Recently I had cause to engage one of my banks in a discussion about a credit arrangement. As the discussion progressed I was somewhat thrown when I was told that in order to proceed with my application I first had to pay J$1800+ for a credit report to be done on me. It was then I realized that centralized credit checks are now a reality in Jamaica. Anyone who has sought a credit facility before knows that the institutions had their internal methods of assessing your credit rating but what is now at play is an official system of centralized credit checks. Credit bureaus are being established and are competing for clientèle from among the banks and companies that extend credit… yes that includes Courts and Singer. I have been reliably informed that persons have already started to feel the pinch as they conveniently or inadvertently omitted some of their liabilities on the car loan application but these were coughed up by the credit check causing their loan to be denied. We now have a situation where debts that were long ignored or ‘forgotten’ will come back to haunt us. Is this all bad news or is there good that will come out of this?
In August 2010, Jamaica’s Parliament passed “The Credit Reporting Act 2010” to “Provide for the sharing of credit information between specified bodies, the licensing of credit bureaus and for connected matters”. The Act is created to “ensure that credit reporting is done through reasonable procedures that meet the needs of commerce for credit information in a manner that is fair and equitable to the consumer”. It will ensure that the Credit Bureaus in regard of the information stored and distributed ensure the following: a) Confidentiality; b) Accuracy; c) Relevance; and d) Proper Utilization.
THE CREDIT bureau provides information that will allow loan institutions (commercial bank, credit union, loan agency) to better assess the credit worthiness of a borrower (you).
The credit bureau will collect and make credit information from lenders and other relevant credit information sources on a borrower’s credit history available to prospective lenders at a price. Basically, a credit report provides the entire borrowing profile of the creditor. The information provided includes, for example; the borrower’s name and Tax Registration Number, any debt the borrower paid off or has outstanding to be paid as well as any recent credit inquiries about the borrower’s credit history.
The lender as well as the credit bureau will use the information to generate credit scores. These scores help lenders to predict the credit worthiness of a borrower, and analyse the likelihood of a default. The establishment of the credit bureau is governed by the Credit Report Act
The Credit Report Act establishes the guidelines which ensure that credit reporting is fair and unbiased in Jamaica and meets the needs of the local business environment for the exchange of creditor information.
According to the Bank of Jamaica (BOJ), the act came into effect on October 1, 2010, and provides the guidelines for the confidentiality, accuracy, relevance, and proper utilisation of credit information.
The report addresses other issues including: the licensing of persons who wish to offer credit reporting services, eligible credit information providers, the nature of credit information, use of credit information, persons who can request a credit report, accessibility by customers to their own credit information, and handing of customers’ complaints.
Why a credit rating bureau?
The credit bureau will give lenders information to better assess the credit worthiness of borrowers. It will allow banks to make loan decisions easier and reduce the waiting time for banks to make a decision on loan offers.
As such, it will make it easier for individuals to access loan facilities offered by banks and other financial institutions. Also, with a good credit score, borrowers can negotiate better interest rates.
The bureau will help to promote good credit discipline in borrowers and encourage a culture of repayment, thereby reducing bad debts and increasing the profitability of banks and other financial institutions that offer loans. Overall, the credit rating bureau will increase the functioning of Jamaica’s financial system.
How does the process work?
The credit rating bureau collects information on a borrower’s income and credit worthiness in relation to transactions, information regarding the loan, advances and other credit information granted to the borrower, and other information on the history of any financial transactions involving the borrower.
This information is pooled and used to form numerical or alphabetic scores (your credit score). The scores can be requested by a credit information provider, the BOJ, and you can request your own information.
By law, you can send a written request to the bureau to receive your free credit information once per year. Additional requests in a given year will have to be paid for.
Who supervises the process?
The Credit Report Act is facilitated by the credit reporting regulations, and was approved by Parliament on January 14, 2011. It outlines aspects of the licencing processes including type of application, application forms, and licencing fee.
Only entities licensed under the act can offer credit bureau services, and only specific credit information providers can source and use credit bureau data and information. Under the act, the BOJ has the authority to supervise the credit rating system, and is responsible for reviewing applications and making recommendations on applications for licences to the Ministry of Finance.
All applications for licence to establish a credit rating bureau in Jamaica are made to the minister of finance, with copies submitted to the BOJ.
Section 8 Subsection 2 of the legislation provides for which types of entities may be credit information providers to a Credit Bureau. They are,
(A) A bank licensed under the Banking Act
(B) A financial institution licensed under the Financial Institutions Act.
(C) A building society licensed under the Building Societies Act.
(D) A society registered under the Co-operative Societies Act.
(E) The Development Bank of Jamaica Limited.
(F) A dealer in securities who is licensed under the Securities Act.
(G) Any person who carries on the business of selling goods under hire purchase, credit sale or conditional
sale agreements, as defined by the Hire Purchase Act.
(H) A person who publishes information on suits and judgments for debt claims.
(I) A credit bureau.
(J) An insurance company registered under the Insurance Act.
(K) The National Housing Trust.
(L) The Students’ Loan Bureau.
(M) An entity exempt from the provisions of the Money lending Act by section 13 of that Act*
(N) Such other body, other than an individual, as the Minister may designate to be a credit information provider by notice published in the Gazette and in at least one daily newspaper in circulation throughout Jamaica.
The passing of the act and the relatively swift setup of bureaus is being hailed with great delight by business interests while some are cowering in fear to know that centralized credit checks are now a reality in Jamaica.