CREDIT REPORTING BILL EXPLANATORY NOTES

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1 CREDIT REPORTING BILL EXPLANATORY NOTES INTRODUCTION These explanatory notes are intended as a guide to the proposed new Act. They are not meant as a substitute for a careful reading of the Bill itself. The objects of this Bill are to- (a) provide for the licensing of credit reporting agencies; (b) provide for the regulation of the conduct of credit reporting and credit reporting services; (c) enable credit information sharing and reporting; (d) make provisions for the establishment of a Credit Data Repository; (e) provide safe guards for data protection for customers of credit providers; and (f) provide for matters connected with, or incidental to, the foregoing. PART I PRELIMINARY This Part provides the short title, commencement and specific definitions for some of the key words and expressions that are used in the Bill. The Bill, when passed by the National Assembly, is to be cited as the Credit Reporting Act, 2013 and shall come into operation on such a date as the Minister may, by Statutory Instrument, appoint. The Part also provides for the scope of application of the Bill. The scope being credit reporting agencies, credit providers, persons who provide goods or services on credit, data subjects and any other person as may be designated by the Bank of Zambia. Specific sections of the Bill define the rights and obligations of these persons. The Section also provides that the Bill is not binding on the Bank of Zambia except in as far as the Bill expressly imposes a duty on the Bank of Zambia. 1

2 PART II AUTHORITY OF THE BANK OF ZAMBIA This section makes the Bank of Zambia the supervisory and regulatory authority for the purposes of the Bill. The section also empowers the Bank of Zambia to delegate the powers conferred to it to any person and allows the Bank of Zambia to apply such conditions on the delegated person as are necessary to ensure the fulfillment of the Bill s objectives. The section mandates the Bank of Zambia to establish a Register of Credit Reference Agencies. The Register is intended to be a listing of credit reference agencies and their particulars and will be available to the public. The section provides for the establishment of a Central Data Repository by the Bank of Zambia. Regulated entities (financial service providers) will be mandated to supply prescribed information to the Repository. The repository will collate credit information from regulated entities and supply such information to all credit reporting agencies. The intention is to ensure that all credit reporting agencies have the same basic data from regulated entities. Credit reporting agencies will then be able to improve their database with value added information collected by their own efforts. The section provides for the Minister to prescribe Regulations to give effect to the operations of the Central Data Repository. PART III LICENSING OF CREDIT REPORTING AGENCIES This part contains provisions for the licensing of credit reporting agencies. It also provides for the revocation of licences, prohibition of unlicensed business, validity of a licence and the minimum paid-up capital requirements. Section 8 (Application for a license). This section provides for the manner of applying for a licence to conduct credit reporting business. It also allows for a person to withdraw an application for a licence before approval is granted or refused. Section 9 (Issuance of license). This section provides for the manner of issuance or renewal of a licence by the Bank of Zambia. The section indicates that the consideration of a license shall be with regard to meeting the 2

3 requirements as outlined in Section 9. The time period within which the Bank of Zambia must make a determination of the application is 180 days to allow for thorough application review and also cater to processes outside the Bank of Zambia s full control such as vetting or clearance of directors with various law enforcement agencies. Section 10 (Validity of a Licence). This section provides for the perpetual validity of a licence until revocation. Section 11 (Terms and conditions of a license). This section provides discretion to the Bank of Zambia to prescribe specific terms and conditions as it deems fit on a license as well as to make amendments to such terms and conditions. Being discretionary authority, an appeal lies under Part VIII of the Bill. Section 12 (License not transferrable). This section prohibits the transfer or assignment of a licence to another person, unless in the case of corporate restructuring. Section 13 (Refusal to issue license). This section provides for the basis upon which the Bank of Zambia can refuse to issue or renew a licence. Such reasons include dishonesty in the provision of statements, lack of honesty and integrity within the meaning of the Act, or where it is not in the public interest to issue a licence. Section 14 (Suspension or revocation of license). This section allows for the suspension or cancellation of a licence on the basis of misconduct under Section 14. It also gives powers to the Bank of Zambia to reinstate a licence that has been suspended. Section 15 (Prohibition on operating or conducting business without a licence). This section prohibits any person from operating a credit reporting agency without a licence. Section 16 (Minimum paid up capital). This section gives the Bank of Zambia power to prescribe the minimum paid up capital for a credit reporting agency. Section 17 (Licensee to notify Bank of Zambia if circumstances change). This section mandates a licensee to inform the Bank of Zambia of such change in circumstances within 30 days of its occurrence. The Bank of Zambia shall, by subsidiary legislation, issue the list of prescribed changes. These changes will be such that they may warrant a review of the eligibility of the person to 3

4 hold a licence. The Bank of Zambia is empowered to make a decision on the basis of the changed circumstance. Section 18 (Sale lease or transfer of credit reporting agency). This section prohibits the sale, lease or transfer of title or any files of a credit reporting agency except to a licensed credit reporting agency and with the prior written approval of the Bank of Zambia serves to give an opportunity to a licence to make written representation regarding a decision by the Bank of Zambia. The decisions are with regard to refusal to issue or renew a licence; suspend or cancel a licence; or amend terms and conditions of a license. Section 19 (Handling of credit information when licence is revoked). The section provides for the manner in which credit data is to be handled in the event that a credit reporting agency has its licence revoked or for any reason ceases to operate. Such CRA is required to hand over all credit information within its possession to the Bank of Zambia. The section provides for the option to destroy such information or hand over such information to another CRA with compensation to the CRA whose licence has been revoked. PART IV GOVERNANCE AND MANAGEMENT OF CREDIT REPORTING AGENCIES This part contains provisions for the ownership, control and management of credit reporting agencies. Sections 21 and 22 (Limitations on voting control). These sections provide for limitations on the extent of voting control and beneficial interest that a person may hold in a credit reporting agency. The sections require that a person obtain prior written approval for holding beneficial interest in voting shares and prohibits any voting trust or arrangement that enables a person to control more than 99 per centum of the voting shares. Sections 23 and 24 (Ownership). These sections provide for the limitations of ownership in the case of de jure and de facto control. The sections also require that beneficial owners in a credit reporting agency are identifiable and are fit and proper. Sections 25 to 27 (Board of Director and senior management). These sections provide for the composition, appointment and qualifications of board directors and management. The sections provide a requirement for prior approval for appointment of board members and senior management. In 4

5 addition to requiring a board comprising not less than five members, a criteria for determining fitness and probity is provided. PART V SUPERVISION AND REGULATION OF CREDIT REPORTING This part provides for the authorized activities of credit reporting agencies, usage, management and content of the credit reports. Section also gives power to the Bank of Zambia to conduct inspections and impose supervisory actions on a credit reporting agency. Section 29 (Authorised activities). This section lists the authorised activities a credit of a credit reporting agency. The list includes activities that are typical to credit reporting, however, an additional clause is added to allow for additional activities as the BoZ may approve. This is in recognition of the potential dynamism of the sector. Sections 30 to 33 (Collection, disclosure, storage and retention). Sections 30 to 33 provide for the collection, disclosure, storage and retention period for credit data. These clauses are meant primarily to protect data subjects personal information and ensure that such information is being used for specific purposes. Sections 34 (Accuracy of credit information). This section places an obligation on credit reporting agency to make reasonable efforts to ensure the accuracy of credit information prior to disclosure of any such information. Sections 35 (Obligation of subscribers). This section places an obligation on persons that have access to credit information to take appropriate measures to safeguard such information against any unauthorized or improper access, use, modification or disclosure. Section 36 (Credit reports). This section requires credit reporting agencies to adopt all reasonable procedures to ensure reports are accurate and fair. Section 37 (To whom credit reports may be provided). This section defines the categories of persons to whom a credit report may be provided. It prohibits the provision of a credit report for any other usage not stipulated in Section 37. Section 38 (Prohibited content of credit report). This section provides for the prohibited content of credit reports and holds the credit reporting agency liable in case of a contravention. It is worth noting that although the proposed 5

6 data retention period is 10 years, the permissible historical information on the credit report varies depending on the circumstances. Section 39 (Fees). This section allows the credit reporting agency to charge a fee to users for its services. Section 40 (Scope of data to be provided). This section provides for the type and scope of data that a credit provider may avail to a credit reporting agency. This is in order to ensure that the nature of data provided does not include information not related to credit evaluation. Section 41 (Accuracy of data provided). This section places an obligation for a credit provider to take reasonable steps to ensure that credit information provided is accurate. A further obligation is placed on the credit provider to make corrections to its data if it becomes aware of any inaccuracies in the data. Section 42 (Inspection by Bank of Zambia). The section gives powers to the Bank of Zambia to cause an inspection of a credit reporting agency. Section 43 (Restrictions on access to records) and Section 44 (supervisory actions). Section 43 restricts access to information obtained by inspection to only persons authorized by the Bank of Zambia. Section 44 empowers the Bank of Zambia to impose supervisory actions and the circumstances under which such supervisory action may be implemented. PART VI CONSUMER RIGHTS AND PROTECTION Section 45 (Consumer relations office). This section mandates all credit reporting agencies to establish a consumer relations office to deal with consumer requests and complaints. Section 46 (The right to information and data). This section bestows a right on a consumer to have access to his or her credit report and to challenge the contents if they are deemed to be inaccurate. The section also provides that a data subject have access to one free credit report in a year to establish the accuracy of his or her credit information. The section provides for the manner of disclosure of credit information. The section provides for the manner of resolution of inaccurate information and timeframes for resolution of inaccuracies. 6

7 Section 47 (Notice of denial of benefit or increase of cost of benefit). This section provides that a consumer be informed of the reason for a denial of benefit (denial of loan) or increase in cost of a loan (interest) should the decision result from the contents of a credit report in respect of that consumer. The section further requires that a user inform the consumer of the name of the credit reporting agency that supplied the information. This provision is meant to enable the consumer to query the details of his or her credit report. Sections 48 (No condition precedent to disclosure). prohibits a credit reporting agency from requiring a data subject waive or release any right as a condition for the data subject to access his or her file. Section 49 (The right to challenge incorrect information). This section provides for a consumer to be able to challenge the information on their credit report and for the credit reporting agency to respond to a consumer s challenge. Section 50 (Record of challenges). The section mandates all credit reporting agencies to maintain a record of challenged incorrect information in a format to be prescribed by the Bank. Section 51 (Suspension to access). The section provides for the suspension of access to disputed information where a dispute is not responded to within ten days. This is intended t protect the data subject from adverse treatment on account of delayed resolution of a challenge. Section 52 (Bank of Zambia s order on inaccurate or incomplete information). This section provides for action to be taken by the Bank of Zambia in the event that the Bank of Zambia forms the opinion that the contents of a credit report regarding a consumer is inaccurate, incomplete or does not comply with the provisions of the Bill. PART VII COMPLAINTS AND INVESTIGATIONS This Part provides for the treatment of complaints against a credit reporting agency addressed to the Bank of Zambia and the manner in which investigations are to be carried out by the Bank of Zambia. Section 53 (Complaints) and Section 54 (Investigations by Bank of Zambia). This section provides for consumers to be able to make a complaint 7

8 to the Bank of Zambia against a credit reporting agency in writing and the action that the Bank of Zambia may take in light of such complaints. Section 55 (Restriction on investigation initiated by complaint). This section provides for the circumstances under which the Bank of Zambia may refuse to carry out or continue an investigation initiated by a complaint subject to section 53. Section 56 (Continuation of investigations notwithstanding withdrawal of complaint). The section provides the power to the Bank to continue an investigation of a complaint even though the person complaining withdraws. This is to allow for investigations when there is a perceived or actual public interest. Section 57 (Enforcement Notice). This section enables the Bank of Zambia to serve an enforcement notice if following an investigation, it is of the opinion that a credit reporting agency is or has contravened a provision of this Bill. PART VIII APPEALS This Part serves to accord a person aggrieved by a decision of the Bank of Zambia an opportunity to appeal such decision through the court process. Sections 59 (Reasons for decisions and right to be heard) and 60 (Right to appeal). The sections provide for the filing of appeals by persons that are subject to a decision or order of the Bank of Zambia. The provisions require that an appeal be made within 30 days after the Bank of Zambia s decision or order. Sections 61 to 63 (Sections relating to a Tribunal). The sections provide for the appointment of a tribunal by the Minister responsible for finance. They provide the powers of the tribunal and make the decision of the tribunal final and enforceable. PART IX GENERAL Section 64 (Unlawful collecting, etc., of credit information). The section prohibits a person from collecting or disclosing credit information without the consent of a credit reporting agency. The section creates an offence and provides punitive action for failure to comply. 8

9 Section 65 (Transfer of credit information outside Zambia). This section prohibits the transfer of credit information outside Zambia unless with the prior written approval of the Bank of Zambia. The section provides evaluation criteria for consideration of requests to transfer credit information outside Zambia. Section 66 (Waiver of benefits ineffective; inclusion of certain clauses forbidden). The section invalidates any clause or provision in any agreement or bargain that has the effect of making any part of the Act or subsidiary Regulations inapplicable. Sections 67 (Offences and penalties), 68 (Abetment and attempt punishable as offences) and 69 (Offences by body corporate). These sections stipulate the offences and provides for the penalties associated with the offences. Such penalties and offences are with respect to contraventions of the provisions of the Bill of any regulations drawn from the Bill. Section 70 (Immunity). This section provides immunity to the Attorney General, Minister, Bank of Zambia or any officer that is acting pursuant to the Bill or regulations. The category of persons is protected to the extent that the decisions, orders or actions are made in good faith. Section 71 (Powers of the Minister to make Regulations). This section gives powers to the Minister to make regulations on recommendation of the Bank of Zambia for or with respect to any matter that by the Bill is required or permitted to be prescribed by regulation or that is necessary or convenient to be so prescribed for carrying out or giving effect to this Bill. Section 72 (Powers of the Bank of Zambia to prescribe). The section gives the Bank of Zambia to make prescriptions, by Gazette Notice, for areas in which prescriptions are required. Section 73 (Guidelines). The section bestows the Bank of Zambia with power to issue guidelines generally in respect of this Bill or in respect of any particular provision of the Bill, or generally in respect of the conduct of all or any of the credit reporting agencies. Section 74 (Carrying on credit reporting business before the commencement of the Bill). This is a transitional provision and allows any person who has been carrying on a credit reporting business prior to the commencement of the Bill to continue to do so and be deemed to have obtained a licence under the Bill. 9

10 Section 75 (Exemption). This section gives the Minister power to, on the recommendation of the Bank of Zambia, exempt a credit reporting agency, person or such class, category or description of persons, from all or any of the provisions of the Bill for such duration and subject 10