Banks list holders of inactive credit cards, dormant accounts as defaulters

Thousands of consumers who did not formally close previously held bank accounts have been included in the list of bad borrowers, adding a new twist to commercial banks’ use of credit reference in the lending market.

The lenders said the consumers were being penalised for maintaining negative bank balances that added up to loan defaults, qualifying them as bad borrowers in the credit market.

Profile borrowers

Also included in the list of bad borrowers are bank customers who have applied for credit cards but have not activated them — making it impossible for the banks to recover the initial cost.

Kenya launched the credit referencing system last year to profile borrowers based on their loan servicing history as well as their dealings with utility companies such as water and electricity distributors.

Some commercial banks acknowledged encountering similar problems when evaluating their clients for loans and advised them to clear with the banks that shared negative information before continuing with negotiations.

“People have been put there unnecessarily. Some credit officers in the industry think CRB is a correctional measure for all that has gone wrong in the past but that is not the case; it is worse because it denies one access to credit,” said Mr Jacob Ogola, head of credit administration at Commercial Bank of Africa.

Banks have been increasing their reliance on credit reports with most demanding that all loan applications be accompanied by findings of the individual’s or business report.

The latest Central Bank quarterly report indicates that commercial banks had requested 1,060,865 credit referencing reports by end of September.

“The reports are now part of our credit appraisal process and negative listing is considered on a case by case basis,” said Mr Suprio Sengupta, the general-manager at I&M Bank.

“For personal financing, it becomes crucial but on secured loans it is negotiable,” he said.

The credit referencing guidelines for the banking industry indicate that lenders are expected to put more emphasis on each borrower’s character than their ability to repay or even to raise collateral.

The CRB report is deemed to reflect the borrower’s character.

Credit reference bureaus admitted receiving consumer complaints over dormant account-related blacklisting but said commercial banks had submitted the information to the bureaus.

“We are aware of cases where a customer left his or her account dormant and it went into negative balance not necessarily because of failure to service a loan but for overdrawn bank charges,” said Mr Sam Mukoko of Metropol CRB. “This is the group of customers who are being taken by surprise when they apply for a loan.”

Mr Wachira Ndege of CRBAfrica, said such surprises should not occur as commercial banks are expected to inform a person of his/her listing in the bad borrowers’ book within 30 days of registering a person as a defaulter with the credit bureaus.