Law on sharing credit history set for review, banks to face penalties

The law governing credit reference bureaux will be reviewed following increased complaints from the public.

This was disclosed by Finance minister Njeru Githae as reports indicated that there were mounting court cases initiated by individuals against banks for being wrongly blacklisted, hence hurting their effort to access credit.

Banking (Credit Reference Bureau) regulations 2008 came into force in February 2009, thereby enabling bureaux to collect, manage and share customer information with lenders in order to weed out serial defaulters from the credit market.

Last Tuesday, Mr Githae said the increase in the number of complaints indicates that there was something wrong with the system and called for its review.

“The credit reference bureaux have done relatively well in the short period but should be improved to protect the public,” said the minister, adding that his ministry was working with the Central Bank of Kenya to review the law.

Part of the review will also cover parameters for assessing the credit worthiness of individuals by expanding the list to include utility bills like electricity, water and land rates.

The minister said banks that give faulty information leading to blacklisting of individuals will face penalties.

“There will be penalties for banks that provide faulty information leading to individuals being denied credit,” he said.

Mr Sam Omukoko of Metropol Credit Reference Bureau Ltd said the greatest challenge was lack of awareness by the public on the law governing credit information sharing.

“The law says once you fail to pay three instalments, you are blacklisted and the name is retained there for seven years. This does not mean the person cannot access loans but indicates that the person once failed to pay on time,” he said.

He said some customers initiate dialogue with banks after they fail to pay and mistakenly believe that the bank would not have them blacklisted.

Alert lenders

According to experts, blacklisting is expected to alert potential lenders that a customer has a higher risk borrowing profile.

The law will also be changed to reduce the three years which the names are expected to stay on the list of bad debtors.

The credit reference bureaux and the banks will also be required to inform the individuals whose names have been blacklisted for failure to pay debts within a reasonable time.

An advantage of credit history is that it provides input in credit underwriting, and enables an individual to carry the history from one financial institution to the other, hence reducing risks and possible fraud for the banks.

“We have approached some of the utility companies but have advised that we tread carefully on using their data since it might not give a clear picture about their customers. They say the information needs to be scrutinised since delays in payment could have arisen out of other factors rather than defaulting,” said Mr Omukoko.

The current law does not provide the individuals blacklisted a chance to be informed or to contest and are often shocked to find they cannot access loans, sometimes due to failure by the banks to pass timely information to the credit bureaux.