Money & Banking
RBI exempts core investment companies from becoming members of credit bureaus
Core investment companies registered as NBFCs mainly invest in assets of group companies rather than lending to borrowers. Therefore exempting them from providing borrowers’ data to credit bureaus is a welcome relief for such companies
 
The Reserve Bank of India (RBI) through a notification dated 28 January 2015, exempted non-banking financial companies (NBFCs), which are registered as core investment companies (CoreICs) and those not having any customer interface from providing current and historical data on borrowers to credit information companies or credit bureaus (CICs).
 
It must be noted that this provision (NBFCs to provide data on borrowers) was already redundant for CoreICs. This is because CoreICs mainly invest in assets of group companies rather than lending to borrowers. Hence, the exemption was the need of the hour and it’s good news for CoreICs. The intent of the Credit Information Companies (Regulation) Act, 2005 (Act) was undoubtedly noble, however, for companies such as CoreICs and investment NBFCs, this was an additional burden since the question of having any customer interface does not arise at all. 
 
Background 
In India, Credit Information companies are regulated under Credit Information Companies (Regulation) Act, 2005 (‘Act’), which lays down the registration, management etc. of CICs. The intent of mandating NBFCs to become members of CICs was to ensure a centralized pool of information on customers. 
 
As per Section 2(f) of the Act “Credit institution” means a banking company and includes— 
 
(i) a corresponding new bank, the State Bank of India, a subsidiary bank, a co-operative bank, the National Bank and regional rural bank; 
 
(ii) a non-banking financial company as defined under clause (f) of Section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934); 
 
(iii) a public financial institution referred to in Section 4-A of the Companies Act, 1956 (1 of 1956); 
 
(iv) the financial corporation established by a State under Section 3 of the State Financial Corporation Act, 1951 (63 of 1951); 
 
(v) the housing finance institution referred to in clause (d) of Section 2 of the National Housing Bank Act, 1987 (53 of 1987); 
 
(vi) the companies engaged in the business of credit cards and other similar cards and companies dealing with distribution of credit in any other manner; (emphasis supplied)
 
Since NBFCs are covered under the definition of credit institution as is obvious from the definition of ‘credit institution’ above, all NBFCs were required become a member of at least one credit information company as per section 15 of the Act. 
 
Presently, four CICs have been granted Certificate of Registration by RBI, viz. Credit Information Bureau (India) Ltd, Equifax Credit Information Services Pvt Ltd, Experian Credit Information Company of India Pvt Ltd and CRIF High Mark Credit Information Services Pvt Ltd.
 
Further, the RBI vide notification dated 15 January 2015  mandated all credit institutions to become members of all CICs which are in existence. Hence, all NBFCs were required to become member of all four CICs. 
 
Why Was the Exemption Needed?
 
An NBFC fulfilling the following conditions is a core investment company: 
a. 90% of its net assets are invested in securities or loans/debts in group companies. 
 
b. 60% of its net assets are in form of equity investment (including convertible instruments convertible within a period of 10 years) in group companies. 
 
c. The company is not trading in its investments except through block sale for the purpose of dilution or disinvestment. 
 
d. The company is not carrying on any other financial activities as mentioned in section 45(I) of RBI Act except activities of investment, granting loans and issuing guarantees for its group companies.
 
(Aman Nijhawan works for Vinod Kothari & Co)

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Wake Up Now Put to Sleep: Closes down US Affiliate Operations
Company says former CEO is to blame for its failure
 
Wake Up Now, a Utah-based multi-level marketing company (MLM) which in May issued a press release that it had 100,000 “customers” and was expanding, has folded all its network marketing operations in the U.S. and has blamed its entire failure on its former CEO Kirby Cochran, filing suit for more than $10 million in damages against him and family members he hired to work at the business. 
 
The suit alleges that Cochran — who has a history of leading companies into bankruptcy and has faced racketeering charges — milked Wake Up Now out of its cash with “rampant and reckless spending,” arranged for cushy jobs for family members including his wife, son and brother, and sucked 100 percent of the profits out of the business through a consulting agreement with a company secretly set up with the help of one of his business students while he was an instructor at the University of Utah that he later assigned to his brother.
 
(See TINA.org’s initial warning about the company here.)
 
Kirby Cochran profited, the lawsuit asserts, without actually investing any real money of his own into the company. And if that isn’t enough, it also alleges he made creepy comments to attractive women and bullied employees, even berating one about the preparation of his daily smoothie.
 
But perhaps the most notable detail that comes out of the lawsuit against Cochran is a small footnote on page 16 that notes “Most IBOs are Wake Up Now customers as well.” And that, a red flag for a possible pyramid scheme, may say it all about why this MLM was troubled from the start. But more on that later in this post. Now back to why it halted operations.
 
“Lavish expenditures” and “side-deals”
The lawsuit alleges that Cochran, who was fired in October, not only sucked money from the company in a variety of ways, but also mismanaged it by launching an inadequate software platform that couldn’t confirm whether a product had been paid for or delivered or allow affiliates (known at Wake Up Now as Independent Business Owners) to view their commissions.
 
All this led to affiliates and customers having to wait for hours for help from customer service representative. Fed up, many charged back their purchases and filed complaints with the FTC and BBB, according to the lawsuit. (See the breakdown of consumer complaints against WUN, many of which said that the company repeatedly charged their credit cards and that the company was a pyramid scheme that made false earnings and product claims.)
 
In short, the lawsuit alleges Cochran essentially led to the downfall of Wake Up Now:
Kirby Cochran’s gross mismanagement, side-deals with family members to pay out all of WUN’s profits, lavish expenditures, failed business initiatives, and the botched HUB launch placed WUN in a position where it needed millions of dollars to survive.
 
After Cochran was fired, the suit alleges that he then tried to recruit WUN employees along with family members who had worked at WUN, including his wife who was legal counsel, to help him start a new company, Global Connection Network, that would compete with WUN, and engaged in disparaging and defamatory comments, poisoning people against WUN.
 
Business cannot recover
In a Facebook note posted Monday, Phil Polich, Cochran’s replacement as CEO of WUN, wrote:
“…we continued to discover that Kirby Cochran’s deceptive actions had put the company in a position from which it could not recover. In the end, his decisions for a privileged few outweighed the incredible heart and dedication of the many. With that said, effective immediately, WakeUpNow will cease all network marketing operations in the United States.”
 
Who really was ever going to profit? 
 
But we at TINA.org are left wondering why the company hired a CEO that was entangled in lawsuits and had a well-known history of questionable business failings and bankruptcies in the first place. And how prosperous a company could be that sold a bunch of stuff you could get for free on the Internet and which admits that the majority of its customers were its own affiliates — about 99 percent of which never made much money from their WUN efforts.
 
TINA.org reached out to Cochran, and Wake Up Now, which is still selling products, for comment but has not heard back. We have also asked the University of Utah if Cochran is still a business instructor in its finance department but we have not heard back.
 
For more about multi-level marketing and pyramid schemes, click here
 
 

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COMMENTS

Heather Bosquez

2 years ago

Being a former affiliate, yes the online system was awful, but the tangible products were in fact of good quality. I myself used my best judgement and therefore did not invest at all after Oct. '14. There were MANY amazing people involved and it truly is saddening to know that Mr. Cochran had an evil streak in all this after what he had said at corporate conference this last fall.

Indian market trends

The Sensex and the Nifty fell 2% each during the fortnight ended 11th February. ML Large-cap Index and ML Mega-cap Index dipped 1% each. ML Mid-cap Index, ML Micro-cap Index and ML Small-cap Index declined 4% each. 

 

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