Leynes, Aries Joseph: Regulating Electronic Credit Information

I. Introduction

In the loan process, one important aspect is the processing of a loan application. Processing starts after the borrower had submitted the client information sheet and the pertinent documents needed for the loan. The “processor” reviews the credit reports and verifies the borrower’s debts and payment histories. If there are unacceptable late payments, collections for judgment, inter alia; a written explanation is required from the borrower. The processor also reviews the appraisal and survey and checks for property issues that may require further discernment.of the procedure in the loan [1].

During that process, credit checks and investigations are being conducted to show the credit worthiness and credit standing of the borrower. The purpose of the credit investigation is for these financial institutions to know if the borrower/s is/are capable of paying their loan, debt or obligation because in a contract of loan, a person who receives a loan of money or any fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality [2].

In this electronic age, credit investigation evolved and was simplified for the financial institutions. By the click of the computer keys, the credit worthiness and credit standing of the borrower will be projected on the computer screen. These financial institutions depend on the private-sector initiatives such as the Bankers Association of the Philippines Credit Bureau, Inc. (BAP-CB), Credit Information Bureau Inc. (CIBI) and Credit Management Association of the Philippines (CMAP) and the like which maintain credit worthiness records.

The BAP-CB was established initially to facilitate the exchange of credit information among member banks and eventually to provide relevant credit information services for all member banks. [3] CIBI is a non-stock, non-profit organization, a creation of the Bangko Sentral ng Pilipinas (Philippine Central Bank), the Securities and Exchange Commission and the Financial Executives Institute of the Philippines and is engaged in the supply of business information and credit services. [4] While CMAP non-stock, non-profit entity was conceptualized by some credit men met and discussed the credit problems of their companies who envisioned a need to form an organization, which would promote credit information interchange as well as foster fellowship and camaraderie among creditmen. [5]

The rationale of the establishment of these private-sectors is attendant to the main objective, to simplify the process of credit investigation utilizing networking among peers and gathered credit information. These private-sectors collated, develop and analyze credit information on individuals, institutions and all types of business. [6] And provide an impartial source of credit information for debtors, creditors, the public and its member subscribers. [7] The credit information is disseminated electronically through web access by a subscriber for a reasonable fee per inquiry or per entity. The credit information includes such as but not limited to loan exposures and negative checks on the borrowers and property appraisals/valuation and title verifications on the collaterals being offered by the borrowers.

Now comes, Republic Act No. 9510, Credit Information System Act (CISA).

II. Electronically Generated Credit Information

Credit Information refers to information/data regarding the credit standing or credit worthiness of the borrower being accessed and generated electronically through websites and other means of communications. The law provides that “the Corporation shall acquire and use state-of-the-art technology and facilities in its operations to ensure its continuing competence and capability to provide updated negative and positive credit information; to enable the Corporation to relay credit information electronically as well as in writing to those authorized to have access to the credit information system; and to insure accuracy of collected, stored and disseminated credit information. The Corporation shall implement a borrower’s identification system for the purpose of consolidating credit information”. [8] As can be realized from the provision of the law, Congress’ intention is that the Credit Information to be by electronics means for easy access and storing like the ones introduced by the private-sector.

III. Kinds of information that can be gathered from a Credit Information

Loan Exposures refer to a credit information exchange among banks, thrift banks and other financing companies that provides credit-dealing reports on individual and corporate borrowers. This will reveal when the lender granted the loan to the borrower, the date of its maturity, the type of loan facilities granted to the borrower, collaterals or securities offered for the loan, over due accounts if any and the remarks of the financial institutions on the borrower.

Negative Checks refer to a credit information system that provides subscribers on borrowers and clients with adverse records, records of credit cards cancelled due to mishandling, current accounts closed by the banks due to improper handling, loans classified as foreclose, litigation and written off accounts and court cases.

Other kinds of Credit Information that may be produced and generated are Property Appraisals/Valuation, which refers to an electronic credit information system that provides subscribers on the fair market values of real estate properties held by banks and financial institutions as loan collaterals and foreclosed/dacioned assets, and Title Verifications, which refers to an electronic credit information system that provides subscribers on spurious, non-existent, or questionable land titles.

IV. Exclusions

The law expressly excludes in the Credit Information of the borrower the confidential information on bank deposits and/or clients’ funds under the prohibition of Republic Act No. 1405 (Law on Secrecy of Bank Deposits), Republic Act No. 6426 (The Foreign Currency Deposit Act), Republic Act No. 8791 (The General Banking Law of 2000), Republic Act No. 9160 (Anti-Money Laundering Law) and their amendatory laws. The confidential information may, however, be disclosed upon a written waiver duly accomplished by the borrower.

V. Scope and Limitations of this Paper

For purposes of this paper, discussions will be limited to the significant features of Republic Act No. 9510 otherwise known as the Credit Information System Act as compared to the ways and manners prior to the enactment of the law. This paper will be divided into sub-topics. The topics would tackle the rationale behind the creation of Credit Information System Act (CISA), the Credit Information Corporation, collection of basic credit information, system of updating and/or correcting credit information, rights of the borrower to be informed and access to the credit information, the confidentiality of the credit information and the penalties.

VI. Intention to Regulate the Credit Information

This law was chiefly authored by Senator Edgardo Angara which was approved by Congress on September 01, 2008 and was later signed into law on October 31, 2008 by President Gloria Macapagal-Arroyo. The good senator believes that the law will greatly improve the overall availability of credit, especially to micro, small and medium-scale enterprises, provide mechanisms to make credit more cost effective and reduce the exceddion dependence on collateral to secure credit facilities. [9] The objective of the law is to have a healthy balance between the need for reliable credit information and safeguarding (borrower) protection. [10] The intention of legislatures in this law is to regulate the credit information system from the collating stage until disseminating stage of Credit Information by electronic or other means. In its declaration of policy, “the State recognizes the need to establish a comprehensive and centralized credit information system for the collection and dissemination of fair and accurate information relevant to, or arising from, credit and credit-related activities of all entities participating in the financial system. A credit information system will directly address the need for reliable credit information concerning the credit standing and track record of borrowers”. [11]

VII. Credit Information Corporation

The Congress seeing the need to centralize the data gathering and dissemination created Credit Information Corporation. The corporation is tasked to consolidate the basic credit information which may either be positive or negative information compiled. This information will come from the borrower and different private-sectors and other financial institutions. The law provides that “the primary purpose of the corporation shall be to receive and consolidate basic credit data, to act as a central registry or central repository of credit information, and to provide access to reliable, standardized information on credit history and financial condition of borrowers”. [12] Initially, this Corporation will be majority owned by the government under the chairmanship of the Securities and Exchange Commission (SEC) chairman. After five years the majority share of the government in the Corporation will be sold, when the ownership of the majority of the common voting shares of the Corporation passes to private investors, the stockholders shall cause the adoption and registration with the SEC of the amended articles of incorporation within three (3) months from such transfer of ownership. [13]

VIII. Sources of Basic Credit Information

The basic credit information of borrowers will come from the borrowers disclosures, banks, quasi-banks, life insurance companies, credit card companies, entities that provide credit facilities (CIBI, BAP-CB, CMAP, etc.), government offices (GSIS, SSS, BSP, etc.), judicial (MuTC, MuTCC, MuCTC, MeTC and RTC) and administrative tribunals (NLRC, HULRB, etc.), prosecutorial agencies (DOJ), pension plans administered by the government and other related offices. The collation of the credit information shall be done quarterly.

Prior to the enactment of the law, the credit information from different private-sectors comes from sources only within their association and jurisdiction.

IX. System of Updating and/or Correcting Credit Information

The negative and positive credit information that tends to update and/or correct the credit status of the borrowers shall be submitted to the Corporation. The negative information aspect of the law provides that “the negative information on the borrower as contained in the credit history files of borrowers should stay in the database of the Corporation unless sooner corrected, for not more than three (3) years from and after the date when the negative credit information was rectified through payment or liquidation of the debt, or through settlement of debts through compromise agreements or court decisions that exculpate the borrower from liability. Negative information shall be corrected and updated within fifteen (15) days from the time of payment, liquidation or settlement of debts”. [14]

Prior to the enactment of the law rectifications were made by just indicating in the electronic credit information that such was fully settled. No corrections were made by the private-sector to rectify the credit history of the borrower.

X. Rights of the Borrower

Protection to the borrowers was introduced to entice more business entrepreneurs to expand their business and as incidental consequence produce employment. The borrower in this law was given the right to know the causes of refusal or denial the loan application that used for credit facilities or services from financial institution that uses basic credit information as basis or ground for such a refusal. To the author’s opinion, the reason for this provision in the law is due the existence of the “unwritten rule” in granting loans to an individual.

The borrower, for reasonable fee, shall have, as a matter of right, ready and immediate access to the credit information pertinent to the borrower. In case of incorrect, incomplete or misleading credit information, the subject borrower shall have the right to dispute such before the Corporation. [15]

XI. The Confidentiality of the Credit Information

The Corporation and other parties shall hold the credit information under strict confidentiality and shall use the same only for the declared purpose of establishing the credit worthiness of the borrower. The accreditation of a subscriber or an accessing entity, a special entity and/or an outsource entity which violates the confidentiality of, or which misuses, the credit information accessed from the Corporation, may be suspended or revoked, in addition to the possible criminal liability of violators. [16]

The Corporation shall be authorized to release and disclose consolidated basic credit data only to the Accessing Entities, the Special Accessing Entities, the Outsource Entities and Borrowers. Basic Consolidated basic credit data released to Accessing Entities shall be limited to those pertaining to existing Borrowers or Borrowers with pending credit applications. Credit information shall not be released to entities other than those enumerated under Section 6 of this law except upon order of the court. [17]

XII. The Notice Required from the Submitting Entity

Submitting Entity refers to any entity that provides credit facilities such as, but not limited to, banks, quasi-banks, trust entities, investment houses, financing companies, cooperatives, nongovernmental, micro-financing organizations, credit card companies, insurance companies and government lending institutions. [18] In other words the submitting entities are the lenders.

Each submitting entity shall notify its borrowers of the former’s obligation to submit basic credit information to the Corporation and the disclosure thereof to the Corporation, subject to the provisions of this law and the implementing rules and regulations. [19]

XIII. Penalties

Sanctions to be imposed by the Corporation are the submitting entities for non-submission of reports and for delayed and/or erroneous reporting; accessing entities, special accessing entities, outsource entities and duly authorized non-accessing entities, for breaches of the confidentiality of misuse of, the credit information obtained from the credit information system; and violations of other applicable rules and regulations: Provided, That these administrative sanctions shall be in the form of fines in amounts as may be determined by the Corporation but in no case to exceed Thirty thousand pesos (PhP30,000.00) a day for each violation, taking into consideration the attendant circumstances, such as the nature and gravity of the violation or irregularity. Imposition of administrative sanctions shall be without prejudice to any criminal and other sanctions as may be applicable under this Act and relevant laws. [20]

Any person who willfully violates any of the provisions of this Act or the rules and regulations promulgated by the SEC in coordination with the relevant government agencies shall, upon conviction, suffer a fine of not less than Fifty thousand pesos (PhP50,000.00). nor more than One million pesos (PhP1,000,000.00) or imprisonment of not less than one (1) year nor more than five (5) years, or both, at the discretion of the court. [21]

XIV. Updates on the Implementing Rules and Regulations

Malacanang has appointed officials to the credit information bureau even if the state-owned firm created by the Credit Information System Act (CISA) has yet to start operations. President Gloria Macapagal-Arroyo has appointed Mr. Jimmy T. Yaokasin, Jr. and Alfredo Ramon M. Herrera as members of the board of directors of the Credit Information Corporation. The appointments were made even if the implementing rules and regulations of Republic Act. No. 9510 or the CISA have yet to be approved. [22]

XV. Conclusion

The provisions of the law clearly defined the essential aspects of credit information. Rights were given to borrowers when the information misleads the lender. The created a centralized Corporation that will oversee and implement the law. Sanctions were placed to deter violators of the law especially violators of the confidentiality of the credit information. In the loan process, CISA regulated the use of the private-sector.

The author’s prayer, with this great confidential credit information on the hands of a government agency, that these credit information be not used for political purposes. This is the reason for the refusal of some institutions to take part in this endeavor.


Endnotes

[1] http://www.americanloansearch.com

[2] Art. 1953 of R.A. # 386

[3] www1.bapcb.com

[4] http://www.cibi.net.ph

[5] http://www.cmap.com.ph

[6] www1.bapcb.com

[7] ibid

[8] Sec.5 (i) of R.A. No. 9510

[9] Inquirer issue of Dec. 01, 2008 by Atty. Rudy Romero

[10] Inquirer issue of Dec. 01, 2008 by Atty. Rudy Romero

[11] 1st paragraph of Sec. 2 of R.A. No. 9510

[12] Sec. 5 of R.A. No. 9510

[13] Sec. 5 (m) of R.A. No. 9510

[14] Sec. 4 (h) of R.A. No. 9510

[15] Primer on Credit Information System Act, published by Atty. Fred (Feb. 18, 2009)

[16] ibid

[17] 3rd paragraph of Sec. 6 of R.A. No. 9510

[18] Sec. 3 (q) of R.A. No. 9510

[19] Primer on Credit Information System Act, published by Atty. Fred (Feb. 18, 2009)

[20] Sec. 8 (f) of R.A. No. 9510

[21] Sec. 11 of R.A. No. 9510

[22] http://www.bworld.com. (BusinessWorld Online: Other Nation Stories (11/16/09)

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