Tuesday, March 31, 2009

No Right to Information = Wrong Information

India now has a Credit Information Bureau. These things existed for years in US and look how they saved THEIR economy from bad credit! CIBIL, apparently, knows all about any loans, credit cards and outstanding debts that you have ever taken. This information helps banks to weed out habitual offenders while disbursing new loans. The CIBIL system can detect 'smart people' that try changing their address or birth year while re-applying, to create a report with patterns and histories. This is an important and much needed part of an organized financial sector.

While I completely support this move, my problem is with their lack of transparency. The information is only available to banks (members) and not to the concerned individuals. Their FAQ proudly states they are also beyond the RTI Act.

I believe there is no reason for agencies like CIBIL to hide their data. Knowing that I have a positive or negative credit score will not allow me to 'game' the system. If it does, the system needs to become stronger. Hiding the information does little to deter the rogues but could play havoc with the innocent.

Any system that pretends to be holier-than-thou and shies away from transparency in the name of 'security' is merely a ticking time bomb. Whether it was the great Indian bureaucracy or the WMD-hunting Bush regime, a 'closed' system was always rotting from within while failing to be effective in the stated, noble goals of larger good.

Unlike the West, India has no laws to regulate such agencies. While they are free to collect data on us, they are not required to send free credit reports. We must have a right to know what information they possess and also, the right to contest that information before it is too late. Our financial existence in this connected world depends on it.

A couple of personal "helpdesk" experiences with stock-reply happy banks have made me wary of such noble initiatives, if not supported by an equally noble redress mechanism.

When I started my career, HDFC sent me a free card and promptly levied some faltu charge on it. I got the card cancelled and never had or needed a credit card after that. Five years later, I started traveling international for work and needed a card with some decent limits. Applied to HDFC (which remains a trusted bank, otherwise) and was told that I am ineligible for a card since the system shows me with an open, defaulted card. They wanted me to find the old card and submit it for cancelation with a written letter. Five years after I cancelled the card. I was stunned. Luckily, this happened before CIBIL existed. I quickly got a card from another bank.

A second instance, more recently, was when Kingfisher Airlines decided to debit me twice for a flight ticket. The first debit shows up on my card, the second debit is merely "blocked". The result is my credit limit is exceeded until they "release" the funds. The card company and the airline are passing the buck, the former threatening to levy "over credit" charges and the latter saying they never blocked any funds. In the absence of a credible consumer court, what stops these agencies from giving us the run around?

Most people may not even notice such errors on the complicated statements. Not many in India (including me) possess the knowledge to detect, understand or follow-up on such financial jiggery-pokery. Faced with the daunting follow-up required, some may even elect to ignore this given the small amount.

In the CIBIL era, this goof might come back to haunt five or ten years later. Refusal to pay for the airline's mistake could cause us dear. The only way to prevent future shocks is to periodically know your credit score in an open, consumer-friendly manner.

By now, I am sure the powers-that-be have enough proof about the failure of self-regulation among financial insitutions. An overhaul of these hallowed institutions is overdue, before it hurts India worse than our friends in US.


An excerpt from their FAQ, more here.

Access To CIBIL Information

Q.15 Who can access CIRs?

Reports can be accessed by Members on the principle of reciprocity ie only those Members who have provided all their data to CIBIL are permitted to access CIRs. Members can do so only to take valid credit decisions. Disclosure to any other person or entity is prohibited.

Q.16 Can the borrower obtain his own CIR from CIBIL?

No. However, if a Member has drawn a report on that borrower, a copy of the same can be obtained from the Member.

Q.18 Whether Right to Information Act, 2005 is applicable to CIBIL?

No. The reason being that the CIBIL is not a “Public Authority” as defined under Sec 2(h) of the Right to Information Act, 2005.


Mama - Mia said...

phew! there you go again showing both sides of the coin and making perfect sense while at it.

it seems quite unfair that I should not be privy to my own credit history and be penalised for someone elses error sometime in past.


great post!

Anonymous said...

Oh man, what did u do about the charges levied on the card? Over here we just have to call the credit card company and they take care of the double charges. Like you said the credit rating should be available to all the tax paying citizens.

How do we know said...

ooh.. yes, CIBIL is required, but like u rightly said, i m uncomfortable with teh lack of transparency. Thanks for the post. it makes great reading.

Sowmya Srikrishnan said...

Hey I have an incident to narrate, which could be a post of its own!

I got a lifetime free (big farce)credit card from ICICI bank sometime back. They charged annual fee on that and I kept calling them to cancel the charges, which they didnt agree. I let that be. After sometime I lost the card and reported it and refused a replacement card. They wanted me to settle the outstanding which was nothing but the annual fee + interest on delayed payment, which I refused to pay. I then wrote to the Banking Ombudsman in B'lore to get the issue resolved and i have with me safely filed, a notice from ICICI bank stating that there are no dues against the card.

Some months later, I was in dire need of some money, so I applied to ICICI bank for a personal loan. I'd get a lower interest because my salary account was with them. They turned my application down because CIBIL report stated that I am a defaulter on that card, which I have evidence to prove that I owe nothing to. I thought I'd sue ICICI, then common sense prevailed.....I raised a 2nd degree complaint on ICICI in really sobre, toned down, flowery words that ICICI pls look into this.

I got another chance to submit all the docs for the loan again. I am assuming that is because they corrected their records with CIBIL. I have no chance to find out, though. Meanwhile, I had procured funds and have just left things there.

Its like ICICI bank said 'panga mat lena'. It shook me up for a brief period though.

Vidooshak said...

Thanks for sharing your story, Sowmya. That's exactly the kind of scenario where the way CIBIL currently operates could be hazardous. We have seen in Satyam, AIG and other cases that finance guys and accountants love to hide stuff in the name of "oh this too complex for you to understand" or "this is high level secret stuff". All the while, what is really happening is, they use a combination of our trust and ignorance to further their own cause.

The only way out is to have clear, transparent rules that cannot be misinterpreted or easily abused by the banks/CIBIL.

Another example is Home Loans. Instead of a clear formula, all banks have different "proprietary" formulae that you can not easily reproduce in Excel. So you are never sure if they make a mistake. I am convinced HDFC is over charging me royally on my home loan right now.

Unfortunately, I need to be a finance genius like them to prove it beyond doubt... That is what they count on to become the megacorps they are.

Vidooshak said...

Coincidence: ICICI has a note on CIBIL as part of their customer-education ad campaign today.

With a straight face, they say you must run between ICICI, CIBIL and the erring bank, if you wish to 'clear' your records once ICICI rejects your loan based on a bad report from CIBIL.

G said...

this post is quite an eye opener! thanks a ton!