I recently read newspaper reports about how Sudipto Sen of Saradha fame continues to enjoy a high credit score of 777 in his CIBIL report and how, based on that, he is eligible for loans at an excellent interest rate.
I am not writing about the Saradha case, where millions of depositors have lost their hard-earned money. Apart from displaying a misunderstanding about the role a credit report plays in a credit sanction process, these newspaper reports are disturbing for a specific reason. In many ways, these show just what is wrong with our system.
The ease with which newspapers can access the credit report of an individual is scary. All credit information companies or CICs (for simplicity, I am going to use CIBIL as a generic name for all the four licensed CICs, though CIBIL is an acronym for the largest CIC) have been formed under an Act of Parliament and the rules framed by the Reserve Bank of India (RBI) thereunder.
In simple language, your credit report cannot be accessed by anyone other than your existing lender or a prospective lender to whom you have applied for a credit facility. All such users are required to use the report for their own purposes and maintain confidentiality about these reports.
Clearly, Sen's case shows the institutions concerned are not maintaining this confidentiality. In fact, it is common knowledge that it is possible to get the credit history of any individual easily, if you just know the right people in any bank. I have spoken to my banker friends and there seem no internal systems to ensure that credit reports are called for only in an application made for credit by an individual.
There are no systems to restrict availability of the report within the bank to ensure confidentiality of the report, once obtained. Nor is any periodic internal audit done to check whether all reports were validly requested. Whilst nobody may have much sympathy for Sen's rights, the trend of easy access to anybody's confidential financial information can be very dangerous for all of us. Let me explain why.
I don't know about you but my credit report being read by someone not entitled to read it makes me feel violated. It is akin to the violation of privacy felt by the victims of a burglary.
Apart from the violation of privacy, just like burglary there can be serious financial consequences, too. Think about the possibilities of enormous damage caused to you due to this information being available to your business competitors or even your business associates or your prospective employer or your prospective in laws or your divorced spouse…the list goes on. This is not all. An even bigger issue is wrong reporting. We all know that wrong reporting of alleged overdue amounts to CIBIL is rife.
Though all lenders are required by law to maintain standards for correct reporting, there is no penalty prescribed for wrong reporting.
CIBIL washes its hands off the entire affair by saying they are only a repository of what the banks report, though the law requires them to mark as disputed any incorrect entry pointed out by the consumer and on which the lender does not revert within a fixed period. There have also been instances where incorrect entries have been tagged to a specific individual, due to the absence of any common identifier or system issues at the CIBIL end.
There is no second-level grievance redressal machinery even within CIBIL to address these issues, what to speak of independent grievance redressal machinery like the banking ombudsman. So, the danger of your credit report falling into the wrong hands is amplified by the chances of it being wrong as well.
Imagine being denied the dream job because your credit report, wrongfully accessed by your prospective employer, incorrectly tagged you as a defaulter. Anybody who deals with smart corporate types will tell you none of the scenarios painted by me are as farfetched as they superficially sound.
CIBIL has played a yeoman's role in bringing consumer awareness about maintaining credit discipline. As consumers, the benefit is reflected in overall lower borrowing costs as banks factor in a lower default rate in their spread calculations.
But, clearly, the dangers of 'Big Brother' are far too real and the Reserve Bank of India needs to lay down a regulatory framework that builds on this early success to ensure end-consumers don't get short changed.
The writer is CEO, Apnapaisa
