New law to make risk check mandatory for credit seekers

The National Assembly yesterday passed an amendment that will make it mandatory for institutions, like banks and major stores offering credit lines, to submit their customers’ credit information for a licensed credit bureau to evaluate whether they might constitute risky business.

The government’s Credit Reporting (Amendment) Bill 2015 was passed without objection by the opposition PPP/C, although its members did make clear that “the ordinary man” should be educated on the bill’s purpose and the financial liability bearings on them.

Once enacted, the new law would see “credit information providers,” such as banks, car dealerships, credit unions and credit line stores like Courts, having to share credit information on all credit customers with a credit bureau. These institutions would also now be required, once it has gotten a consumer’s consent, to seek a credit report about him/her before granting credit facilities or renewing credit facilities to them in order to carry out an evaluation on credit risk. As a result, if consumers refuse to consent to their information being shared, they risk not being able to obtain credit lines they seek.

A credit bureau is an organisation that collects credit information from lenders and information from other sources on a consumer, processes that information and uses it to create comprehensive credit reports and other value added services.

Guyana’s first credit reporting bureau, Creditinfo Guyana, was launched in 2013. At the time it was stated that the idea behind the bureau was having it serve as an information sharing mechanism so that lenders would be able to assess how much of a risk it is to lend to a particular person. The assessment would then determine interest rates and other costs connected to the financing.

The bill, which was piloted by Finance Minister Winston Jordan, was tabled based on the experience of Creditinfo as well as best practices developed in other countries. The amendments to be enacted are expected to create “an improved credit reporting framework,” according to the bill’s explanatory memorandum.

Jordan said the amendments were needed as Guyana had “tried a thing” by implementing the system where the sharing of information was not mandatory and it failed.

“A careful analysis of the reasons for failure, with developments since this Act, has been put in place, along with these amendments… we tried a thing to be quite honest…we went voluntary—that the credit institutions would report to the bureau and the customers would agree, voluntarily, that the information be uploaded—but it hasn’t worked, it hasn’t worked,” he said.

“This bill will mandate credit information providers, like the banks and so on, they must upload the credit information to the credit bureau. On the other hand, they will require that consent be given in writing. So, you go to Courts for credit on a refrigerator. They will provide you with a slip you have to sign. You don’t have to sign it but they don’t have to give you credit either,” he said.

Cost

“I want to make clear that we support any legislation that will see a proper functioning credit bureau in Guyana and we recognise the purpose of a credit bureau is to improve the quality of credit in a country and to make our financial system more resilient,” Opposition Leader Bharrat Jagdeo told the National Assembly yesterday during the debate on the bill.

“But we have to pay careful attention to ensure the cost of providing this service is properly priced and is not onerous on people… we need to get greater clarity here,” he added.

Addressing the cost of the new mandatory transactions, Jordan said that a cost factor would always be present once there is a transitioning to a modern system. “Look, some cost would be involved… that’s the cost of modernising,” he said, while he pointed out that negotiations will have to be done to determine if the cost will be shared or will be carried wholly by the consumer.

Former Minister of Commerce and Industry, Irfaan Ali said that in the developed world systems mandatory reports to a credit bureau would work more efficiently, given the financial infrastructure in place to facilitate it.

However, he said there will be many hurdles to cross in Guyana as the income earning and jobs are myriad in nature and unique to this society.

“To achieve the objectives set out by the honourable minister, we must ensure that the infrastructure that is needed to make good the recommendation is in place and is functioning effectively,” he said

“In a developing country like ours, we have to find the balance… the minister made reference to different income generators of different persons that is not captured in any database, any pay slip; it is a large component of the informal sector. For example, the bus conductor, the driver, a person who is receiving remittance, those are all income that is used in assessing the ability of the customer to repay a loan. Capturing that information and presenting that information presents a great difficulty for work,” he added.

Ali said that with several problems between consumers and utility companies, such as estimated bills and wrongful disconnections, among many others, the amendments have to constantly be revised to cater for issues not cited.

Minister of Business Dominic Gaskin said the bill will work and will place Guyana in good standing on the world index.

The Credit Reporting Act 2010 identifies “credit information providers” as a bank licensed under the Financial Institutions Act 1995; a company other than a bank licensed to conduct financial business under the Financial Institutions Act 1995; and any other entity the Bank of Guyana may designate as a credit information provider by notice published in the Gazette and two daily newspapers of general circulation in Guyana.

The bill will amend the Act by inserting a new subsection under Section 11, which stipulates that “credit information providers” shall submit a request of a credit bureau “for a credit report about a consumer before granting credit facilities or renewing credit facilities to a consumer in order to carry out an evaluation on credit risk.”

It also inserts a new subsection in Section 12 of the Act which states that the credit information providers “shall share credit information on all persons to whom they extend credit facilities in their portfolio to a credit bureau.”

The bill, once enacted would also enable a credit bureau to collect data or information from public sources and for these public sources shall share the same to a credit bureau. Public sources include data available to the general public, court judgments, immovable property registers, company registries, and, with the enactment of the bill, utility companies.

Further, an amendment to Section 13 of the Principal Act, once enacted, will no longer prevent a credit information provider from not sharing data with a credit bureau without the consumer’s prior consent.

An amendment to Section 13(2), once enacted, would preclude a credit information provider from requesting information on a consumer without the consumer’s prior written consent.

Also, an amendment to Section 13(4) of the Principal Act would no longer make the consent of the consumer a prerequisite for a credit information provider to share personal information about a consumer with a credit bureau.

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