The Credit Reporting Act of 2010 is described as an Act to provide for the sharing of credit information between specified bodies.
The basic theory behind a credit reporting system is that it gives a certain degree of transparency that allows for the issuer of credit to better assess risks in lending. The lender can tailor the price of credit according to the consumer’s ‘creditworthiness’ or reputation for repayment of debt. The system should incentivize consumers to comply with credit repayment terms and should also improve access to credit for those who already have good reputations for repayment.
The component parts of the credit reporting system in Jamaica are; the Ministry of Finance, the credit bureaus, the credit information providers, the supervising authority and of course, the consumer.
The Credit Bureau
The credit bureaus are the entities that will be licenced by the Minister to collect, store and disclose credit information about consumers’ credit history. The Ministry has already received applications from prospective companies.
Credit Info Jamaica Ltd. was the first bureau to be granted a licence and receive the Bank of Jamaica’s clearance to begin operations in May of this year. Credit Info issued its first credit report two months later on July 1st. The bureau has already signed agreements with as many as 32 Credit Information Providers which include 7 commercial banks, 5 credit unions and 3 building societies.
The Credit Information Provider
The credit information providers are defined in the Act as;
- A bank licensed under the Banking Act;
- A financial institution licensed under the Financial Institutions Act;
- A building society licensed under the Building Societies Act;
- A society registered under the Co-operative Societies Act;
- The Development Bank of Jamaica Limited;
- A dealer in securities who is licensed under the Securities Act;
- A person who carries on business of selling goods under hire purchase;
- A person who publishes information on suits and judgments for debt claims;
- A credit bureau;
- An insurance company licensed under the Insurance Act;
- The National Housing Trust;
- The Students’ Loan Bureau;
- An entity exempt from the provisions of the Moneylending Act by section 13 of that Act;
- Such other body as the Minister designates as a credit information provider.
This above list of persons and entities will be allowed to provide information about consumers to the credit bureaus but a credit information provider can only share that information after undertaking all reasonable enquiries and investigations, to satisfy itself that the information is reliable. As a result, it is certainly advisable that these credit information providers take early steps to assess their current record keeping, ensuring that information about consumers that might be passed to a credit bureau is accurate.
The Supervising Authority
The supervising authority will be the Bank of Jamaica. Its mandate is to review and recommend applications for licencing and maintain general oversight of a credit bureau’s operations. The supervising authority is also the initial entity that will receive and investigate complaints made by consumers who may be adversely affected by the wrongdoing of a credit bureau.
The consumer is a procurer of credit. Any person who has entered into a credit agreement with one of the above listed credit information providers may become part of the credit reporting system. While the credit bureaus may obtain credit information about consumers without that consumer’s consent, credit information cannot then be released by the credit bureaus to a third party without the written consent of that consumer.
Advantages of the System
Other than reducing losses, the system allows credit grantors to approve credit applications more quickly and reduces processing and monitoring costs. As a result of this increased efficiency, the cost of credit could fall for some consumers. Consumers themselves should also become savvier as they make the connection between their individual credit history and the cost of borrowing. The consumer who is suddenly armed with more information on their creditworthiness could also increase competition among lenders and drive borrowing costs down. A consumer who monitors their individual credit history regularly will also help to curtail potential fraud by reporting the publishing of incorrect information in their reports to the bureaus.
This of course is the theory. We can look to other jurisdictions to see that the system, while helpful, is not perfect. Lack of information, errors in reporting, lack of confidence in the system, improper use of information and poor regulation can all be obstacles to the realization of all the advantages the system has to offer.