Acting President Yemi Osinbajo on 30th May, 2017 gave presidential assent to the Credit Reporting Act 2017 earlier passed by the National Assembly. The new legislation effectively contributes to renewed efforts by the Federal Government to improve the ease of doing business in the Country in addition to providing institutional support for Micro, Small and Medium Enterprises (MSMEs) in Nigeria.
The Credit Reporting Act (“CRA”) essentially provides a legislative framework for the exchange of credit information between Credit Bureaus and lenders (such as banks), and other institutions that provide services on credit such as telecommunication companies and retailers.
Prior to the enactment of the CRA, credit bureaus were only regulated by the Central Bank of Nigeria (“CBN”) Guidelines for the Licensing, Operations and Regulations of Credit Bureaux and Credit Bureaux Related Transactions in Nigeria (“the Guidelines”) last reviewed in 2013. Section 25 of the CRA stipulates that until the CBN replaces or reissues the Guidelines, its provisions are to be read in such manner as to “bring its provisions in conformity” with the CRA.
Defining a Credit Bureau
The CBN Guidelines defines a credit bureau, also referred to as a Credit Reference Company, as “an institution that collects information from creditors and available public sources on a borrower or potential borrowers’ credit history.” The definition contained in the defunct guidelines may be read in conjunction with that provided in the new Act for clarity. The Act on its part defines a credit bureau as “a Bureau licensed under this Act and other relevant legislations to carry out the business of reporting and rating consumer credit history.”
What emerges from the joint reading highlighted above is an attempt by the government to provide legislative support for creditors seeking to do their due diligence on borrowers while at the same time availing small businesses who have been diligent at managing their debts, the opportunity to leverage on their credit history for access to more investments which remains vital to the growth of the economy.
Scope of the Act
As seen in Section 1(e) of the Act, one of the objectives of the new legislation is “to promote responsibility in the credit market by encouraging responsible borrowing, avoidance of over-indebtedness and fulfillment of financial obligations by consumers and discouraging reckless credit granting by credit providers and contractual default by consumers.” It is therefore expected that a faithful implementation of the law may help reduce the incidence of bad loans which has been a major challenge in Nigeria’s banking industry.
Licensing and Operational Rules
The CRA grants only companies licensed by the CBN the right to operate credit bureaus. Corporate entities seeking to operate credit bureaus must therefore obtain the relevant licence from the CBN. Section 2(2) of the CRA stipulates that applications for the licence must be sent in writing to the CBN Governor and accompanied by any documents or information required by the Governor. Sections 2(3)(a)(b) however clarify that only companies limited by shares, registered under the Companies and Allied Matters Act (“CAMA”) and who have met the minimum capital requirement may be granted the licence. One clear implication of this provision is that individuals are now prohibited from operating credit bureaux as earlier allowed under the Guidelines. Such affected persons are therefore advised to seek legal advice on how to comply with the extant law.
Under Section 3 of the CRA, licenced credit bureaux are empowered to create and maintain a database of credit and credit-related information which may be received, collated or compiled from credit-information providers, users and other persons prescribed by the CBN. The credit bureaux may also issue credit reports and investigate intending borrowers at the request of a lender but may not offer an opinion on creditworthiness of persons analysed while issuing its credit reports. Importantly, Section 3(3)(b)(c) imposes an obligation on the credit bureaux to not only ensure that credit information published on their database are regularly updated but also verified, which should understandably improve confidence of users like banks and other lending institutions who may seek to rely on such information.
Due to the fact that a lot of sensitive data is bound to be processed and exchanged in the course of providing credit information, the CRA in Section 3(3)(e) imposes a mandatory duty on credit bureaus to execute a data exchange agreement with credit information users before releasing credit information to such lenders. An exception is however created for lenders who have obtained the consent of the Data Subject (prospective borrower) in writing or by other authenticated means.
The CRA further provides for other data protection measures in Section 6 including the right of the Data Subject to dispute information contained in a credit report and request a correction while Section 9(1) similarly preserves the right of Data Subjects to “privacy, confidentiality and protection of their credit information.” By the provision of Section 9(3) however, a credit bureau may disclose information about a Data Subject upon a written request from the CBN, any other person acting on a court order or where such disclosure is required under the law. The consent of the Data Subject would not be required where the credit bureau is complying with the law in any of these instances.
While it appears that the purpose of the CRA is generally to enhance access to credit, the permissible purposes for which a credit information user may request such information, as provided in Section 7 of the Act are quite extensive. Some of the permissible purposes listed in Section 7(2)(a)-(m) include: consideration of an application for credit or assessing a person’s qualification to stand as credit guarantor; for the renewal or restructuring of credit; underwriting, renewing or reviewing insurance policies; for carrying out employment checks on employees or prospective employees; and assessing the credit worthiness of a prospective tenant in any lease or tenancy. It may on the surface seem that the provisions are too extensive for comfort but considering that many employers have unwittingly employed persons who have badly managed their finances just as many landlords are presently in court trying to evict tenants for failing to pay rental arrears, the applicability of the law to prospective employees and tenants may indeed guide concerned parties to take proactive steps to protect their positions.
The regulatory powers of the CBN over credit bureaus are preserved in Section 8 of the CRA and they include the power to revoke licences of credit bureaus who fail to comply with the law and to take steps to protect the interests of Data Subjects against abuse in the process of credit reporting. The CBN is also empowered by Section 13 of the CRA to address complaints from Data Subjects where such complaints have remained either unaddressed or unsatisfactorily addressed by a credit bureau or credit information provider within 10 (Ten) days. Where the CBN equally fails to resolve the issue within 10 (Ten), the Data Subject may proceed to the court to seek redress.
The legislative and executive arms of the federal government have through the passage and assent for the CRA adopted proactive measures at facilitating access to credit for Nigerians engaged in business especially small and medium scale enterprises. The legislation is expected to contribute to on-going efforts to enhance the business environment in the country and stimulate inclusive growth as economic potentials are unleashed in various sectors across socio-economic classes. Businesses require investments to grow and Nigeria as a nation needs to see increased investments, especially through domestic lending, to small and medium enterprises as well as to flourishing ventures in the telecommunications, information communication technology, power, health, solid minerals and agricultural sectors to further diversify the economy from oil.
The CRA has specifically identified such challenges such as limited access to credit for certain classes of intending borrowers and bad debts resulting from lack of responsible lending by some creditors. As a remedy, the Act has created a robust framework for the aggregation of credit information which creditors may use to assess intending borrowers among other purposes. In creating that framework, the CRA facilitates the collection of personal data by credit bureaus but also provides for data protection and conflict resolution measures. It is therefore a commendable legislation and a much welcome addition to existing laws governing the framework for lending and borrowing in Nigeria.
It is hoped that the CBN will continue to effectively play its role as a regulator and that the apex bank in collaboration with the government and other stakeholders would spare adequate time and resources to sensitise intended beneficiaries on the existence and benefits of the new legislation..
As legal practitioners with over 30 (thirty) years of advising businesses on financing options and implications, it is our advice that creditors and borrowers seeking to transact under the framework of the CRA seek proper counsel to avoid falling short of the regulatory compliance standards and the attendant consequences. Concerned business entities seeking clarifications in this regard and other issues discussed above may therefore contact us at any of our offices or the various channels of communication provided in this report.