Now that the requisite laws and regulations have been passed and gazetted, any interested party can apply for a licence to establish a credit bureau, and the Bank of Jamaica has indicated its readiness to receive applications.
In a statement on Tuesday, February 8, the Bank of Jamaica (BoJ) advised that “under the Credit Reporting Act 2010, the statute which establishes a credit reporting regime in Jamaica, the Bank has been designated as the supervisory authority with responsibility to review and make recommendations to the Minister of Finance on applications to operate a credit bureau.”
A credit bureau is a company that collects information from various sources and provides consumer credit information on individual consumers, for a variety of uses. The bureau provides information on individuals’ borrowing and bill paying history. This helps lenders assess credit worthiness, the ability to pay back a loan and can affect the interest rate and other terms of a loan.
In a recent public address, Governor of the Bank of Jamaica, Brian Wynter, noted that Jamaica, in line with international best practices, enacted legislation last year in order to facilitate the sharing of credit information.
“The Credit Reporting Act, which came into effect on October 1, 2010, provides the legal framework for a credit reporting regime in Jamaica, and is designed to improve credit assessment processes and facilitate enhanced risk management and loan pricing strategies throughout the financial sector,” he explained.
The Bank of Jamaica has undertaken a similar approach to those applied in the review of applications for licences under deposit-taking legislation. These will include: ‘fit and proper’ reviews of principals (that is, prospective owners, directors and managers); assessments of financial capacity and the source and adequacy of capital; reviews of business plans and feasibility studies; assessments of proposed IT infrastructure and control system, to assess the capacity and controls that must be in place in order to ensure the security and integrity of credit information; and an assessment of procedures that will be put in place for handling complaints from the public.
The Central Bank Governor advised that the licensing process was expected to be undertaken in two phases.
He said that the first phase will result in conditional approval being granted, where an applicant has satisfactorily met the required criteria, with the exception of having fully in place the necessary IT and operational infrastructure. The second phase, which will lead to the actual granting of the licence, follows the establishment of IT and operational systems, and when all relevant requirements pertaining to capacity, flexibility, security and integrity of information are met.
The introduction of credit bureaus is aimed at addressing the problem banks and other creditors have, in not having sufficient information on their borrowers readily available and reliable. Where there is a lack of reliable information, high risk borrowers sometimes obtain loans where they otherwise might not, while those with low risk may be denied loans, or may face higher costs than necessary.
Mr. Wynter explained that credit information sharing will help loan officers to assess, objectively, the creditworthiness of borrowers. He noted that with credit bureaus, a credit history where repayment patterns can be observed will be developed for borrowers, and this would improve access to credit and the terms for loan repayment.
“The transparency afforded by the availability of credit information will also allow greater access to loans by individuals, as well as small and medium-sized enterprises. As you will know, in the context of information gaps, banks tend to protect themselves by lending to larger companies, which often are able to be more transparent than smaller companies and individuals”, Mr. Wynter informed.
He further emphasised that credit bureaus will reduce the informational advantage currently enjoyed by large banks, leading to greater competition and lower spreads. In such an environment, all institutions will be able to compete for ‘good’ borrowers, while borrowers, armed with their credit history, will be able to shop around for the best terms. Lending will therefore not be left solely to the qualitative judgment of the loan officer, as there will be objective criteria on which clients can be assessed.
“Potential clients will be able to challenge an assessment, as this information will also be available to them. In fact, in countries where credit information includes the payment of utility bills, the incentives for a greater volume of lending to small and medium-sized borrowers has been observed to increase significantly. We hope, therefore, that in the next stage of development, utility companies in Jamaica will be encouraged to participate in credit bureaus,” he added.
Applicants wishing to obtain a credit bureau licence will be required to pay a fee of $25,000, coupled with a licence fee of $50,000 plus $100 for every 1,000 consumer credit enquiries. The applicant must be a registered company with memorandum of association, articles of association and certificate of incorporation. Companies will be required to have a capital base of US$1,000 and maintain liability insurance coverage within limits to be set out by the supervising authority.
Under credit-reporting regulations, data providers include banks, building societies, securities dealers, insurance companies, the National Housing Trust, Students’ Loan Bureau and persons in the business of selling goods under the Hire Purchase Act.
CONTACT: ALLAN BROOKS