Credit Referencing Framework In Zambia By Isaac Simbeye

CREDIT REFERENCING FRAMEWORK IN ZAMBIA

By ISAAC SIMBEYE

1.0     Introduction

The article outlines the legal framework which a borrower and a lender ought to be aware of, especially as to what could them to being listed as defaulters or otherwise being blacklisted as others popularly call it. In Zambia when a person is listed with a Credit Reporting Agency (“CRA”) as a defaulter it is almost impossible for such a person to access credit with credible lending institutions as they deem the defaulter blacklisted although the article finds otherwise. Herein, the legal framework relating to CRAs as at July 2021 is outlined and some timely advice is given to intending or would be defaulters and the possible consequences of defaulting. The article further deals with instances in which individuals may find that the information relating to them as held by a CRA are incorrect, for example that he or she is a defaulter, or that a loan is still running or his NRC details are incorrect among other errors. The article addresses the steps which such an aggrieved individual ought to take and the process of escalating the matter to the Bank of Zambia in the event that the concerned CRA does not resolve the problem.

2.0     Credit Reporting Legal Framework

This article takes the view that every borrower whether from public or private employers ought to be aware that Section 17(1), (2) and (3) of the Credit Reporting Act No. 8 of 2018 (“The Act”) of the Laws of Zambia enacts as follows:

“17. (1) The Bank shall establish, maintain and operate a Credit Registry which shall be a database for credit information.

(2) A credit provider regulated under the Banking and Financial Services Act, 2017 shall supply credit information to the Credit Registry.

(3) The Bank may impose the obligation to supply credit information to the Credit Registry on other credit providers.”

The “Bank” referred to in the provision above is the Bank of Zambia (“BOZ”). That said, the foregoing provisions, give the BOZ the power to make it mandatory for financial service Providers (FSPs) to supply the information of all borrowers to the Credit Registry. The BOZ can also order any other person who lends or gives out credit to supply the information of their borrowers to the Credit Registry. By virtue of section 26 of the Act the information retained about the borrowers should be kept for 10 years from (a) final loan repayment; (b) a credit being written off; (c) a declaration of bankruptcy; or (d) discharge from bankruptcy. It follows that even default related information is liable to be retained for the same duration despite one having subsequently paid off the debt on which he, she or it previously defaulted.

Prior to enactment of the Act and for similar purpose, in 2006 BOZ gazetted Credit Reference Services (Licensing) Guidelines thereby establishing a licensing framework for CRAs, which are basically the companies mandated to collect credit reports and process information on the credit status of a person. In the same year the Credit Data (Privacy) Code was also gazetted specifically to provide for collection, accuracy, use, security and access and correction issues as they relate to data of a person who has accessed credit, or has been an applicant for credit.

Further, in 2008, BOZ issued the Banking and Financial Services Act (Provision of Credit Data and Utilization of Credit Reference Services) Directive, 2008 which made it mandatory for financial service providers to provide credit data to and utilize CRAs. Therefore, in this country there is a concerted effort to comprehensively regulate credit reporting. It follows that the information of any borrower is supposed to be reported to CRAs whether the borrower has defaulted or not.

3.0     Purpose of Credit Reporting and Consequences for Negative Entries

In his article entitled, “Credit Reporting Act 2018…Extending the rewards of financial discipline and elimination of credit information asymmetry beyond the financier” published in Zambanker, A Bank of Zambia Journal. September 2018 Edition, Lungisani Zulu contends that among the many reasons for having a robust credit reporting regime as a critical component of the financial infrastructure, are:

• Elimination of informational asymmetry or gaps whereby lenders do not have any information about the borrower to properly price the cost of borrowing.
• enhances a positive credit culture by rewarding borrowers with good paying habits with a lower cost and correspondingly discouraging delinquent behavior.

The present article understands Lungisani's article to refer to a situation where financiers are to reward disciplined (well-paying borrowers) by giving them loans at a lower interest rate and adding a cost on borrowers with bad and defaulting habits by lending to them at higher rates. This, Lungisani argues, cannot be achieved without proper and comprehensive credit reports.   

On his part, in his speech delivered at the launch of the Credit Reporting Education and Awareness Campaign on the 19th of October, 2018, Dr. Denny Kalyalya Governor of BOZ as he was at the time stated that;

“…the Bank of Zambia has noted that lenders have tended to black list people who have a negative entry in their credit report. This is evident from the number of complaints of denial of credit to persons that are credit worthy, in spite of having a negative entry in the reports. The negative listing has been used to deny credit. This is not the intention of the credit reporting system. The system is meant to be a tool that enables lenders to efficiently obtain information about the credit behaviour of borrowers so that the lenders can make an informed decision on how to treat a borrower. The system aims to reduce information asymmetry between a lender and a borrower and enable the lender to apply an appropriate risk price. In this way credit to a person with a negative report may attract a higher interest or more stringent conditions than that to a less risky borrower” 

From the foregoing revelations, there is in place a Credit Report system in Zambia to accurately capture and report credit information about borrowers, whether negative or positive. What also comes out is that there are consequences including blacklisting to every defaulting borrower although that is not the intention of the of putting in place a Credit Reporting system.

4.0      Disputed Entries and Rectification Procedure

Such errors could involve the borrower/applicant’s names, addresses or loan balances being inaccurate but at times there could even be a negative entry made when in fact the person has not defaulted. This section deals with the question as to how an affected individual can seek redress when they find themselves in such a situation.

It would appear that the legislature was well aware of the instances in which individuals or borrowers could be victims of wrong data entry and accordingly parts 7 and 8 of the Credit Reporting Act No. 8 of 2018 deals with the complaints related to wrongful data entries. In Particular, section 39. (1) of the Act, provides that:

“A data subject shall have the right to challenge a credit reporting agency, in writing, on the information contained in a credit report, where a data subject is of the opinion that the information is inaccurate, incomplete or outdated. (2) Where a credit reporting agency is notified of a challenge, in accordance with subsection (1), the credit reporting agency shall— (a) within five days of receiving the notice, send to a credit provider a notice accompanied by an endorsed copy of a credit report, specifying the challenged information; and (b) where the inaccuracy or incompleteness of the information is attributed to a credit reporting agency, conduct an investigation within fourteen days of receiving the notification.”

In the instances where a CRA fails to resolve the complaint under part 7 of the Act, the Bank of Zambia can come in under part 8 and where necessary issue enforcement notices requiring the CRA to take relevant corrective action.

6.0     Conclusion:  

There is in place a Credit Reporting system in Zambia where information about all borrowers is supposed to be reported and kept and also to be accessed by lenders in order to assess the credit behaviour of borrowers. By all means creditors ought to ensure they improve their credit behaviour in order to avoid negative entries to their name. As it has been found in the present article most lenders take negative entries on CRA reports as blacklisting and thereby decline to lend to such. This article has found that the purposes of the reports whether positive or negative is to merely help the lender have more information about the applicant and apply appropriate pricing and risk allocation. In this regard, a borrower with a negative entry can still access a loan but at a higher cost compared with the borrower with good credit record. The article recommends accordingly.

The present article has also highlighted the procedure for launching complaints on the part of the individuals who find that incorrect information has been entered with respect to their names. It has been established that a negatively affected individual has the right to challenge the information by launching a complaint with the relevant CRA and where the problems remains unresolved, the Bank of Zambia is empowered to intervene and issue enforcement notices and requiring the relevant CRA to remedy the situation by ensuring that the wrongful information is corrected. The issue that remains of inquiry and concern is the level of public awareness on their rights and the efficacy of this law currently.

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