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How mis-reporting by banks can hurt your credit rating

Friday, 9 May 2014 - 12:00pm IST | Place: Mumbai | Agency: dna

When a customer was refused home loan by a government bank due to a negative rating assigned by the Credit Information Bureau (India) Ltd (Cibil), little did he realise his callousness in ignoring a 'free' credit card he had never applied for nor used earned him a spot in the defaulter list.

A good 30 days were spent in reversing the negative rating, but by then he had lost the opportunity of buying the apartment he and his family had set their eyes on.

The free credit card that was delivered to his home address actually had a non-disclosed annual renewal fee. Non-payment of this fee made the issuer promptly file negative default details of the ignorant customer with Cibil.

Cibil is the largest rating agency for assessing creditworthiness of consumers seeking bank loans, the others being late entrants such as Equifax, Experian and High Mark.

"We are aware of such practices, and in our bank we immediately terminate the employee indulging in unethical practices," said a CEO of a card company – a subsidiary of a large government bank.

"Consumers must report the matter to the Banking Ombudsman to alert such malpractices," said a spokesperson of Reserve Bank of India.

The scoreboard ranges between 350 points and 900 points, and any score above 750 indicates high creditworthiness and will have bankers at your doorstep with a bouquet of loans.

Having a score of below 750 points means banks will chase you out of their office as you are more likely to be a future defaulter.

Banks subscribe to Cibil's services for an annual fee.

Cibil maintains a huge data on every kind of bank borrowers, be it credit cards, auto loans, consumer loans or home loans. It does an analysis from its vast data and present a report card to the bank which had requested for the report.

Cibil, the largest of the four and the oldest, maintains over 330 million loan accounts and 180 million consumers. Any financial transactions in loans routed through banks and their subsidiaries get into Cibil's system and scores are based on the timeliness and promptness of repayments.

No wonder, big shopping malls, in a bid to boost sales, house representatives of banks, non-banking finance and credit card companies.

All these finance companies have to do is to access Cibil records for the scorecard, after which loans are doled out instantly to buyers of white goods and furniture. These companies charge a processing fee, usually 1% of the goods' value, in lieu of instant credit. How else can they earn back the hefty fee paid to Cibil?

Cibil on its part is secretive on its fee structure but is vocal when consumers are deprived of a good rating by unscrupulous players.

Speaking to dna, Harshala Chandorkar, senior vice president-consumer relations at Cibil, said, "There are two ways by which an aggrieved consumer can challenge such mis-ratings. One is through online and the second, by seeking a direct appointment with us. We are aware of such practices where a consumer gets penalised for no fault."

The rising malpractices of negative ratings have given rise to fly-by-night operators, who take advantage of innocent victims by offering services to reverse their negative ratings.

They charge a fee upwards of Rs 15,000 per negative rating, depending upon which category – credit card, auto, home loans, etc – the consumer has been classified a defaulter.

"There is nothing these companies can do than what individuals themselves can do," said Chandorkar.

"Even if a consumer has defaulted and has a poor rating score, it takes six to nine months to improve the score. Cibil has several such awareness drive for consumers," Chandorkar said.

Consumers can download their scorecard from the Cibil website for a fee of Rs 470.

"We take up such issues of mis-reporting with the concerned banks," she said.

But for now consumers have no equal choice of defacing banks indulging in fake negative ratings nor are there any agencies that will adversely rate banks for unethical practices. The only choice left for the salaried class is to fight through long-procedural chronology like first a protest note seeking explanation from the bank, lodging a complaint with the Ombudsman, then with the rating agency, and wait of at least four weeks to get back lost self respect.




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