The Central Bank of Kenya (CBK) has come up with new regulations intended to protect borrowers especially those at risk of being blacklisted on credit reference bureaus (CRBs).
As per the new regulations, loan defaulters will soon be entitled to a 30-day notice from lenders before their names are submitted to CRBs for listing.
The regulations are expected to address rampant complaints of customers who find their names listed with CRBs without their knowledge.
Money lenders, including savings and credit co-operative societies (Saccos), microfinance institutions and banks, usually submit names of defaulters for listing without informing them. However, the CBK has published draft CRB regulations 2019 that prohibit them from doing so.
The draft stipulates that financial institutions intending to report a customer to CRBs should inform the person therein by writing to him or her or through an electronic means, and to also send another communication informing them about the listing, prior to listing them.
“An institution and a third party credit information provider shall notify the customer within one month before a loan becomes non-performing that the institution shall submit to a bureau the information on the loan immediately it becomes non-performing,” the draft rules stipulate.
These regulations, if passed, will entitle every customer to an updated credit score.
CBK also moved to give defaulters an upper hand in matters listing as customers will now have a right to know the details of the information their lender has submitted to CRBs and will get a chance to have it corrected if in dispute.
A customer will also be entitled to a free credit report once every six months after making a request to a CRB to have inaccurate information corrected in the database.
Further, a customer will also be entitled to a free copy of his or her credit report from each CRB or its agents at least once a year or within 30 days of receiving an adverse action notice. There are three CBK-licensed CRBs in Kenya; Transunion, Metropol, and Creditinfo.
CBK defines an adverse action notice as any that is issued by a lender to a customer conveying denial, cancellation or increase in any charges related to an existing or applied loan based on a CRB report.
Any time a customer disputes a credit report, CRBs will have to immediately notify lenders of the dispute so that the report does not continue being used before the difference is resolved. This is considered as a win for borrowers.
“The bureau shall, within 14 days, conduct investigation and if it does not complete its investigation within 21 days, it shall delete the disputed information as requested by the customer,” the draft further states.
Use of credit scores has yielded little in helping customers with a good history with many loans averaging the same price despite the different scores.
CBK governor Patrick Njoroge has on several occasions said banks have been using the credit score as a tool for punishing customers instead of offering better rates to those with good scores.
Under the CBK proposals, lenders will be required to use customers' credit scores as just one of the factors to inform the decision-making process as opposed to solely relying on it to deny them loans.
