CREDIT INFORMATION COMPANIES

A credit score is a numerical expression based on a level analysis of a person's credit files, to
represent the creditworthiness of an individual. A credit score is primarily based on a credit
report information typically sourced from credit bureaus. Lenders, such as banks and credit card
companies, use credit scores to evaluate the potential risk posed by lending money to consumers
and to mitigate losses due to bad debt. Lenders use credit scores to determine who qualifies for a
loan, at what interest rate, and what credit limits.

Lenders also use credit scores to determine which customers are likely to bring in the most
revenue. The use of credit or identity scoring prior to authorizing access or granting credit is an
implementation of a trusted system. Credit scoring is not limited to banks. Other organizations,
such as mobile phone companies, insurance companies, landlords, and government departments
employ the same techniques. Digital finance companies such as online lenders also use
alternative data sources to calculate the creditworthiness of borrowers. Credit scoring also has
much overlap with data mining, which uses many similar techniques. These techniques combine
thousands of factors but are similar or identical.

POSITION IN FOREIGN COUNTRIES

RBI in its Report of the Committee to Recommend Data Format has enlisted the best credit
practices of various countries.1

AUSTRALIA

In Australia Veda Advantage, Experian, Tasmanian Collection Service and Dun and Bradstreet
are the four prominent credit reporting agencies. The Australian Information Commissioner Act
2010 provides for the appointment of a Commissioner known as the Australian Information
Commissioner whose Office regulates all the Australian credit bureau business. The citizens of
Australia can contact any of the credit reporting agencies and obtain a credit report by providing
the agencies required information. Usually it can be acquired free of cost but in case if there is an
urgent requirement of the report then there may be a charge involved.

1
"Reserve Bank of India - Press Releases". 2018. Rbi.Org.In. Accessed February 19 2018. p.21-
35https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=30855.
CANADA

TransUnion Canada and Equifax Canada are the national credit reporting agencies of Canada.
Fair Trading Act,Business Practices and Consumer Protection Act, Personal Investigations Act,
Consumer Reporting and Personal Information Protection and Electronic Documents Act are the
key laws which are applicable to the credit bureau errors.The citizens by submitting two pieces
of identification can request for the credit report. For an immediate report an online request can
be placed for a charge which is around 50 Canadian dollars.

RUSSIAN FEDERATION

Sberbank-Experian-Interfax and the TransUnion CRIF Decision Solution are the two main credit
bureaus in the Russian Federation.Federal Law on Credit Histories (2004) governs the credit
bureaus there.

SOUTH AFRICA

Compuscan, XDS, TransUnion and Experian are the main credit bureaus in South
Africa.National Credit Act regulate the credit bureaus in South Africa and they are to be
registered with the National Credit Regulator. One free credit report in a year is provided by the
Act there but free access is provided by some bureausfor up to 3 months. By providing required
information i.e. contact and personal details these reports can be accessed.

SRI LANKA

By setting up the Credit Information Bureau of Sri Lanka in 1990, Sri Lank became the first
South Asian country following a banking crisis, to set a credit bureau. The main business of
CRIB is to issue iReports which are the credit information reports. It has a “Credit Information
Management System” (CRIMS) through which it provides its services. Any individual or
company can get the respective self iReport under the Sri Lankan Law by furnishing the required
information.

UNITED KINGDOM
In United Kingdom Experian, Equifax and Call credit are thethree main consumer credit
reference agencies. A letter including the required details has to be sent to any of the three
agencies and the customers can get their credit reference file copies for a £2.

UNITED STATES OF AMERICA

TransUnion, Experian and Equifax are the nationwide credit reporting companies in USA. The
credit reporting companies there are governed by the Fair Credit Reporting Act. This Act
requires the above mentioned companies, on request, provide a free credit report copy to their
customers. FCRA is enforcedwith respect to credit reporting companiesby the nation’s consumer
protection agency and the Federal Trade Commission.

The credit information companies in India are under three legislations. The Credit Information
Companies (Regulation) Act, 2005, Credit Information Companies Rules, 2006, Credit
Information Companies Regulations, 2006

THE CREDIT INFORMATION COMPANIES (REGULATION) ACT

Banks and other financial institutions which are enlisted under section 2(f) of the Credit
Information Companies (Regulation) Act, 2005 can become the members of a credit information
company. These institutions are called as credit institutions. It is the job of the credit insurance
companies to collect and provide data and credit score of the borrowers of such credit
institutions.

The Credit Information Companies (Regulation) Act, 2005 aims at regulation of the CICs and to
facilitate distribution of credit information and other related matters.2It defines what credit
information specifically is.3 It gives the list of banks and institutions that are included as credit
institutions.

It gives provisions for registration of credit information companies. No company can involve in
the business of credit information without obtaining the certificate of registration from RBI. 4The
Act provides for the management of credit information companies and the role of RBI to

2
Preamble of the Act
3
S.2(d), the Credit Information Companies (Regulation) Act, 2005.
4
S.3, the Credit Information Companies (Regulation) Act, 2005.
determine policy and to give directions.5 It gives RBI the right to inspect credit information
companies, credit institutions and specified users.6 The Act mandates the credit institutions to be
a member of credit information companies. 7 The Act also gives provisions related to the
principles of information privacy and furnishing of credit information8 which will be discussed
further in the paper. And then the chapter VII of the Act talks about the Offences and Penalties. 9
The act has faced quite a bit of criticism.
The four Credit Information Companies in India are
1. The Credit Information Bureau Ltd. (CIBIL)
2. Equifax
3. Experian
4. High Mark Credit Information Services

These are the Credit Information Companies established as per the provisions of the Credit
Information Companies (Regulation) Act, 2005. They involve in data collection related to the
borrower and there is always a chance that such process involves risk of putting the privacy of
the borrowers at risk. So, the CICRA has provisions which have principles that aim at protection
of privacy. In addition to the Act the Reserve Bank of India has made certain regulations by the
power conferred to it under Section 37(2) of CICRA. These regulations enforce additional
measures in the form of principles in their provisions for protection of privacy. All these
principles given in both the Act and the Regulations of the RBI specify the role of credit
information companies, credit institutions and specified users in handling and managing the data
with care. Chapter VI of the Act provides for the information privacy principles and provisions
for furnishing of the credit information.

The Act makes it mandatory on the part of the credit information companies, credit institutions
and specified users which handle the possession and control of the credit information to take
necessary steps and safeguards for maintaining the accuracy and protection and completeness of
such information.10 The information must be protected duly, against unauthorised disclosure and

5
S.9, 10, 11, the Credit Information Companies (Regulation) Act, 2005.
6
S.14, the Credit Information Companies (Regulation) Act, 2005.
7
S.15, the Credit Information Companies (Regulation) Act, 2005.
8
S.19, the Credit Information Companies (Regulation) Act, 2005.
9
Chapter VII, sec 23 to 26, the Credit Information Companies (Regulation) Act, 2005.
10
S.19, the Credit Information Companies (Regulation) Act, 2005.
access and against any loss.11It lays down certain privacy principles which shall be followed by
all the three (credit information companies, credit institutions and specified users).12And if these
principles are breaches by them then the Act provides for the imposition of fine as well.13The Act
has a separate provision for protection against unauthorised access to credit information.14

CASES RELATED TO CREDIT INFORMATION AND THE RIGHT TI PRIVACY

In the case of K.J.Doraisamy Vs. Assistant General Manager, State Bank of India, Erode and
another15 a term loan of rupees six lakh rupees was borrowed by the petitioner from SBI and he
defaulted the same. The bank issued him a notice and threatened him that his and the surety’s
photograph will be published in the newspaper. The petitioner filed a writ petition in the High
Court of Madras contending that this act of the bank is violative of Article 21 of the constitution.
The court then held that the banks can devise new methods to recover the loan. And since right
to privacy is not a fundamental right the bank’s interest to recover the loan given to the petitioner
supersedes his right to secrecy or privacy. The same was held in the case of Venu Vs. State Bank
of India16
In the case of Kumari Archana v. State Bank of India, Jablpur 17 the High Court of Madhya
Pradesh stated that the borrowers’ photographs can be published by the banks and such action is
not illegal or arbitrary in any way. Unless in publication of photographs, there is a gripping
public interest the bank cannot resort to publication of photographs of defaulters.

In a case18 where the borrower has defaulted and tried to divert the funds and committed several
acts of misfeasance, the Bombay Judicature High Court held that the action of banks to publish
photographs of the defaulters in such circumstances is not legally barred. On Appeal the Apex
Court held that there is no positive or negative suggestion as to publication of photographs in
case of default. But it should be seen that unless and until it is a special circumstance the banks
should not resort to such publication of photographs.

11
S.19, the Credit Information Companies (Regulation) Act, 2005
12
S.20, the Credit Information Companies (Regulation) Act, 2005
13
S.23(2), the Credit Information Companies (Regulation) Act, 2005
14
S.22, the Credit Information Companies (Regulation) Act, 2005
15
K.J.Doraisamy Vs. Assistant General Manager, State Bank of India, Erode and another, (2006) 4 MLJ 1877
16
Venu Vs. State Bank of India, ILR 2013 (3) Kerala 638
17
Kumari Archana v. State Bank of India, Jablpur, AIR 2007 MP 45
18
unreported decision in W.P.2808 of 2013 in D.J. Exim (India) Private Limited and others Vs. State Bank of India
It has to be kept in mind that all these cases were decided before Puttuswamy19 judgment and
right to privacy was not a fundamental right then.

INTRODUCTION

Lending is simply the act of giving money on credit to another person called the borrower. The
borrower repays the money to the lender with interest over a defined time-period. Lending is a
widely understood concept - banks lend to people like you and me for buying homes, cars,
education or even for personal use. Banks and other financial institutions also lend money to
corporates or institutions so that they can undertake projects or build new products.

The lending process begins with bringing a borrower on-board through various sales channels.
The next step is to collect information about the borrower such as his identity, financial history,
income, etc (remember, even big corporates have a financial history) along with document
proofs. This is called Know Your Customer or KYC. Once the lender has collected all required
information, the lender has to make a decision if he would like to give a loan to the customer, the
amount of the loan, interest rate and time period to repay - this is called underwriting. After the
loan is disbursed, the borrower is supposed to make periodic and timely repayments to complete
the loan. If the borrower defaults (does not repay), the lender may have the authority to recover
the loan by taking over the borrower’s assets, but this is not always the case.

Digital lending attempts to perform each step of this process through paperless or electronic
means. For example, banks sell home loans, auto loans, personal loans or credit cards through
digital channels such as email, Facebook, Google, etc. India has recently introduced e-KYC
through which a bank can use an individual’s Aadhaar information to verify his/her identity.
Almost all banks have internet-banking or mobile banking facilities through which a user can
quickly download his financial history and demonstrate his/her ability to repay a loan.

19
WRIT PETITION (CIVIL) NO 494 OF 2012
Traditionally, ability to pay was demonstrated by submitting copies of bank passbooks and
income proofs.

line of credit

A line of credit is a ready source of funds (money) for both personal and business needs. It
allows you to access funds up to the maximum limit and requires a minimum monthly payment
for a specific tenure. A personal credit line works like a revolving account where you can
withdraw money, make monthly payments based on your convenience and spend the money
again in a virtually never-ending cycle. You just need to make sure that you make timely
repayments and do not exceed the approved credit line amount. The best part about a personal
line of credit is its built-in flexibility that allows you to borrow and spend as and when you need
funds, and pay interest only on the amount withdrawn from your revolving line of credit.

Types of Credit Lines

A line of credit can be classified into two broad categories based on the collateral backing –
secured and unsecured.
Secured Line of Credit: In a secured credit line, you get the loan against a collateral that you
place as security. The lender can seize or liquidate your assets if you fail to repay on time.
Unsecured Line of Credit: An unsecured credit line is a revolving credit account for funds
withdrawal which does not require you to place any asset as collateral. For an unsecured line of
credit, interest rates generally vary depending on the bank. They are floating interest rates.
Depending on the purpose for which the line of credit loan is used, it can be classified as a
personal credit line or business credit line.
Personal Line of Credit: Typically used for meeting the expenses of an urgent and immediate
nature or long-drawn expenses, such as a sudden financial need or a family function or even a
big purchase.
Business Line of Credit: Used for funding your business expenses, often of an ongoing nature,
such as working capital requirements, wage payments, purchase of raw materials and inventory,
etc. There are also certain credit lines that serve a very specific purpose, such as the following:
Home Equity Line of Credit (HELOC): A secured credit line backed by the home owned by the
borrower. It is usually available for a set time period, typically this “drawing period” is about 10
years, after which the borrower must make the full payment. HELOC is often used for home
repayments, improvements, emergency fixes, etc.

Eligibility
The eligibility of the for the availing loans through these digital lending applications is different
for individuals and non-individuals. This shows that even no-individual entities can apply for
loans in these applications.

If you are an individual, you must:

 Be a resident of India;
 Be at least 18 (eighteen) years old to agree to these Terms;
 Represent and warrant that you are capable of entering in to these Terms and performing
the obligations set out hereunder.
If you are a non-individual, you must:
 Be duly authorized (by such non-individual entity) to agree to these Terms;
 Represent and warrant that you are capable of entering in to these Terms and performing
the obligations set out hereunder.
 Any use of the Application by ‘bots’ or other automated tools or methods is not permitted
under this Terms.
PROCEDURE FOR APPLYING
The documents that are usually required are the Address Proof, ID Proof, Pan Card Number,
Company Name and Official Email Address. The loan seeker will be required to upload his/her
Aadhaar, PAN and last 6 months bank statement. After approval he/she need to upload the salary
slip and residence proof - any valid government KYC document / rental agreement / postpaid
mobile bill or utility bill. The document needs to be in the individual’s name. Currently Shubh
Loans20 provide personal loans from Rs.25, 000 to Rs.5 lakhs, for tenure of 1 to 4 years. Any
salaried person with at least 6 months of total work experience and salary of Rs.15,000 per
month or above can apply for a personal loan with Shubh Loans. 21 Once the loan is approved the
person will get the amount in his/her salary account. If an EMI payment is made on time he will
have to pay a penalty along with the EMI and the penalty will increase with time. Loans are

20
https://www.shubhloans.com/faq.html
21
https://www.shubhloans.com/faq.html
provided on the basis of the credit score. This includes the current capacity to repay a loan and
the past financial stability. The lending institutions provide loans on the basis of the credit score.
This includes your current capacity to repay a loan and the past financial stability. If a customer
meets the policy of the lending applications we provide a loan irrespective of their CIBIL score.
They usually reject loan applications on the basis of 2 criterias (broadly) – current ability to
repay a loan and past financial stability. The credit score provides insights into how you can
improve your credit worthiness. Some applications will reassess the application after 6 months.

ADVANTAGES OF THE MONEY LENDING DIGITAL APPLICATIONS

These money lending applications provide loan to the individuals for their various needs viz,
Marriage Loan, Travel Loan, Medical Loan, Education Loan, Used Car Loan, Laptop Loan,
Two-Wheeler Loan, Mobile Loan, Home Renovation, Loan Consumer, Durable Loan, Debt
Consolidation Loan etc.

There will be no collateral and no guarantors. Individuals don’t have to sacrifice their savings or
risk THEIR valuable assets. The credit line applications lets them to access money when they
need it the most without any collateral backing. There is Zero percent interest on the unused
limit.

People seeking small instant loans — ₹10,000 to ₹7 lakh — can go to the digital lending
marketplace, where digital lenders bring banks and borrowers together, enable easier access to
loans and through automation put all the documentation required in a digital format. Digital
lenders through use of data analytics help in lending various secured and unsecured loan
products to consumers in a hassle-free way.

Customers can take instant loans for various purposes like medical emergency, travel, home
renovation, wedding, or for buying vehicles and gadgets. With the help of technology, digital
lenders have reduced the time taken up by the lending process—from applying for a loan to its
disbursal—from at least a week to a few minutes.

The digital process takes the paper-based lending process online. The offline process can take
anything from one to two weeks, this comes down to as little as 30 minutes. 22 In the digital

Adhil Shetty, CEO, BankBazaar, https://www.livemint.com/Industry/mHyfNNXEbFR xtF8DqZ8wRP /Benefits-

22

of-taking-instant-loans-through-digital-lenders.html
process, physical paperwork is not required, the customer doesn’t need to provide personal
details such as bank account statements, income details, address and ID proofs. In India, it is
simply done through Aadhaar-based e-kyc, which speeds up the verification process, reduces the
risk of fraud and the loan amount is disbursed directly into the customer’s bank account within
minutes.

But if a customer is new to credit or has a zero credit history then some additional details like
income and savings may be required. The biggest advantage of digital lending is that the process
is quick, easy and (almost) paperless. Customers can get loans at better terms, as they are able to
compare loan offers from multiple lenders at one place, 23 On the digital lending marketplace,
customers can find different loan offers from different banks and NBFCs and can compare the
interest rates. Using technology and Aadhaar and PAN details, digital lenders tap into the
database of customers’ credit and other financial history, which helps them in analysing a
borrower’s creditworthiness. Digital lending also enables lenders to underwrite the risk better as
they have much more data about the customers as compared to a traditional lending system.24

CRITICISM

When an individual registers with the lending company by setting up a user-account with it the
privacy policy is made applicable to him. Many of these privacy policies takes permission from
the individual into having access towards his personal informant like the contacts, applications
he is using, the websites he will visit. For example the website of paysense25

“You understand that the User Information collected by the Company, may be
collected................When you register with the Company by setting up a user-account; Through
your transactions with any of the Paysense Partners; Directly through user input; Through your
usage of the Services; Through automatic tracking of your usage of the website or any
web/mobile application of Paysense or Paysense Partner Through access you provide the
Company with to applications on your smart phone or tablet; Through the use of cookies and
other tracking technologies. PaySense uses analytics tools to improve customer experience such
as Smartsupp.com (s.r.o., VAT ID CZ03668681) to track user activity, page content, click/touch,
23
Gaurav Chopra , IndiaLends CEO, https://www.livemint.com/Industry/mHyfNNXEbFR xtF8DqZ8wRP /Benefits-
of-taking-instant-loans-through-digital-lenders.html
24
Id.
25
https://www.gopaysense.com/privacy/
movement, scroll on the website. Your personal information is never stored or shared with any
of these third-party tools.”

If seen it is obvious that the individual puts his private data at risk. The consumer will never
know if the company is following the data protection procedure as promised by it. It asks for the
access to the other applications which are not related the lending application itself. It is not sure
or stated in the terms and conditions of some of these lending applications as to why they need
such access to other applications. They monitor the behaviour of the individual and there is a
high chance that this data might be sold to third parties or it might improve its service standards.
It also monitors the user behaviour over the website of the lending company.

Ombudsman Scheme for Non-Banking Financial Companies, 2018

The Scheme is introduced with the object of enabling resolution of complaints free of cost,
relating to certain aspects of services rendered by certain categories of non-banking financial
companies registered with the Reserve Bank, to facilitate the satisfaction or settlement of such
complaints, and matters connected therewith.
Scheme covers customers of all deposit taking NBFCs with assets size greater than or equal to
Rs. 100 crore and customer interface. It excludes Infrastructure Finance Companies, Core
Investment Companies, Infrastructure Debt Fund and NBFCs under liquidation

Grounds for filing a complaint by a customer under the 2018 scheme

 Interest/Deposit not paid OR paid with delay.

 Cheque not presented OR done with delay.
 Not conveyed the amount of loan sanctioned, terms & conditions, annualised rate of
interest, etc.
 Notice not provided for changes in agreement, levy of charges.
 Failure to ensure transparency in contract/loan agreement.
 Failure/ Delay in releasing securities/ documents.
 Failure to provide legally enforceable built-in repossession in contract/ loan agreement.
 RBI directives not followed by NBFC.
 Guidelines on Fair Practices Code not followed.
How can a customer file complaint?

A written representation to NBFC concerned should be done. And at the end of one month if
reply is not received from NBFC or customer remain dissatisfied with the reply of NBFC, If
customer has not approached any forum then file a complaint with NBFC Ombudsman (not later
than one year after the reply from NBFC).

Proceedings before Ombudsman are summary in nature. The Ombudsman promotes settlement
through conciliation. If settlement is not reached through conciliation then he can issue
Award/Order. If Ombudsman’s decision is appealable then the customer can appeal to the
Appellate Authority i.e, Deputy Governor, RBI.

This is an Alternate Dispute Resolution mechanism. Customer is at liberty to approach any other
court/forum/authority for the redressal at any stage.

STEPS BY THE INDIAN GOVERNMENT

The Indian government also has launched a web portal, a mobile application and a financial
inclusion index in order to bring the country’s unbanked under the ambit of financial services
industry. Aimed at supporting the medium, small and micro enterprises, the web portal
“www.psbloansin59minutes.com” gives access to pre-approved loans of up to Rs 1 billion within
59 minutes from state-run lenders. “The portal sets a new benchmark in loan processing and
reduces the turnaround time from 20-25 days to 59 minutes. Subsequent to this in-principle
approval, the loan will be disbursed in 7-8 working days,” the finance ministry said in a release.

The portal is backed by a consortium of Small Industries Development Bank of India (SIDBI)
and five state-run lenders—State Bank of India, Bank of Baroda, Punjab National Bank, Vijaya
Bank and Indian Bank. The government also launched an application called “Jan Dhan Darshak”
that helps locate nearest bank branches, ATMs, post offices and banking correspondents. Over
500,000 such financial touch points have already been mapped on this application while 135,000
banking correspondents will be added by December this year.

The application has voice-enabled feature and provides contact numbers of these touch points,
the finance ministry said in a statement. “User feedback will go directly to the concerned bank
for carrying out the necessary updation in data on financial touch points,” the statement said. The
finance ministry also said it will release an Annual Financial Inclusion Index that serves as a
measure of access, usage and quality of formal financial products in the country. The single
composite index is expected to aid internal policy making. The index fulfills the G20 Financial
Inclusion Indicators requirements, the ministry said.