accounts that had been closed by the consumer, while 22 per cent listed the same loan twice!
The US has since enacted the Fair Credit Reporting law. Enforced by the Federal Trade Commission, it requires the three nationwide credit information companies to provide consumers with a free copy of their credit report at their request once every 12 months.
Indian consumers need a similar right to access credit reports. Lending institutions must have an effective mechanism to deal quickly with complaints. The Reserve Bank also needs to have an exclusive cell to deal with complaints against erring banks who refuse to take corrective action.
(Pushpa Girimaji is the Senior journalist, consumer affairs specialist)