Banks on the spot over misuse of credit bureaus

Commercial banks have been put on notice over filing inaccurate data on borrowers with credit reference bureaus (CRB).

According to the Central Bank of Kenya, there have been rising cases of misuse of the credit information sharing system (CIS), with banks on the spot over quality of information shared.

In a notice to bank Chief Executive Officers, CBK Director of Bank Supervision Gerald Nyaoma said there is concern that banks have not been submitting accurate and complete data to the credit bureaus resulting in poor credit scores for potential borrowers.

Banks have also been put on the spot for failing to inform clients on adverse listing with the bureaus as required by the banking act.

In an interview on Citizen Business Centre Metropol CRB Chief Executive Officer Sam Omukoko alluded to the fact that banks are yet to start using credit scores to price loans for customers.

“The understanding is that bank will not just focus on the credit report they will now start using the credit score to determine two things; one whether you’ll get the loan the loan you have applied for and two what price you pay. Banks have not been very forthcoming to start accepting credit scores as a basis of giving customers credit,” Mr Omukoko said.

The credit information was introduced in 2010 by the central bank in an effort of giving banks a tool with which they could weed out high risk borrowers while passing on the benefit to those with a good repayment record.

However banks have been accused of forwarding negative information to the CRBs without informing potential borrowers. Of concern to the banking regulator is that some banks have also gone to the extent of sending threatening messages to list customers for non credit related issues, contrary to the law.

“Complaints have also been raised that banks are out rightly denying customers’ credit on the basis of adverse listing. It was never the intention of using the CIS mechanism as a blacking mechanism, but as a risk management tool,” Mr Nyaoma said.

Banks are expected to notify customers a month in advance whether they intend to list them for defaulting on payments before forwarding the information to CRBs.

Negative information on one’s credit report and score stays in place for five years, but borrowers are allowed to negotiate with banks on how to remove the negative score from the system.

Banks found to be abusing the credit information system risk fines of up to Sh1 million and sanctions.