India’s consumer credit bureaus pushed back on the recommendation of the Reserve Bank of India (RBI) to provide free credit reports to data subjects (See BIIA post of today) indicating that the industry infrastructure was not yet in place.  Consumer education was also stated as a critical element in this undertaking.

Mohan Jayaraman, managing director, Experian Credit Information Co. of India Pvt. Ltd is quoted in an article by livemint & Wall Street Journal, that the recommendation, to give a free copy of a base level credit information report (CIR) to all customers (data subjects), was wrongly interpreted.  “If you look at the language of the report, you will find it is a forward looking statement and not a current recommendation,” said Jayaraman.  The report said: “The committee recommends that in view of cost considerations and the fact that CICs in India are still in their early years of existence in a long gestation business, the Reserve Bank of India may consider implementing the above suggestions in due course.”

Arun Thukral, chief executive officer, Credit Information Bureau (India) Ltd (Cibil) was quoted in the same article that the committee will meet more often to revisit the recommendations, but could not give a timeline when the recommendation may be implemented.  “We need infrastructure to be ready to give free reports to millions. This cannot happen overnight.   In most developed markets where there are free credit reports, a subscription model is followed and subscribers are alerted if there is a change in their credit profile or if there is an enquiry pertaining to their profile. “Customer education is required along with customer awareness. People may not know what to do with the free copy of the credit report.”

In view of the fact that providing free credit reports is a standard practice by Experian, Equifax and TransUnion, currently shareholders and technology partners of the Indian credit bureaus, it is surprising that the initiative did not come from the industry, but from the regulator.   Since all the technology partners provide free credit reports elsewhere the industry should have preempted the regulator.

The recommendation of the Reserve Bank of India may have originated from a World Bank document called:  ‘The General Principles for Credit Reporting’ which was published in late 2011.  The document was developed by a World Bank taskforce in which central banks, including the RBI, the Bank for International Settlement, the IFC (World Bank Group) and industry associations such as BIIA, ACCIS, CDIA and ALACRED had participated.   One of the general principles covers the rights of the consumer (data subject):   “Rules regarding the protection of data subjects/ consumers should be clearly defined.   At the minimum these rules should include: (i) the right to object to their information being collected for certain purposes and/or used for certain purposes, (ii) the right to be informed on the conditions of collection, processing and distribution of data held about them, (iii) the right to access data held about them periodically at little or no cost, and (iv) the right to challenge accuracy of information about them.”

In addition to the above the RBI committee has also suggested that each bureau report credit scores are in the range of 300-900 as is the standard practice in Cibil.  At present, various bureaus use different scales to report credit scores. “We are ready to adopt the standard as soon as it is notified,” commented Jayaraman in the article published by livemint .  However, to keep competition alive, the committee did not think it was necessary to standardize the format in which CICs provide CIRs.

In this context it should be noted that Experian, Equifax and TransUnion had created a uniform credit score in the USA called: VantageScore.  The score uses data from all three US credit bureaus, therefore why not introduce the concept in India?  This would improve the quality of the score since not every credit bureau has the same level of data.   In an attempt to bring parity among credit bureaus it was recommended that all lenders should provide data to all credit bureaus.  At present, not all lenders provide data to credit bureaus.

Background:  On 22 March, the Reserve Bank of India (RBI) released the Report of the Committee to recommend Data Format for Furnishing of Credit Information to Credit Information Companies. This is open for public comments till 30 April.

Source: livemint & The Wall Street Journal and BIIA commentary