True democracy and cost of credit
Richard Naidu. The Fiji Times, Saturday, April 30, 2016
POLITICIANS run elected governments so from time to time we must expect that they will do silly things. Still, in the annals of silly laws passed by Fiji governments in our 46 years of independence, the Fair Reporting of Credit Act will rank highly on my list.
Our leaders repeatedly remind us (so often, it seems, that perhaps they are trying to persuade themselves) that we now live in a “true democracy.” But a “true democracy” does not just mean that people vote every four years. A “true democracy” means that we work together, consult each other and listen to each other’s views.
Parliament has a process for passing laws. That process is designed to be slow. This means a draft law can be circulated for everyone to think about. Those affected by the law can tell the Government what the effects of the new law will be.
Our leaders — Government and Opposition — can talk to each other about how to accommodate everybody’s interests (everybody, that is, not just the ruling party’s supporters). That way, we get laws we all understand and whose consequences we have all thought through, even if some of us do not agree. Good laws, in other words.
There is also a special process for passing laws which are considered urgent. But the mystery is why the Fair Reporting of Credit Act was considered urgent. It seems to have popped up, out of nowhere, on a Monday. By Thursday it was out of Parliament and presumably on its way to the President for signing into law. Why?
The Attorney-General helpfully explained that there was no need to consult, because “every single citizen of this country will be very happy with this Bill. We don’t need to go out and spend months on end to find out if they are happy or not”.
Fiji is fortunate to have true democrats like Aiyaz Sayed-Khaiyum. Since he obviously knows what will make the people happy without the need to ask us, why bother with a Parliament at all?
It seems that on Tuesday, the directors of Data Bureau, the country’s only credit agency, woke up to a newspaper story that credit agencies were to be regulated and Mr Sayed-Khaiyum’s reasons why.
They wrote a seven-page letter to Mr Sayed-Khaiyum on Wednesday. This told him why almost all of the reasons he had given were wrong. Reading that letter, the differences between the Government’s reasons and Data Bureau’s reality are astonishing.
* Data Bureau based its system on a credit agency in New Zealand (a country with strong privacy laws). It spent more than a year setting up the rules. It worked with the Reserve Bank. The World Bank has helped. Data Bureau is a model for similar companies (which Data Bureau owns) in Tonga, Samoa and Vanuatu
* In 15 years of operation Data Bureau has received 14 complaints from the Consumer Council — less than one per year
* Your credit information does not go onto a Data Bureau database without your permission (which you generally give when you apply to a lender for credit). Of course if you suffer a court judgment or bankruptcy, that is a matter of public record (which doesn’t need your consent to be on the database)
* Only a record of an undisputed debt is loaded onto the Data Bureau system. If you dispute a debt, you take it up with Data Bureau and your dispute is reviewed
* If of course Data Bureau’s information about you is wrong, you can sue Data Bureau for any loss to your reputation.
Why would the World Bank care about what Data Bureau is doing? Perhaps because the World Bank understands that if there is good information, there is transparency (a favourite Government word).
Transparency creates efficiency in lending. That means greater amounts of quality credit. That means economic growth.
No one knows what the new law will do – except that the Government wants to confiscate all the credit information that Data Bureau has collected over 15 years. Then it will say “start again under new rules. We haven’t thought of these new rules yet. We will tell you later”.
So does this new law liberate every Fiji citizen from the clutches of evil banks and finance companies? Will borrowers and consumers now enjoy newfound economic justice when they apply for a loan? Of course not.
Under this law the majority of us lose — those who have never defaulted on a debt, have never missed a loan payment and have never been chased by a business for not paying our bills.
Until now, when you applied for credit, a lender or business might check to see if you had a negative record at Data Bureau. If you didn’t, you had a better chance of getting a loan.
Now lenders and businesses have no information on anybody. So they will have to decline more loans and budget for more bad debts. Who will they pass these costs on to? Us of course, the borrowers (assuming they will lend to us at all). So higher costs for borrowing for everybody. And it is not just banks who use credit agencies. So do many businesses, small and large. Every day they have to decide about giving credit accounts to others.
Westpac or CreditCorp have employees who keep records of judgments and other credit information. These large organisations can quickly rebuild their own database of people who are bad credit risks. But if you are a small business trying to decide whether to give credit to a new customer, you will have no information at all. Your risk of loss goes up. So maybe you just won’t offer credit — and lose some good business.
The Government (cheered on by the Consumer Council of Fiji) seems to think that if it wipes out negative credit information on everybody in Fiji, then we will all have some kind of quasi-constitutional right to borrow money. In fact, now that no one has a credit record, cautious lenders will mean it is harder for us to borrow. Lenders will always find ways to protect their money. The only question is how much it will cost the rest of us.
If the Government had stopped, thought and consulted — instead of passing a law in three days to make a debating point — we might have been able to discuss these things sensibly. Maybe our “true democracy” isn’t all it’s cracked up to be.
* Richard Naidu is a Suva lawyer. He has no professional or personal connection to Data Bureau. The views expressed are his and not of this newspaper