MC Explains: Why RBI cracked down on credit bureaus that maintain your financial data

he central bank imposed monetary penalties on all four credit bureaus for incomplete data and other reasons.

On June 26, the Reserve Bank of India (RBI) imposed monetary penalties on four credit bureaus citing major rule violations. The regulator’s action was after a series of inspections conducted at these institutions, following which notices were issued to these companies.

Here is an explainer to understand the details of the RBI action.

Which companies faced the RBI action?

The credit bureaus penalised were CRIF High Mark Credit Information Services, Equifax Credit Information Services, TransUnion CIBIL and Experian Credit Information Company. The penalties ranged from Rs 24 lakh to Rs 26 lakh.

Also read: Customers complain of erroneous entries in CIBIL report that impeded grant of loans

What did the RBI inspections find?

The central bank during the statutory inspection of the companies found that the credit bureaus did not maintain complete and accurate data on credit information.

Why this finding is significant?

By definition, a credit bureau is a company that gathers and examines information on a person's or a company's credit-related activity consisting of loans and repayments, usage of credit cards, overdrafts and so on. Hence, banks and other financial institutions depend on credit bureaus for data on consumers to arrive at lending decisions. Against this backdrop, credit bureaus allegedly keeping inaccurate data can have massive consequences on the financial system.

What are the penalties imposed on the credit bureaus?

The RBI imposed a penalty of Rs 25.75 lakh and Rs 24.25 lakh on CRIF High Mark Credit Information Services and Equifax Credit Information Services, respectively. On the two other credit bureaus, TransUnion CIBIL and Experian Credit Information Company of India, the RBI imposed a penalty of Rs 26 lakh and Rs 24.75 lakh, respectively.

What did the RBI say?

As mentioned earlier, the central bank said during its statutory inspection of the credit bureaus, it found that certain data relating to credit information maintained by the companies were not accurate and complete.

Also read: RBI clamps down on 4 credit bureaus for non-compliance

“The bureaus did not comply with certain provisions of the ‘Credit Information Companies (Regulation) Act, 2005 and that certain data relating to the credit information maintained by the company was not accurate and complete,” RBI said.

What was the response from companies post RBI findings?

After the inspections, the RBI issued notices to the companies asking them to show cause as to why penalties should not be imposed for failure to comply with the legal provisions. But the submission made by the companies did not satisfy the legal provisions, and hence the RBI stated that the charges of non-compliance were substantiated and warranted the imposition of monetary penalties on the companies.

But why was the action taken now?

The central bank’s action to impose penalties on all four credit bureaus comes in the background of several customers complaining about wrong data in their credit reports. This could probably be one of the reasons why the RBI acted now. If you remember, Moneycontrol, in December 2022, had reported that some customers had complained of erroneous entries in their credit scores and reports.

The complaints came after customers were not provided loans by banks as there were entries of unpaid loans and dues in their credit scores.

What do experts say?

Kashif Ansari, an assistant professor of taxation and personal finance at Jindal University, said that the credit bureaus did not update their information even after receiving complaints from customers concerning their erroneous data. “The credit bureaus did not update the scores properly even after complaints from consumers. Hence, they were penalised,” he said.

A chief executive officer of a fintech company said that credit bureaus often receive complaints of wrong data and that the penalties will serve as a reminder for accountability. “This is a much-needed move to hold the bureaus accountable for lapses in their service,” said the executive.