The Credit Information Companies (Regulation) Act
What is Credit Information Companies Act?
The Credit Information Companies (Regulation) Act of 2005 ("CIC Act") was passed with a view to regulating credit information companies and facilitating efficient distribution of credit for matters concerned or incidental to it.
Following the CIC Act of 2005, the Reserve Bank of India and the Government of India have enacted the Credit Information Companies Regulations, 2006 ("Regulations") and the Credit Information Companies Rules, 2006 ("Rules") issued under the Act, respectively. The CIC Act of 2005, and the subsequent 2006 Regulations and Rules are together referred to as the CIC Laws.
Members of Credit Information Companies: Who can be members?
The Credit Information Companies Act lays down the criteria and rules for membership of credit information companies. As per the CIC Act, only the following can become members of a credit information company:
- Credit Institutions – details are under Section 2 (F) of the CIC Act
- Credit Information Companies – criteria are found under Section 2 (e) of the CIC Act
- Specified users – details under Section 2 (l) of the Act and Regulation 3 of the Rules
Such institutions as specified shall become members of all credit information companies in operation in India and submit credit-related and other allied data (including historical data) to them.
The reason why a credit institution or any other authorized user becomes a member of all the credit information companies in India is to eliminate the possibility of a borrower/client having a current or a past credit footprint with non-member credit institutions. This ensures that all credit information companies have accurate and complete current and historical information.
On Collection and furnishing of information:
A credit information company may request credit information from its members by issuing a notice. The credit information company can adopt an RBI-approved format for collecting the requested credit information from its member institutions. The company can also forward the agreed upon and approved format to its members. Upon the receipt of the notice and the format, the member Credit Institutions and credit information companies are required to furnish the requested information within the time frame specified in the notice.
On permissible uses of the credit information:
The Credit information provided by every credit information company to its member can be used only for the following purposes:
- To make efficient credit decisions
- To discourage serial defaulters
- To reduce selection of defaulting customers with freely available information on past and current credit history
- To better judge customer risk and probability of default
- To effectively discharge their statutory and regulatory functions
- To enable smooth functioning as a credit rating agency
- To evaluate the credit worthiness of a client and make effective lending decisions
- To credit check on a person who accepts liability for payment on a bill of exchange drawn by another person
- To take credit decision in relation to an individual who draws a promissory note in favor of another person
- To take a credit decision on a person who has applied to a specified user for availing new credit facility or for review or renewal or enhancement or extension
- To take credit decision on a person who proposes to act as a guarantor for another person who has applied to a specified member for availing new credit facility, like a credit card or loan
- To enable a borrower to be aware of his own credit information including his credit score
- On no grounds is the sensitive information on a borrower/customer is to be divulged to any third parties. Disclosure of sensitive information is strictly prohibited.
- The CIC Laws offer place great importance on sensitivity of credit information. The CIC Laws contain extensive policies and rules relating to accuracy, comprehensiveness and security of credit information collected by credit information companies and credit institutions. It also contains directions on privacy for CICs and members alike, and access to and safety of credit information.
On membership fees:
Member credit institutions pay a one-time membership fee that is charged by the Credit Information Company. In addition, there is an annual fee that all member institutions need to pay as well.
On updating of Credit information:
The credit information companies and member credit institutions shall ensure that all the credit information with them is updated either on a monthly basis or shorter intervals as agreed upon mutually between the credit bureau and the member institutions in line with the Regulation laid down in the Credit Information Companies Regulations Act.
Should any dispute arise between a credit information company and its member, relating to any matter related to credit information, such disputes shall be settled by arbitration or negotiation as provided in the Arbitration and Conciliation Act, 1996 (26 of 1996). This applies for those dispute resolutions, for which no remedy has been provided under the CIC Act.
On dispute resolution:
Where ever a dispute has been referred to negotiation as stated above, the same shall be settled or decided by:
- The mediator to be appointed by the Reserve Bank
- It shall be mediated within three months of making a reference by the Parties to the dispute
- The mediator may—after recording the appropriate reasons—extend the said period up to a maximum period of six months
- In cases that seem appropriate, the Reserve Bank of India may, if it considers it necessary to do so, direct the Parties to appoint a mediator in accordance with the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996), for settlement of their dispute in accordance with the provisions of that Act. The reasons are to be recorded in writing by the parties concerned.