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Revision as of 11:51, 21 February 2008
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A credit bureau (U.S.), or credit reference agency (UK) is a company that provides consumer credit information on individual borrowers. This helps lenders assess credit worthiness, the ability to pay back a loan, and can affect the interest rate applied to loans. Interest rates are not the same for everyone, but instead are based on risk-based pricing, a form of price discrimination based on the different expected costs of different borrowers, as set out in their credit rating.
Credit bureaus collect and collate personal financial data on individuals and businesses from data furnishers with which the bureaus have a relationship. Data furnishers are businesses, utilities, debt collection agencies, public institutions, and the courts (i.e. public records) that a consumer or business has had a relationship or experience with. Data furnishers report the experience with the consumer or business to the credit bureaus. The data provided by the data furnishers as well as collected by the bureaus are then aggregated into the credit bureaus data repository or files. The resulting information is made available on request to contributing companies for the purposes of credit assessment and credit scoring. Given the large number of consumer borrowers, these credit scores tend to be mechanistic. In other words, the different credit bureaus collect data from a variety of sources and then apply a mathematical algorithm to assess the likelihood that an individual will repay a given debt given the frequency that other individuals in similar situations have defaulted. Most consumer welfare advocates advise individuals to review their credit reports at least once per year, in order to ensure that the reports are accurate.
Commercial credit reports and scoring, which report the statistic likelihood of a business paying creditors, also exist, such as the Paydex score from Dun and Bradstreet and the Experian Intelliscore.
United States
In the United States, the legal term for a credit bureau under the federal Fair Credit Reporting Act (FCRA) is consumer reporting agency — often abbreviated in the industry as CRA.
In the United States, key credit bureau consumer protections and general rules or governing guidelines for both the credit bureaus and data furnishers are the Federal Fair Credit Reporting Act (FCRA), Fair and Accurate Credit Transactions Act (FACTA), Fair Credit Billing Act (FCBA), and Regulation B.
Two government bodies share responsibility for the oversight and accuracy of credit bureau data. The Federal Trade Commission (FTC) has oversight for the consumer credit bureaus. The Office of the Comptroller of the Currency (OCC) charters, regulates, and supervises all national banks with regard to credit bureau reporting.
Most US consumer credit information is collected and kept by the four national credit reporting agencies: Experian (which purchased the files and other assets of TRW), Equifax, TransUnion, and Innovis (which was purchased from First Data Corporation in 1999 by CBC Companies). These organizations are for-profit entities and possess no government affiliation. Though they are competitors, they have formed a trade organization called the Consumer Data Industry Association (CDIA) to establish reporting standards. Current reporting standards accepted by the four US CRAs are Metro and Metro2. The Metro2 standard is defined in the annual CDIA publication, the Consumer Credit Reporting Guide, which is updated September of each year.
PRBC (Pay Rent, Build Credit, Inc.) is a national alternative credit bureau. Incorporated in March 2002, PRBC enables consumers to self-enroll and build a positive credit file by reporting their on-time payments (such as rent, utilities, cable, and phone) that are not automatically reported to the three traditional credit bureaus.
In the US, there are three business or commercial bureau repositories: Dun & Bradstreet, Experian Business, and Equifax Small Business Financial Exchange (SBFE)
Tort liability for business defamation
In the case of Dun & Bradstreet, Inc. v. Greenmoss Builders, 472 U.S. 749 (1985) the U.S. Supreme Court held that a credit reporting agency may be liable if it was careless in reporting an impending or past bankruptcy filing of a business that is not a public figure.
United Kingdom
In the United Kingdom, the three credit reference agencies are Experian, Equifax and Callcredit, which was established in 2001 and is now working closely in association with its American counterpart, TransUnion.
Most banks and other credit-granting organisations subscribe to one or more of these organisations to ensure the quality of their lending. This includes companies who sell goods or services on credit such as credit card issuers, utility companies and store card issuers. Subscribing organisations are expected to provide relevant data to maintain the common data pool.
Credit reference agencies are bound by the Data Protection Act, which requires that data relating to identifiable individuals must be accurate, relevant, held for a proper purpose and not out-of-date. Individuals have a legal right to access data held on them.
The activities of Credit Reference Agencies are governed under UK law by the Consumer Credit Act 1974.
India
The establishment of Credit Information Bureau (India) Limited, India's first Credit Information Bureau, is an effort made by the Government of India and the Reserve Bank of India to improve the functionality and stability of the Indian financial system by containing NPAs while improving credit grantors' portfolio quality.
CIBIL was promoted by State Bank of India (SBI), Housing Development Finance Corporation (HDFC), Dun & Bradstreet Information Services India Private Limited (D&B) and TransUnion International Inc. (TransUnion) to provide comprehensive credit information by collecting, collating and disseminating credit information pertaining to both commercial and consumer borrowers, to a closed user group of Members.
CIBIL: Current Shareholding The promoters SBI and HDFC divested a part of their stake to other shareholders and the revised shareholding stands as follows:
Shareholder Holding% SBI 10.0% HDFC 10.0% Dun & Bradstreet 10.0% Trans Union 10.0% ICICI Bank 10.0% Bank of Baroda 5.0% Bank of India 5.0% HSBC 5.0% IOB 5.0% PNB 5.0% Union Bank 5.0% Citicorp Finance 5.0% Central Bank 5.0% Stan C k 5.0% Sundaram Finance 2.5% GE Strategic Investments India 2.5% Total 100.0%
D&B, a worldwide leader in business to business information, Credit Bureau, Risk and Data Management Solutions, is a stakeholder and has licensed its Credit Bureau Solutions for the Commercial Bureau that collects and disseminates credit information on non-individuals.
CIBIL data sharing is based on the Principle of Reciprocity, which means that only Members who have submitted all their credit data, may access Credit Information Reports from CIBIL.
In recent years, India has emerged as an increasingly industrialised and fast growing economy. Liberalization of the economy coupled with a young population has led to increased incomes and purchasing power, aspirations for a better lifestyle and expectations of higher quality products and services (a result of increasing influence of international trends and preference for international brands).
The average Indian, who had a strong aversion to credit, is now in favour of credit for convenience in shopping, for financing housing, automobiles and consumer durables and even holidays. The stigma attached to debt has declined substantially.
In India, lenders undertake the process of risk assessment independently. Credit assessment is currently based on insufficient data simply because information on total credit exposure is not maintained at a central point. This severely limits the scope of these credit risk assessment processes.
The basic Consumer CIR broadly contains:
Borrower information Name Date of birth Identification numbers; e.g. PAN, Passport No., Voter ID No. Address
Account Information Account type Ownership indicator Sanctioned amount Date Opened / Sanctioned Date of last payment Current balance Date closed Amount overdue Suit-filed status Days past due / Asset classification
Future
See also
Major global bureaus
National bureaus
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External links
- Consumer Data Industry Association
- Political & Economic Research Council (PERC) Homepage with Credit Reporting Studies
- Federal Trade Commission Governmental Page on Free Credit Reports
- Federal Trade Commision Governmental Page on FCRA and consumer rights
- OCC - Office of the Comptroller of the Currency
- Dun and Bradstreet
- "Credit-Information Reporting: Why Free Speech Is Vital to Social Accountability and Consumer Opportunity" by Daniel Klein
- Stoozing guide to UK CRA suppliers