When someone applies for a loan, attention naturally turns to the things the lender can see in the application. Income, employment, business records, bank statements and, where necessary, collateral may all form part of the assessment. What is less obvious to the customer is that the lender may also look beyond the application itself and consider what the customer’s existing credit history says about their dealings with credit.
That is the role of the credit-reporting system. Under Ghana’s Credit Reporting Act, 2007 (Act 726), financial institutions submit information about their credit relationships with customers to licensed credit bureaus, while the law sets rules around how that information may be obtained, used and challenged. For someone seeking credit, the importance of the system lies in a simple fact. The financial history created in one relationship may become relevant when the customer seeks another.
Credit Reporting and the Lending Decision
A credit bureau is essentially an information intermediary in the credit market. It collects and maintains credit information supplied by participating institutions and makes that information available to persons who are legally entitled to receive it for permitted purposes.
While the decision to grant or refuse a loan remains ultimately with the financial institution, the information available to it can nevertheless be important. Under the Act, a financial institution is required to conduct a search of an applicant’s credit record with one or more licensed credit bureaus before deciding whether to grant or refuse an application for credit or another facility.
The law takes this search seriously. Regulation 30 of the Credit Reporting Regulations, 2020 provides for an administrative penalty of not more than 500 penalty units where a financial institution fails to conduct the required search. With a penalty unit currently valued at GH¢12, that amounts to a maximum of GH¢6,000.
That is not a small consequence for what might otherwise appear to be a routine part of processing a loan application. It shows the importance the law attaches to knowing something about the credit history of the person asking to be trusted with further credit.
And the search does not necessarily work only in favour of the lender. A borrower who has built a good credit history may have that history working in their favour when they approach another institution. On the other hand, a record showing unpaid obligations may understandably make a lender more cautious.
Consent and the Limits of Disclosure
The fact that financial institutions participate in the credit-reporting system does not mean that every piece of information about a customer can simply be sent to a credit bureau.
The general rule under the Act is that prior written consent must be obtained from the customer before the relevant credit information is reported. The consent also covers the storage, processing and dissemination of the information in accordance with the law. In practice, customers are likely to encounter these consent provisions in documents they already know well, including account-opening forms, loan application forms and loan agreements.
It is therefore worth reading those documents with some care. A consent clause may appear as one item among many in a set of banking forms, but it determines whether information about the customer’s credit relationship may be submitted and subsequently handled within the credit-reporting system.
It is noteworthy also, that consent is not an absolute requirement in every situation. The law permits certain information to be reported without prior consent, including particular loans that have remained unpaid for ninety days. Even in that case, there are conditions. The debt must not be in dispute, the customer must not have made satisfactory proposals for repayment after formal demand and the customer must have received at least twenty-eight days’ notice of the intended disclosure.
The Importance of Accurate Credit Records
The importance of accuracy in a credit record may not be obvious until something goes wrong.
A borrower may have performed their obligations faithfully, yet an error or a failure to update the record can leave a very different impression. A loan that has already been paid may continue to appear outstanding. A repayment history may fail to reflect what actually happened under the agreement. A customer who has done what was required of them may consequently find that the record says otherwise.
That can mean more than an untidy credit file. If another lender relies on the incorrect information, a customer may lose access to credit that would otherwise have been available to them. A business opportunity may be missed. An important financial need may go unmet. Depending on the circumstances, the publication of inaccurate information may also raise other legal questions, including questions of defamation.
The law therefore gives a person the right to access information held about them by a credit bureau and to challenge information they believe is inaccurate. The credit bureau is required to investigate the challenged information without charging the consumer.
There is, however, an important distinction between an adverse credit record and an inaccurate one.
That distinction is illustrated by NDK Financial Services Ltd v Paytell Company Ltd & 2 Others. The court considered information reported to a credit bureau concerning an outstanding obligation and, on the facts before it, was satisfied that the information concerning the indebtedness was accurate.
The lesson for customers is thus an important one. A person cannot reasonably expect an adverse record to disappear simply because it makes another loan application more difficult. The law’s concern is whether the information is accurate and whether it was reported in accordance with the law.
Where inaccurate or incomplete information causes harm, the Act also provides a basis for legal action against the relevant data provider or credit bureau, including relief aimed at restraining the publication of the inaccurate information or having it removed from the database.
Resolving Credit Reporting Complaints
A customer who discovers what appears to be an error in their credit record may naturally think of going straight to court. The law, however, gives the complaint a chance to be examined before the matter reaches the courtroom. Under the Act, a grievance must first be submitted in writing to the Bank of Ghana, which investigates the matter and may settle the dispute before a dissatisfied party proceeds to the High Court.
For the customer, the first step may therefore be to find out exactly what information is being held, challenge anything that is inaccurate and use the process provided by the law before turning to litigation.
A Credit System Becoming Part of Everyday Financial Life
Credit reporting is also no longer confined to the traditional relationship between a borrower and a bank. The Bank of Ghana has required a wider range of institutions to participate in the Credit Reporting System pursuant to the Credit Reporting Regulations, 2020. The categories include telecommunication companies, utility companies, retailers, mobile money operators, FinTech companies, entities that provide goods and services on a post-paid or instalment basis and student loan schemes, among others.
The significance is that credit reporting is becoming part of everyday financial life. With mobile money operators, telecommunications companies, utilities, retailers, FinTechs and other providers now required to participate in the system, the credit history considered by a lender may increasingly extend beyond the traditional bank loan.
For the ordinary customer, that makes it important to know what information is being shared and to challenge it when it is wrong. Credit reporting may happen largely out of sight, but the record created today can influence the credit opportunities available tomorrow.
