CRB Regulations 2020 offer more than ‘soft landing’ for COVID-19 disruptions
The CRB Regulations, 2020 gazetted by the Cabinet Secretary to the National Treasury on 8th April 2020 introduced major reforms aimed at strengthening the credit information sharing framework in Kenya. Most people will remember these Regulations mainly for four prominent things: suspension of negative listing for borrowers affected by the COVID-19 pandemic; withdrawal of Central Bank approval to some lenders previously allowed to share data; reprieve granted to first-time applicants for clearance certificates and borrowers who default on principal loans of less than Shs. 1,000.
This affirmative action by Government has proved to be hugely popular among many stakeholders who view it as sensible and responsive to specific challenges of credit consumers in Kenya. But these changes seem to have clouded a number of other reforms that are not pandemic-related, and which the Central Bank has been mulling over for a while now. One of the new measures is demand for increased transparency in the credit reports, which must henceforth include the name of the source of the negative credit information on any person. In the past, this transparency was only available in credit reports issued to the borrower and not to credit providers. It is important to note that credit reports issued to institutions will still remain opaque on sources of positive information, to avoid what is commonly referred to as ‘’poaching’’.
Moreover, the revised Regulations have taken the agenda for risk-based pricing one notch higher. In order to reward borrowers who have a culture of good loan repayment, institutions are now mandated to use a customer’s credit score when appraising a credit application and in determining the interest rate to charge. Good payers can now have a strong bargaining power when negotiating loan terms. On the flip side, lenders are not allowed to decline loan applications solely on account of a customer’s credit score. They can only reach a ‘Decline’ decision if there are other factors beyond the score and must give the unsuccessful applicant a written explanation of the full reasons on which the decision was based. In more mature markets, the credit score is a reflection of the sum total of the customer’s risk profile and can therefore be used as a sole determinant on the decision, even to decline a loan. As the credit score in Kenya becomes more reliable, the requirement to forbid lenders from using credit scores as sole determinant when declining loans will not be necessary.
The new Regulations have also come to the rescue of consumers who transact several loan facilities within the month and whose loan repayments were previously not updated until month-end. Now data must be submitted daily, and such borrowers will enjoy much better credit scores that reflect their regular repayment habits, especially on mobile loans.
Furthermore, the Regulations now allow for the use of a central hub or an industry tool that facilitates centralized submission of credit information. This approach offers great relief to data providers who looked forward to a more efficient data submission process, especially in an environment of several bureaus. Single submission to multiple bureaus will make regular updating and also correction more efficient, especially where amendments are in response to customer complaints about data accuracy.
Saccos regulated by the Sacco Societies Regulatory Authority (SASRA) will no longer be regarded as third parties. Their recognition as subscribers gives them full powers in submitting borrowers’ credit information to CRBs and also in receiving credit reports directly from CRBs.
In order to minimise the differences in standards applied to regulated verses unregulated data providers on data quality and consumer protection, the new Regulations now require that all third-party data providers subscribe to an industry code of conduct that will be approved by the Central Bank. The Code will set stringent standards that the industry must observe and an effective mechanism for addressing industry concerns in a more coordinated manner.
In the new dispensation, once a customer has raised a dispute, a bureau will be required to conduct investigations in a shorter time period of maximum 7 days down from the earlier 14 days. As a way of ensuring thorough investigations of customer disputes, credit information providers have been allowed a little more time to call for and review documents from their archiving agents. It is also important to note that the Central Bank is now an option of last resort in dispute resolution before aggrieved parties can seek legal redress from the courts.
In cases of unforeseeable circumstances such as the COVID 19 pandemic, the CRB Regulations 2020 empower the Cabinet Secretary to suspend some aspects of exchange of negative information and also to determine the period. It is under this provision that the Cabinet Secretary recently suspended negative listing for a period of 6 months up to September 2020.
Lastly, CRB Regulations 2020 allow regulators or supervisory authorities and credit reference bureaus and institutions to share credit information across borders. This will facilitate exchange of information where institutions operate in more than one jurisdiction. However, this will only apply where there is a reciprocal arrangement. The Central Bank is spearheading international cooperation to facilitate these cross-border data sharing arrangements.
It is therefore evident that the new Regulations cover a wide range of issues that will contribute to a more robust credit market in Kenya. Writer: Jared Getenga, CEO, Credit Information Sharing Association of Kenya ( CIS Kenya )