Recently, penalty of Rs. 24-26 lakhs each have been imposed by RBI on all 4 Credit Information Companies (CICs) namely CIBIL, Equifax, Highmark and Experian, for non-compliance with certain provisions of the Credit Information Companies (Regulation) Act, 2005 (CIC Act) read with Credit Information Companies Rules, 2006 (CIC Rules).

The common grounds of imposing the penalty were following:

• data relating to credit information maintained was not accurate and complete
• on receipt of complaints from some borrowers, companies had neither updated the credit information relating to them nor informed them regarding the corrective steps to be taken
• the companies did not comply with the timeframe for providing correct information within 30 days of receipt of such complaints.

This recent action serves as a reminder for the importance and accuracy of credit information of borrowers availing credit assistance from lending institutions. With banks submitting information to CICs for more than 2 decades and NBFCs following the lead subsequently, the importance and impact of timely and accurate submission of credit information of borrowers cannot be seen in a facile manner. On one hand where customer’s credit score gets impacted resulting in deterioration of their credibility which makes their future credit costly; on the other hand, it also impacts the credit assessment done by lending institutions which has a direct impact on risk profiling and potential default.

With increase in digital lending and service providers who are part of the lending ecosystem, also came the threat of data privacy of information stored with such CICs. It was seen that credit history and related information sourced by lending institutions for their own use were illicitly shared with third parties Lending institutions have time and again been warned by regulator to avoid such data leakages.

With the advent of digital lending guidelines and identification of various participants in the system, obligation and scope of information to be reported is getting more streamlined. Structured digital lending products extended by regulated entities and lending service providers over merchant platforms involving short term, unsecured/secured credits or deferred payments also need to be reported to CICs. Under all circumstances, ultimate onus has been cast upon regulated entities to ensure that any lending done through their digital lending applications and/or lending service providers is reported to the bureaus irrespective of its nature/tenor.

Though these penalties have been imposed to strengthen the working of credit bureaus, it incidentally calls for strengthening by lending institutions of their reporting structure, better management information system and increased coordination with the credit bureaus. With increased volume and movement of data across the financial ecosystem, lending institutions need to ensure privacy and accuracy of credit information of their customers as part of enhancing their customers’ experience.