This article first appeared in The Edge Malaysia Weekly on March 18, 2024 - March 24, 2024
CONSUMER groups, which have long lobbied for greater clarity on credit reports produced by credit reporting agencies, are jumping on the High Court’s March 7 ruling that the Credit Reporting Agencies Act 2010 has “no provision” allowing CTOS Data Systems Sdn Bhd to formulate credit scores.
Consumers Association of Subang and Shah Alam (CASSA) president Datuk Seri Dr Jacob George says the ruling brought the long-standing issue into the spotlight and asks that policymakers enact rules that better protect consumer interest, including ensuring greater transparency and more timely updates to information used in formulating credit reports.
“CTOS started for loan providers to ensure that the borrowers are financially responsible. Unfortunately, over the decades, the [scoring] system has become what I would consider [something] that people fear,” he tells The Edge. He also asks that regulators put in rules that would help reduce the number of consumer complaints against credit reporting agencies (CRAs).
National Consumer Complaints Centre (NCCC) CEO Datuk Indrani Thuraisingham concurs with this view, noting that the centre has received “numerous complaints” from consumers alleging that they had received negative CTOS scores based on inaccurate or outdated information. According to her, companies are naturally quick to report to CTOS when there is even the smallest outstanding or disputed amount, but really do not have any motivation to report just as fast to CTOS when payments have been made.
As such, Indrani called for the authorities to enact the Consumer Credit Act, to ensure that financial disputes involving various forms of credit between lenders and borrowers could be dealt with more fairly. This, in turn, would ensure that the services provided by credit reporting agencies are not misused to pressure consumers pending the resolution of any dispute.
According to data on CTOS’ website, in the event of credit report inaccuracies, it generally takes three to five days to update information after the agency has verified all relevant supporting documents submitted by the individual. Updates could take up to two weeks for more complex issues.
Going by the civil suits filed against the CTOS, however, the period of up to two weeks may not include the time required for it to verify any supporting documents presented to it for verification.
CASSA’s Jacob calls on the Ministry of Finance — under whose purview CRAs like CTOS falls — to set up a dispute tribunal of sorts or a division to better regulate the conduct and standard operating procedures of CRAs if privately held third parties continue to be allowed to collate sensitive financial data to come up with credit reports.
Such a framework should govern the database setup of CRAs to safeguard consumers’ privacy when it comes to sensitive financial data. He also wants proper regulation to be enacted to ensure that consumers have full knowledge of what data on their credit track record is being shared.
“If you look at Australia, the US or even our neighbouring countries in Southeast Asia, when a borrower applies for a loan, there are questions that require the borrower to clearly state their risk exposure. In the event of the borrower providing false information, the application will be rejected. The authorities are monitoring, and there is no opportunity to access the system where personal data is breached,” says Jacob, who prefers the government itself to come up with credit reports rather than privately held, profit-driven companies.
It is worth noting that any information processed by a CRA for the purpose of a credit reporting business is not subject to the Personal Data Protection Act 2010.
Indrani, on the other hand, says CTOS should come under the close supervision of Bank Negara Malaysia given that CRAs have access to sensitive financial and payments data and provides consumer credit information to financial institutions. She adds that individuals should be given access to their own credit information and report at no cost to the individual.
Instead of putting the burden of proof on consumers, Indrani reckons that CRAs must be more proactive in addressing queries and put in place a system where timely updates are made by creditors once payments are settled. The timeliness of updates is an area that regulators can greatly help consumers, she adds.
According to the Credit Reporting Agencies Act 2010, consumers have the right to request their credit information from CRAs upon payment of any prescribed fee. In the event of any inaccuracies, the agencies are mandated to correct them within 21 days of receiving a correction request from the consumer.
In the US, however, consumers are entitled by law to receive a free credit report every year from the three major credit reporting agencies, namely Equifax, Experian and TransUnion. If consumers find errors in their credit reports, they can send a dispute letter to the CRA. According to the Fair Credit Reporting Act, the agency must then investigate and correct any inaccuracies within 30 days.
Significance of CTOS’ credit scoring business
Credit scoring makes up only about 15% of CTOS Digital Bhd’s revenue, its group CEO Erick Hamburger told reporters last week.
So, where does the rest of the revenue come from?
“CTOS’ credit reports do provide historical credit information as well, without a scoring. This would be what makes up the rest [of the revenue] with data analytics and digital solutions, which they also offer,” notes an analyst covering the stock.
What is also included in the 85% is the subscription fee for access to CTOS’ platforms, such as the Credit Manager for Commercial.
Besides the credit score, CTOS provides a wide range of digital products and credit management solutions and services for every stage in the customer’s credit lifecycle.
“We have accumulated lots of data points for companies and individuals. From litigation, residential addresses, work information, your CCRIS (Central Credit Reference Information System), and trade reference information from the SME (small and medium enterprise) side. We have access to a lot of information, utilities, telco data.
“We compile and analyse all that data and make it usable for both the individual and companies so that you know who you’re doing business with,” Hamburger tells The Edge in an interview at end-February, before the announcement of the court judgment was made.
Notably, CTOS makes the bulk of its revenue from businesses and financial institutions, while retail clients contribute a small percentage to total revenue. The group categorises revenue according to the segment of clients it serves.
According to the group’s financial statement for the fourth quarter ended Dec 31, 2023 (4QFY2023), revenue is divided into three categories: key accounts; commercial; and direct-to-consumer.
The largest segment in terms of revenue comes from its commercial segment, which comprises the group’s commercial customers other than key accounts customers that contributed 45.96%, or RM120.18 million, of the group’s total revenue of RM261.44 million.
Coming in close is its key accounts segment, consisting of the group’s highest revenue-generating customers as well as other selected customers — such as those with complex requirements or well-recognised brands.
Commercial banks and financial institutions are some examples of key accounts.
In FY2023, key accounts contributed a total of RM118.89 million to group revenue, or 45.47% of the group’s total revenue.
The direct-to-consumer segment, comprising its retail consumers, contributed RM22.37 million, or 8.6%, to group revenue.
In FY2023, the group’s net profit amounted to RM118.37 million, 65% higher than the RM71.72 million it achieved in the previous year.
Part of the group’s net profit comes from its associate companies. The share of profit from associates in FY2023 totalled RM25.98 million, higher than the RM23.27 million achieved a year ago.
CTOS associates include Experian Information Services (Malaysia) Sdn Bhd (26% interest), Juris Technologies Sdn Bhd (49%) and RAM Holdings Bhd (57.68%). CTOS also holds 24.83% interest in Business Online Public Co Ltd, a publicly traded company in Thailand that provides credit scoring services for businesses.
Experian, an associate company of CTOS, is also in the same business of credit reporting and credit bureau and information services.
In FY2023, the company added more companies to its portfolio, acquiring 80% interest in Indonesian company Alt Decisions Pte Ltd for RM2.2 million. Alt Decisions holds a 99.99% stake in PT Prime Analytics Indonesia, a financial technology company that uses telecommunications data to determine a customer’s creditworthiness.
The group also acquired a 100% stake in Fintech Platform Ventures Pte Ltd, which provides similar telco scoring services in the Philippines. It owns Finscore Inc and CC Mobile Financial Services Philippines Inc.
It is obvious that CTOS is spreading its wings wide in the credit reporting space in Asean through acquisitions, which Hamburger believes is the fastest way to penetrate new markets.
In Malaysia, CTOS is a dominant player in the credit rating agency space, commanding more than 70% of market share. Besides Experian, another company that provides credit scoring services is Credit Bureau Malaysia Sdn Bhd, which is jointly owned by Sunway Holdings Sdn Bhd and Credit Guarantee Corp Malaysia Bhd.
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