RBI penalized credit info companies

RBI penalized credit info companies

Subject : Economy

Section: Monetary Policy

Concept :

• The Reserve Bank of India (RBI) recently imposed monetary penalties on four credit bureaus for non-compliance under the Credit Information Companies (Regulation) Act, 2005, and Credit Information Companies Rules, 2006.
• Penalties are slapped for their failure to update credit information of borrowers which leads to big problems for bank customers while applying for banking services like loans and credit cards.

Credit Information Company (CIC)

• Credit Information Company (CIC) is an independent third-party agency that collects financial data of individuals pertaining to their loans, credit cards and other related information and shares with its members, who generally happen to be banks and other financial institutions.
• This data is provided to CICs by their member banks and other financial institutions.
• As per the definition, a Credit Information Company:
• Needs to be a company that was formed and registered under the Companies Act, 1956
• Is granted a Certificate of registration under sub-section (2) of Section 5, of CIC Act, 2005.
• Based on the data of the individuals, a Credit Information Company prepares a Credit Information Report and a Credit Score.
• Credit history of an individual is classified by a CIC into two categories: Negative data and Positive data.
• When an individual applies for a loan/credit with a lender such as a bank or Non-Banking Financial Company etc., the lender contacts their Credit Information Company to get the Credit Score and Credit Information Report of the applicant-borrower.
• All the CICs in India are licensed by the Reserve Bank of India (RBI).
• CIC Act, 2005 clearly prohibits any company from carrying out the business activity of credit information, without having the Certificate of Registration from RBI.
• They are governed by the provisions under Credit Information Companies Regulation Act (CIC Act), 2005 and other RBI regulations and guidelines. This was further followed by Credit Information Companies, Regulations and Rules Act, 2006.
• Currently, there are four CICs — Credit Information Bureau (India) Ltd (CIBIL), Equifax Credit Information Services Pvt Ltd, Experian Credit Information Company of India Pvt Ltd and CRIF High Mark Credit Information Services Pvt Ltd.