Opinion

Attorney-General Replies To Banks Submission

Mr Kevin McCarthy Chairman Association of Banks of Fiji P.O. Box 2585 Government Buildings Suva   Dear Chairman   Fair Reporting of Credit Act 2016   We refer to and
10 May 2016 13:37
Attorney-General Replies To  Banks Submission
Attorney-General Aiyaz Sayed-Khaiyum.

Mr Kevin McCarthy

Chairman

Association of Banks of Fiji

P.O. Box 2585

Government Buildings

Suva

 

Dear Chairman

 

Fair Reporting of Credit Act 2016

 

  1. We refer to and thank you for your April 28, 2016 letter in relation to the above (‘letter’).
  2. The Letter refers to the Fair Reporting of Credit Bill. Please note that it is not a Bill, it is an Act of Parliament and was passed as the Fair Reporting of Credit Act 2016 (‘Act’) on 27 April 2016, prior to the date of the Letter.
  3. The Act will regulate the business of credit reporting agencies and establish a legal and transparent framework for the regulation of such businesses to protect the rights of ordinary Fijians. It does not prohibit the business of credit reporting.
  4. The regulations in relation to the Act will inter alia protect a person’s right to privacy, provide redress mechanisms for individuals and also ensure that there is no conflict of interest between the shareholders of the credit reporting agency and the users of the credit information.
  5. In this respect we note that the shareholders of Data Bureau Limited (‘Data Bureau’) (a company that currently performs the functions of a credit reporting agency), include some financial institutions, including BSP Life (Fiji) Limited, which is a related entity to the Bank of South Pacific Limited. Records show that the chairman of the Association of Banks of Fiji (‘ABIF’), is a shareholder and director of BSP Life (Fiji) Limited, and this interest has not been declared in the letter. Accordingly, the claims and objections in the letter cannot necessarily be viewed as an impartial assessment of the Act by the ABIF as the writer of the Letter has an obvious professional and personal conflict of interest.  Nevertheless, we have addressed below the alleged concerns contained in the letter.

 

Regulated credit environment

  1. Many mature markets have regulated credit reporting environments which is what the Fijian Government wants to develop in Fiji. Data Bureau, of which BSP Life (Fiji) Limited is a shareholder, may currently continue to operate as a credit reporting agency, but must cease operations upon the commencement of the Act, on a date appointed in the Gazette. Upon the commencement of the Act, if Data Bureau wishes to continue with the business of credit reporting, it must obtain a licence and comply with the requirements of the Act.
  2. Upon commencement of the Act, credit information will be collected and provided in a regulated environment, which will ensure that the information is accurate and reliable. This will benefit the users of the information, such as banks and other lending institutions, as there will be certainty regarding the correctness of the credit information provided. It will also benefit hundreds of thousands of Fijians who will be able to participate in the mainstream financial market knowing that there are fair and transparent rules governing their participation and that they have access to a cost effective and simple complaint resolution system.

 

Availability of credit information

  1. Whilst section 19 of the Act requires all credit information held by a credit reporting agency (or an entity that performs the functions of a credit reporting agency) to be transmitted to the Reserve Bank of Fiji upon commencement of the Act, the suggested consequences of the Act as raised in the letter are unfounded as credit information will still be available.
  2. The purpose of section 19 is to give all Fijians the opportunity to start over with a clean slate in a regulated environment by requiring the current credit reporting agencies, such as Data Bureau, to hand over all credit information to the Reserve Bank, the independent regulator of the financial markets in Fiji. This is necessary as the current unregulated regime has created a pool of flawed data and unfair reporting systems which have deprived everyday Fijians from accessing credit thereby reducing or completely denying them the ability to participate on a level playing field in the mainstream financial market. It has also, as a result, forced them to use non-mainstream financing options, such as moneylenders and loan sharks.
  3. We have received many complaints from members of the community regarding the information held by Data Bureau, and it is the responsibility of the Government, and it should also be the responsibility of the private sector, to ensure that any credit information stored concerning a person is correct. Most ordinary Fijians do not have the financial means to, through the normal judicial avenues, seek recourse against an entity that is well-resourced and owned by large companies. It is therefore only fair that the tainted information held by Data Bureau, which was obtained in an unregulated environment,is discarded. Upon commencement of the Act, credit information must be collected and disclosed in accordance with the Act.
  4. The Act does not prohibit new businesses from being set up as credit reporting agencies, nor does it prohibit the operations of any existing credit reporting agency. Upon the commencement of the Act, Data Bureau can apply and get a licence to operate as a credit reporting agency. A person that uses the information and services of Data Bureau can continue to do so under the rules that are set out in the Act. Additionally, the Act also creates a regulated and competitive environment to allow other credit reporting agencies to enter the market.
  5. It is inaccurate to state that no credit history information will be available. The Act does not prohibit historical credit information from being utilised. Historical credit information may be used, provided that it does not come from the pool of data that will be confiscated from Data Bureau, which is known to be incorrect. A bank may still utilise the credit information held by it to determine the creditworthiness of a customer.  Accordingly, credit information will still be available, provided that credit reporting agencies comply with the requirements of the Act.
  6. The necessity of the Act is highlighted by the statement in the Letter that the processing times for loan approvals will increase because banks will need to seek a customer’s consent to obtain information about the customer from another bank. A credit reporting agency, which deals with a person’s credit information, should not be permitted to disclose credit information about a person, without his or her consent, particularly when there is no mechanism for correcting such information. The banks’ reliance on such information has made it necessary to implement the Act and confiscate all current credit information held with credit reporting agencies as there has been a culture of utilising information from unregulated sources without the customer’s consent.  The Act will require a customer to give his or her consent before information is provided in a credit report.
  7. The positive credit reporting referred to in the letter will still be available under the Act, with the added assurance that the information is accurate as it has been provided under a proper and transparent regulatory regime. The penalties in the Act are significant to ensure that credit reporting agencies take the necessary steps to avoid errors, which could be detrimental to individual borrowers.
  8. To reiterate: to ensure that none of the stakeholders in the credit market feel marginalised, it is important that the regulated system of credit reporting commences with a level playing field. As with any developing country like Fiji, it is critical that all Fijians are able to participate in the market, on a fair and transparent basis. The current system utilised by Data Bureau is a system of self-regulation and there are no independent checks or balances on the activities of Data Bureau.  This can no longer be tolerated and the Act introduces a legislative framework for regulating the credit reporting industry.

 

Lending rates and Government reforms

  1. It is somewhat perplexing that the letter received by the ABIF threatens increased lending rates due to credit providers being unable to check the credit history of borrowers. This statement is preposterous as prior to Data Bureau being in existence, a decrease in lending rates was not publicly touted as a reason for the introduction of the credit reporting services performed by Data Bureau. Nor was there a reduction in interest rates simply because Data Bureau was operational. Accordingly, there is no valid reason to surmise that lending rates will increase because credit reporting services are now regulated by the Act.
  2. One of the things that the Government is keen to implement in Fiji is a regulated financial market, which includes the regulation of credit reporting and microfinance markets, which the Government is also separately considering. The Government believes that the ABIF, in its role as the representative of the banks in Fiji, should be supportive of the Government’s regulatory initiatives in the same way that the lending entities and other financial institutions have welcomed other Government legislative initiatives such as the proposed introduction of the following laws:

(a)          Credit Unions Bill;

(b)          Insurance Bill;

(c)           Secured Transactions Bill; and

(d)          Pensions Saving Bill.

  1. For developing countries, and for Fiji in particular, where nearly 70 per cent of the population is less than 40 years of age, there are many new consumers wanting to utilise the credit market. The young people that are joining the workforce and that are utilising the credit market for the first time should be treated in a fair and transparent manner. In order for them to access the credit system, we need to ensure that the system is properly regulated.
  2. Government is not only introducing legislative reform but has also made policy decisions to ensure the growth of the economy. For example, Government has reduced corporate tax rates to 20 per cent and is also developing capital markets in Fiji, which will lead to economic growth and benefit financial institutions in the long-term. Government has also been providing housing grants to first-time home owners, who obtain housing loans from mainstream commercial banks, for the purchase or construction of their homes. Such initiatives by the Fijian Government are unprecedented and assist banks in increasing their customer base. It also assists in increasing home ownership rates in Fiji and creating further opportunities for mainstream banks.

Conflict of interest

  1. Consumers may not be aware of the conflicts that take place between the shareholders of a credit reporting agency and the lending institutions themselves. For example, the shareholders of Data Bureau include BSP Life (Fiji) Limited, Credit Corporation (Fiji) Limited,Carlisle Limited (former shareholder of Dominion Insurance Limited) and Tower Insurance (Fiji) Limited. In a market such as Fiji, where a lending institution holds shares in the credit reporting agency, it can dictate the terms under which a person may take out a loan and may therefore have a vested interest in a person returning a bad credit report, or alternatively may benefit from insider knowledge of a person’s credit history.
  2. Regulation of the shareholders and directors of credit reporting agencies as provided in the Act will ensure that any conflict of interest in relation to the operation of a credit reporting agency is clearly identified and highlighted to consumers and is appropriately managed through legal checks and balances, including, if appropriate, a prohibition against any such conflict of interest.

Responsible lending

  1. The claim in the Letterthat the Act will create a culture of ‘non-responsible lending’ is absurd. Responsible lending, as the name suggests, is an obligation on lenders; and it is for a lender, such as a bank, to determine accurately if a person should be given a loan.  The repayment obligations of a borrower will still exist.  As stated above, there is no prohibition on the operations of a credit reporting agency under the Act and information about a person’s credit history will still be available, provided that the information is collected and provided in accordance with the Act.
  2. If a person fails to repay his or her loan, a bank may take whatever action it deems necessary, including commencing legal proceedings. This is no different to what lending institutions currently do and this is not a valid objection to the Act.
  3. Additionally, the Government rejects the claim that the Act will lead those in need of loans following Tropical Cyclone Winston to seek loans from moneylenders or loan sharks. On the contrary, some Fijians who want to access loans following Tropical Cyclone Winston have found it difficult because their credit information has not been correctly recorded, and the inaccuracy of the data held by Data Bureau is stopping people from accessing mainstream financial activities. The Act will achieve the opposite and will enable Fijians to access loans from mainstream financial institutions utilising the correct credit information sourced under the regulated framework provided by the Act.
  4. The regulation of credit reporting in Fiji is long overdue and the implementation of the Act will benefit not only ordinary Fijians, it will alsoprovide recourse and redress for all stakeholders and a level-playing field for new entrants in the credit reporting market. It will also benefit financial institutions themselves as it will ensure a credible credit reporting system that Fijians have confidence in. While shareholders of the current credit reporting agency may not welcome the introduction of the Act, and we note that the President of the ABIF is not just simply the President of the ABIF but is alsoassociatedwithData Bureau, we must take a broad and national approachto the regulation of credit reporting and we must be positive in our approach.
  5. We look forward to the ABIF’s cooperation in the implementation of the Act and its recognition that a regulated and transparent financial system would be for the benefit of not only the customers but the banks themselves.We also look forward to the ABIFconveying to the shareholders of Data Bureau and its various advisors that they can continue their business provided they comply with the Act.
  6. We have taken the liberty to copy this letter to all the members of the ABIF given the conflict of interest highlighted above. We hope that all the banks will take a positive approachand collaborate with Government and their regulator, the Reserve Bank of Fiji, in close partnership in the implementation of the Act and all other matters. We hope that myopic, personalised and politically-driven reflections and assessmentsof the Act will not prevail as we have seen to date. Rather that a positive and long-term view and approach will be taken by the banks in the interest of their shareholders, and in the interests of ordinary Fijians whose interests are equally important.

 

Thank you.

Yours sincerely

Aiyaz Sayed-Khaiyum

Attorney-General and Minister for Finance

Feedback: jyotip@fijisun.com.fj

 



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