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Credit and the pandemic: time for negotiation, transparency and data integrity

Unprecedented in history, the COVID-19 pandemic has abruptly changed life around the world, creating a new global reality. At a time when social isolation and the consequent decrease in economic activity are creating situations whose consequences are impossible to predict, social, health and financial measures are being announced with the aim of mitigating the effects of the coronavirus.

In this scenario, credit bureaus play a fundamental role in disciplining credit, which is essential for reconnecting the economy. To this end, the sector works hard to protect consumers and companies from the impacts that the period may have on their credit histories. For this, negotiation, transparency and data integrity are fundamental.

Individuals and companies concerned about their financial situation should therefore contact their creditors to talk things over. It's important to note here that credit bureaus are part of the credit process as an information center, and have no actual involvement in granting or collecting credit. In other words, they cannot suspend payments or renegotiate. The fundamental role of credit bureaus is to contribute to responsible access to credit and the financial stability needed to protect borrowers, creditors and society as a whole.

It is therefore crucial for lenders, consumers, the economy and social welfare that the information contained in credit bureau databases is as comprehensive - including both positive and negative - current and accurate as possible. This is extremely important in normal times and also in exceptional and challenging periods such as the one we are currently experiencing.

Data integrity is key to providing fairer credit ratings, which must be based on complete information, including identification of operations impacted by the state of public calamity due to COVID-19.

At the moment, credit bureaus are working with lenders to ensure that decisions affecting the payment schedule and denials of individuals, sole traders or SMEs are properly reported, identified and recorded in each borrower's file, providing a fairer credit assessment.

The sector therefore points out that any suppression in sending/blocking the use of relevant data for credit assessment will affect transparency in creditor and borrower relations, generating insecurity in credit assessment. This insecurity harms consumers, companies and the credit system as a whole, which relies on accurate and up-to-date information, limiting access, negatively impacting credit conditions, increasing defaults and boosting over-indebtedness.

In addition, it's worth remembering that individuals and companies have the right to keep up to date with their credit history, which can be accessed free of charge through any of the credit bureaus' digital channels. See the recent article (“Inside the credit rating”) I wrote about this.

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By: Elias Sfeir President of ANBC & Member of the Climate Council of the City of São Paulo & Certified Advisor