On 27 April 2016 the Fijian Parliament passed the Fair Reporting of Credit Act (“the Act”) to regulate the credit reporting industry which previously operated without regulation. The Act is expected to come into effect shortly.
The Act set up the legal framework for credit reporting agencies to operate with oversight by the Reserve Bank of Fiji (“RBF”) as the regulators. The powers of RBF include:
- Powers to register, license and regulate credit reporting agencies, credit information providers and credit information recipients; and
- Powers to set standards of conduct and credit reporting practices.
Whilst the Act provides the necessary regulatory framework, the transition process from an unregulated to a regulated industry has been of concern to businesses especially financial institutions.
The areas of concern include:
- Mandatory requirement for all existing credit reporting agencies to discontinue operations immediately after the Act comes into effect and recommence only after obtaining a license;
- Mandatory requirement for all existing credit reporting agencies to submit all credit information held by them to the RBF;
- Barring the use of any existing credit information held with a credit reporting agency for any purpose;
- Barring the use of any existing credit information provided to any entity in the assessment of loan or credit applications.
The Act has effectively reset the credit rating of all Fiji citizens and businesses.
Immediately after the Act was passed by Parliament, Data Bureau Limited, Fiji’s sole credit reporting agency, ceased its operations. Data Bureau has not indicated whether it would apply for a license and resume operations. At the time of its closure, the Data Bureau had been in operation for over 15 years and claims to have been searched over a million times with approximately 160,000 defaults recorded in those 15 years.
The transitional measures have resulted in the Association of Banks in Fiji issuing a press statement warning of delays in processing loans and credit applications as banks and financial institutions reassess and review risk assessment policies and procedures. The Association has warned of a potential increase of personal lending interest rates as an option to mitigate risk however there has been no such increase yet.
Aside from the banks and financial institutions, the information from the Data Bureau was being extensively used by retailers selling products on hire purchase, businesses extending credit facilities as well as overseas companies supplying goods and services in Fiji on credit.
Whilst we envisage local entities revising and reviewing their risk assessment policies and practices, overseas business may have significant risk and exposure from having no access to any credit information on their Fijian counterparts. The risk will affect the traditional suppliers but may could dissuade new suppliers extending credit to Fijian businesses.
The absence of any credit information may make financial due diligence difficult and could potentially dissuade foreign investors from investing in Fiji in partnership with local entities.
The full impact of the Act remains to be seen as the stakeholders take stock of their options.