You don’t have the luxury of ignoring payment disputes with financiers; you must fight it out or pay up

Samir, an engineer with an information technology (IT) company, has a dispute with his credit card company over unfair charges which he refused to pay. The bank has been rolling over the amount with a hefty interest charge. Samir recently posted his problem on a consumer group website and claimed - “I am not going to pay, I don’t care what the bank does”. He clearly does not realise that the case will go to a recovery agent first and, if it is still not resolved, he will be reported a defaulter to a credit information agency. I told Samir that he did not have the luxury of saying “I don’t care”. He must either fight the case or settle it; otherwise he would make himself ineligible for any finance, mortgage or even a credit card in the future. I soon discovered that many group members were unaware of the credit information system and how it works.

Credit information companies are regulated by the Credit Information Companies (Regulation) Act, 2005 (CICRA 2005), administered by the Reserve Bank of India (RBI). At present, only the Credit Information Bureau of India Limited (CIBIL) compiles individual credit histories, but another -- Highmark Credit Information Services - will soon start operations. Credit card issuers check applications against the ‘Satyam List’ that is informally maintained by MasterCard.

Typically, agencies such as CIBIL maintain the credit history of all borrowers including defaults and repayment records on all consumer loans, housing finance and credit card payments. CICRA 2005 holds the companies strictly liable for the accuracy and completeness of information, for data security and transfer of information to a third party. All financiers have to be members of at least one credit information service and only “specified users” such as insurance companies, telephone companies, regulators, rating agencies, brokerage firms, other credit information companies, etc., can obtain information on credit histories of individuals or companies.

The RBI is empowered to levy hefty penalties going up to Rs one crore for violation of its regulations; it can also punish individual officials for failure to provide relevant information. On paper, an individual can also file a complaint against a credit information company, credit institution or a specified user for contravening any provision of the Act. In my experience, a request for information is met with a wall of silence. Only the Reserve Bank’s intervention allowed us to resolve three separate cases of individuals who had been wrongly reported as defaulters. What can a person do in this situation? The CIBIL website blandly says that you can “contact the credit grantor from whom you have availed the loan and request the necessary changes”. It records the change only at the lender’s request.

Another question that perplexes people is: why should a lender reject your application if you have a long-standing relationship with it? I have handled exactly such a case. HDFC Bank offered its customer a gold card, based on his long-standing relationship with the bank, but rejected his application when he filled out the form. Worse, it refused to offer the bewildered customer any help or explanation. Finally, a friendly official secretly told him that his application was rejected since he was listed as a defaulter (falsely, as it happens) with CIBIL. This triggered a long battle that was resolved only when the RBI decided to intervene.

Ironically enough, CIBIL’s website will tell you that different lenders may take other factors into account and not necessarily reject applications of a defaulter.
Finally, many customers wonder if they can use the Right to Information Act (RTI) to demand information. The answer is no. Credit information companies are not a “public authority” as defined under the RTI Act and are, in fact, mandated to ensure data privacy. Cases of false reporting are rare, but remember that in a dispute with your financier you no longer have the luxury of ignoring the issue - you must fight it out.