All about Credit Information Companies (Regulation) Act, 2005

 All about Credit Information Companies (Regulation) Act, 2005

Introduction

The Credit Information Companies (Regulation) Act, 2005 (herein mentioned CIC Act, 2005) is a piece of legislation, enacted by the Parliament with an objective to regulate the working and the action of the Credit Information Companies. It also lays down provisions for the efficient distribution of credit as well as every matter connected to the same. It is a complex piece of legislation and contains numerous provisions. The CIC Act, 2005 is divided into eight chapters and thirty seven sections, containing detailed provisions for the functioning of the Credit Information Companies, the registration procedures, settlement of disputes, furnishing of credit information , penalties etc. The CIC Act, 2005 extends to the whole of India. In accordance with the CIC Act, 2005, the Reserve Bank of India and Government of India has further enacted Credit Information Companies (Regulation) Act, 2006 and the Credit Information Companies Rule, 2006 respectively. The CIC Act 2005 and the CIC Act 2006 together constitute CIC laws.

Q 1. What are Credit Information Companies?

Ans. Credit Information Company (CIC) is an independent third party institution. It is a company which has been formed and registered under the Companies Act, 1956. The company has been granted registration under the CIC Act, 2005. The main function of the company is to collect, process and collate financial information with regard to the loans, credits cards, bank accounts of borrowers; and communicate such information to its members. The Credit Information Companies also provide credit scoring to its specified users. It also has the power to prepare credit reports of the borrower based on the credit information and their financial history. These reports play an important role in determining the credit worthiness of the borrower applying for loan or credit card. The customers of the Credit Information Companies are usually the banks and non banking financial institutions. Credit Information Companies in India are licensed by the Government of India and governed by the CIC Act, 2005. CIBIL, Equifax, Experian are few examples of Credit Information Companies in India.

Q 2.  What is credit information?

Ans.  Credit information are the information in relation to the amounts and the nature of the loans granted by the bank or any financial institutions to its borrowers. It also includes the following information:  information in relation to the amounts and facilities of the credits cards granted by the banks; information relating to the credit worthiness of the borrower; information in relation to the nature of security taken by the banks or financial institutions from the borrower; information in relation to the guarantee furnished by the banks or financial institutions. Credit Information also includes those matters which are considered necessary by the Reserve Bank of India.

Q 3. Who can be the member of Credit Information Companies?

 Ans.  The following can become the members of the credit information company:

Credit Institutions- Credit institutions are the banking companies which includes State Bank of India, co-operative Bank, National Bank, Regional Rural Bank. It also includes non banking financial institutions; public financial institutions; housing finance institutions; companies engaged in the business of credit cards.

Note : Reserve Bank of India has the power to include any institutions under the category of credit institutions.

Credit Information Company- Company which is registered under the companies Act, 1956. It has also been granted registration under the CIC Act, 2005 (One Credit Information Company can become a member of another company at its discretions).

Specified users- Specified users refer to the credit institutions and credit information companies. It also includes any specific person or institutions specified by the Reserve Bank of India.

Q 4. What is the process of granting registration to the Credit Information Companies?

 Ans. Every company who wants to start the business of credit information must make an application to the Reserve Bank of India. The Reserve Bank of India may grant the registration of certificate only on the fulfillment of certain conditions, such as, the applicant company must have minimum capital structure; the nature of the management of the applicant company must not be harmful to the users, clients and borrowers.

Note: The authorized capital of every credit information company shall be a minimum of thirty crores.

The Reserve Bank of India may, on the fulfillment of all the conditions, grant a certificate of registration to start the business of credit information. If any company fails to comply with any of the conditions, the Reserve Bank of India has the power to reject the application. The application cannot be rejected without giving any opportunity of being heard.

Q 5. Under what circumstances, a registration which has already been granted can be cancelled? Who has the power to cancel such registration?

 Ans. The Reserve Bank of India has the power to cancel the registration once granted. The Reserve Bank may cancel the application on the following circumstances:

If the registered credit information company fails to carry on the credit information business.

If the registered company has fail to comply with the conditions on the basis of which the registration has been granted.

If the registered company fails to comply with the provisions of any law issued by the Reserve Bank.

If the registered company fails to submit its books, accounts and other documents which are asked by any officers for the purpose of inspection.

Note: The Reserve Bank of India may grant time to the companies to comply with the direction or for the fulfillment of the conditions. The Reserve Bank may not give such time if such delay is prejudicial to its borrowers or the credit system.

Q 6. Who has the power to manage the affairs of Credit Information Companies?

 Ans. Every Credit Information Companies must have a chairman who is appointed on a whole time or part time basis from the directors on the board. The power to manage the whole affairs of the credit information company must be entrusted with the chairperson when he is appointed on a whole time basis. In case of the appointment of the chairperson on a part time basis, the power to manage the affairs of the company is entrusted with the managing director or whole time director.

Note: The chairman of the company must exercise his powers subject to the superintendence, control and direction of the board.

Q 7. What is the composition of the board of directors?

 Ans. The board of directors shall consist of not less than fifty percent directors. The board of directors must act on the business principles and shall give due regard to the interest of its users, credit institutions, clients and borrowers. Directors shall be those persons who have special and practical knowledge on the matters of public administration, law, banking, finance, management or information technology.

Q 8. On which circumstances, Reserve Bank of India has the power to give directions to the credit information companies or to the specified users?

 Ans. Reserve Bank of India has the power to give direction when it is satisfied that under following circumstances, it is necessary to give directions to the credit information companies or specified users:

In the matter of public interest.

In the interest of the credit institutions

In the interest of specified users.

In the interest of public policy.

Reserve Bank also has the power to modify or cancel the directions already given to the credit information companies or to the specified users. The power of Reserve Bank also extends in giving direction to the credit companies to furnish statements or information in relation to business or affairs of the company.

Q 9. What are the powers and duties of auditors of the credit information companies?

 Ans. The power and duties of auditors are as follows:

To inquire whether or not the credit information companies has furnished the statements, information or particulars in relation to the business which are required to be furnished under the Act.

To submit report to the Reserve Bank of India on the inquiry conducted by the auditors.

Note: The remuneration of the auditors of the credit information companies are           fixed by the Reserve Bank of India.

Q 10. How the disputes among the credit information companies, credit institutions, borrowers and clients are settled?

 Ans. If any disputes arises among the credit information companies, credit institutions, borrowers and clients  on any matters which are related to the business of credit information, such disputes shall be settled by conciliation or arbitration in the manner provided under the Arbitration and Conciliation Act , 1996. Only those disputes should be settled for which no remedy has been provided under the CIC Act, 2005.

When a dispute is referred to the arbitration, it shall be settled by the arbitrator, appointed by the Reserve Bank of India, and within three months of making such reference. (The said period of three months can be further extended to six months by the arbitrator).

Note: The Reserve Bank of India can also direct the parties to appoint an arbitrator on their own in accordance with the provisions of the Arbitration and Conciliation Act, 1996.

Q 11. What are the principles of privacy that must be adopted by the credit information companies, credit institutions and specified users?

 Ans. The privacy principles that must be adopted by the credit information companies, credit institutions and specified users are as follows:

 The principles for collection of information from its borrowers and clients.

The principles for collection of information from its members credit institutions.

The principles for processing, recording and protecting the data relating to credit information which are furnished or obtained from the members.

The principles which are adopted by the specified users for the purpose of processing, recording, preserving and protecting the data related to credit information.

The principles adopted for allowing access to records containing credit information of the borrowers and the clients.

The purpose for which the credit information may be used, restriction on such use and disclosure.

The extent of obligations to check accuracy of the credit information before furnishing such information to the credit information companies.

Networking of credit information companies, credit institution, specified users through electronic mode.

Q 12. For which purposes, the principles of privacy must be followed?

 Ans. The principles of privacy must be followed for the collection, processing, collating, recording, secrecy, sharing and usage of credit information.

Q 13. Which acts are considered as offences? What are the penalties for such acts?

 Ans. The offences and the penalty of such offences are as follows:

Making willfully false statement while furnishing documents (Penalty – Imprisonment which may extend to one year and also fine.)

Willfully performing any act or engaging in any practice which is in breach of the privacy principles. (Penalty – fine not more than 1 crore)

Willfully providing false information to other credit information companies. (Penalty – fine not more than 1 crore)

Contravention or default committed by any credit information companies, credit institutions or specified users makes liable every person who was responsible to such companies at the time of the commission of such contravention or default. Every person is considered guilty for the commission of such contravention or default, and are liable to be proceeded against and punished accordingly.