No hiding place for credit

The amount of debt you may have will no longer be a personal secret as lenders will soon be able to access Emcredit, a new database in the UAE.

April 1, 2009 / Abu Dhabi / A credit card ad in the window of National Bank of Abu Dhabi April 1, 2009. (Sammy Dallal / The National)
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Details of everything from the amount outstanding on an individual's credit card to their promptness at paying off their phone bill will soon be pooled together within a central database in Dubai. Lenders will be able to access the system, which can store the credit records of millions of the country's bank customers, and use the information to help determine their lending decisions. Customers are given a score depending on their record at paying off debts; the higher the score, the better an individual's credit history.

Utility and telecommunications companies will have access to data that is less detailed, but sufficient enough to help them decide whether to accept or reject an application for a new electricity account or fixed-line telephone, for example. A law was passed by the Dubai Government this month requiring local and international lenders operating in the emirate as well as organisations outside the financial sector, such as utility and telecommunication companies, to share information on their customers within the UAE with the credit bureau Emcredit.

For some consumers, the thought of having officials poring over their credit data may send a shudder down their spines. However, financial experts say, by and large, consumers have little to worry about. The new system is designed to benefit individuals as much as banks, they say. Nonetheless, customers ought to be aware of what the implications are for them from the new era of increased scrutiny of their records.

"There should be no fear for consumers," says Andrew Hagger, of the UK financial advisory website "Even customers with an imperfect credit history will have the chance to improve their record as most credit agencies show credit history on a monthly basis." Customers with a clean banking record should certainly benefit from the new regime. If banks can see a customer has no outstanding loan payments and pays off their credit card promptly every month, they are more likely to offer them preferential rates on products.

"People with a good credit history that may have been tied to one bank now have a passport to seek credit from other organisations, increasing competition amongst banks, which is better for customers," says Neil Munroe, the external affairs director of UK credit agency Equifax and president of the Association of Consumer Credit Information Suppliers. It will also be an advantage for those expatriates in the UAE returning home after being outside their country's banking system for a few years. The ability to refer to a report showing an unblemished credit history is likely to help them once they attempt to obtain a credit card or a loan.

In the long-run, the legislation should even help heavily indebted customers with a poor credit track record that is littered with missed bill payments or defaults on debts. "Consumers with a less than perfect record may not like it at first, but in the long term it will benefit them as they are not able to get more credit cards or loans, which will stop them getting into deeper debt down the line," says Mr Hagger.

So-called self-disciplined mechanisms are viewed as a more effective way of reducing levels of consumer debt than other methods such as outlawing bounced cheques. The level of indebtedness in the UAE last year was about Dh128,550 per household including mortgage and non-mortgage debt, according to a report by the Lafferty Group. The legislation should also make it easier for banks to track expatriates who have skipped the country leaving behind bad debts.

"If an individual with a bad credit record leaves the UAE, that history could follow him to his country of origin," says Zaid Kamhawi, the chief business officer of Emcredit. "The logic is that banks in future may be able to force the individual to go back and settle his debts." In the future, Emcredit's database may be linked up with credit agencies in countries with a high number of expatriates in the UAE, such as the UK, India and Pakistan, under plans to share credit data through the Middle East Credit Reporting Association, which represents credit bureaus across the region.

The new law throws up pertinent questions about an individual's right to data privacy, an issue that officials say has not been overlooked. For a start, Emcredit is based in the Dubai International Financial Centre, which is governed by data protection laws based on international best practice. One potential legal loophole, however, is that the law also applies to other data providers in the emirate where data protection legislation is different.

Emcredit says it will only share its information with authorised users with a relevant purpose to access the data, either for assessing a credit application, reviewing an existing client's record or collecting debt from an individual. Registered users of the system - including banks, other financial institutions and service suppliers, such as utility and telecommunications companies - will be able to access the information by logging on to the database and entering a password.

By law, before a company can obtain a report on an individual they have to gain the consent of that person. "Individuals still have the right to privacy, but nobody has the right to free credit," says Mr Kamhawi. "If you want to apply for credit you need to supply information about yourself that helps the creditor assess your credit background."