Human errors in banks’ negative lists

Picture this. Assigned bank officers from 38 universal and commercial banks enter names of erring borrowers into their negative lists, send these files to the Bankers Association of the Philippines on a regular basis via file transfer protocol, and the BAP sends the file back to the banks so they can use the database for deciding whose credit application to approve or to junk.

Frightening? What really goes on after these files are modified? Too many points for human errors and no way yet for individual borrowers to conveniently check whether they have hits on their names and whether the hits are justified. That’s why everybody’s waiting for the credit bureau, where transparency will make it possible for people to check their credit score.

I got this email from a reader who is concerned about a hit on his name and interviewed Topper Coronel, executive director of the BAP, to clear things up. The email sender’s name has been changed upon his request.

Ms. Salve,

I would like to pose some questions regarding your article posted on the Inquirer dated July 14, 2008 about the negative list of BAP. The questions I have are as follows:

1. What is the control mechanism of BAP to ensure that the appropriate individuals are in the negative list? What is stopping anyone who works in a bank to have your name placed on that list?

Topper Coronel: The BAP Credit Bureau is just the repository of information. That means garbage in, garbage out. The banks themselves make the list. However, there are only several bank officers within a bank who are specifically authorized to modify that list and they are responsible for its reliability. They can get sued for mistakes. We are not worried about the accuracy of these lists. We are not dealing with kids here.

2. I assume there are triggers for people to be listed. What are the triggers/limits? Does it start when you fail to pay the credit card bill on time?

TC: Yes, there are triggers for people to be listed and these are agreed upon by participants of the system. These include canceled credit cards due to improper usage, not voluntary cancellation. Even when the credit card falls past due, it is not immediately placed on the list. We make allowances for curable periods where a borrower might have merely forgotten to pay.

3. You mentioned that once you are on the list, you would be there forever. What if somebody made a mistake and placed you there? What if it was not you but another person with the same name?

TC: Banks as a rule look at the total credit history of a person. If you have a cancelled credit card or a bounced check but have paid the amount already, it is the obligation of the bank to make a notation that you have rectified the situation.

Personally, my advice is to deal with banks that know their business. If I were a bank, I would rather deal with someone who has had bad experiences with credit but got burned and has reformed, rather than someone who is spotless. Those who process credit applications and reject someone right away because of some bad decisions are lazy and are not doing justice to the bank. We are not dealing in heaven where there are only spotless angels.

Also, good banks invest in good systems. There are algorithms that check not just the name but also the address, birthday and other personal details. The BAP’s system can check details like middle names. We have enough safeguards to make sure we don’t make mistakes and ruin people’s lives. Our system can only be accessed by two or three very senior people and it is fully audited and fully secure.

As background, I applied last year for a credit card in another bank since I wanted to try their services and got denied. So I started to ask myself why I got denied and the only explanation was this bank was using the negative list. I already have new credit cards with two other banks but I feel pretty offended that I am on that list.

My annual salary was 15x their minimum limit. All of my credit cards including my wife’s were always paid in full. Obviously, like most busy couples we would miss payment once or twice but made sure we paid full and then some once we remembered it was the cut-off. Our home and cars are also not mortgaged. We also asked all the banks that we had credit cards from to give us a certification that we do not have any arrears. So what gives? I think somebody made a foolish mistake and placed us on that list.

TC: The best way to check would be to write a letter of request to the BAP and we can check the system for you. Then we can tell the bank to review their records.

Please feel free to post this message in anonymity but I am willing to be identified if this message will be forwarded to BAP. I appreciate your article and I hope this message will fix those who were placed inadvertently or avoid any future errors.

kind regards,
Juan Cruz

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