A-G replies to banks sub­mis­sion

Fiji Sun - - Front Page - Aiyaz SayedKhaiyum At­tor­ney-Gen­eral

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

6. 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. 7. 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

8. 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.

9. 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. 10. 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. 11. 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.

12. 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.

13. 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.

14. 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.

15. 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 sel­f­reg­u­la­tion 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

16. 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.

17. 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. 18. 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. 19. 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 longterm. Govern­ment has also been

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. 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.

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. 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

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

20. Con­sumers may not be aware of the con­flicts that take place between the share­hold­ers of a credit re­port­ing agency and the lend­ing in­sti­tu­tions them­selves. 21. 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

22. The claim in the Let­ter that 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.

23. 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.

24. 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.

25. The reg­u­la­tion of credit re­port­ing in Fiji is long over­due and the im­ple­men­ta­tion of the Act will ben­e­fit not only ordinary Fi­jians, it will also pro­vide 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 also as­so­ci­ated with Data Bureau, we must take a broad and na­tional ap­proachto the reg­u­la­tion of credit re­port­ing and we must be pos­i­tive in our ap­proach. 26. 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 ABIF con­vey­ing to the share­hold­ers of Data Bureau and its var­i­ous ad­vi­sors that they can con­tinue their busi­ness pro­vided they com­ply with the Act.

27. 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 ap­proach and 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 as­sess­ments of 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

Chair­man of the As­so­ci­a­tion of Banks of Fiji, Kevin McCarthy.

RBF Gorver­nor Barry White­side

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