The central bank has put commercial banks, who are abusing credit reference bureaus (CRB), on notice that they will henceforth be subjected to tough sanctions, including heavy fines, for misuse of the information sharing tool.
In a circular dated August 10, 2016 and sent to all commercial bank chief executives, the Central Bank of Kenya (CBK) says it has received multiple reports of CRB abuse, including blacklisting of customers for failure to pay non-credit-related fees.
“Some institutions have not been submitting accurate and complete data to the bureaus. Certain banks have been sending threatening messages to list customers for non-credit-related matters contrary to the law,” the CBK says in the circular signed by the director of bank supervision, Gerald Nyaoma.
Banks have been forwarding names of customers for amounts as low as Sh500 related to transaction fees such as processing of ATM cards and account closure charges.
CRBs have sought to absolve themselves from rampant errors in the credit reports, noting banks are the originators of the information.
“Based on the number of complaints it is obvious that the quality of data coming from banks needs further attention,” said Metropol CRB managing director Sam Omukoko.
The CBK circular further notes that commercial banks have been forwarding negative information about customers without warning the concerned customers or alerting them after the listing. Such action is punishable by a fine of up to Sh1 million or an administrative sanction the regulator may consider appropriate.
Secret listing has seen thousands of bank customers blocked from the credit market without their knowledge and most only come to know of it when their application for loans is rejected.
Banks are required to issue a month’s notice to a borrower before the loan falls to default category. The lender is also required to inform a borrower of the negative listing within 30 days of the information being submitted with the reference bureaus.
The CBK notes that banks are expressly denying credit to those who have been negatively listed with the bureaus when that was not the intention of credit information sharing.
“It was never the intention of using the credit information sharing mechanism as a blacklisting mechanism, but as a risk management tool,” Mr Nyaoma says.
Since the introduction of the credit information sharing mechanism seven years ago, banks have mainly used it to punish customers with a bad credit history but are yet to reward loyal borrowers, raising queries over its relevance to consumers.
Rampant misuse of credit information sharing has most recently exposed banks to numerous legal battles with aggrieved customers some of who have sued for heavy damages.
Credit: Business Daily