fee ix

hed © RECEIVED Ss
DATE:0CT_12

Republic of the Philippines 3
HOUSE OF REPRESENTATIVES e
Quezon City, Metro Manila of
o
EIGHTEENTH CONGRESS x
Second Regular Session

House Bill No. 7863

Introduced by REP. JOEY SARTE SALCEDA

AN ACT
TO ESTABLISH FAIR AND INCLUSIVE CREDIT REPORTING MECHANISMS
TO ENSURE EQUITABLE CREDIT ACCESS TO THE MOST VULNERABLE.
SEGMENTS OF SOCIETY AND FOR OTHER PURPOSES

EXPLANATORY NOTE

In recent years, as more Filipinos get included in the formal financial system, credit reports
have also increasingly played an important role in the lives of ordinary Filipino citizens. Most
financial institutions, for example, review these reports to make decisions about whether to
extend credit to consumers and what terms and conditions to offer them. This means that credit
reports significantly help determine whether a consumer has access to favorable and affordable
loan conditions.

Information contained in these reports also affect whether a person is able to get a loan to pay
for education and housing, to obtain a credit card, as well as the terms and conditions under
which consumer credit products or services are offered to them.

Unfortunately, for many Filipinos, such as those who have been only recently included in the
formal financial system, and those who do not have the means to comply with traditional
standards of creditworthiness, conventional credit reporting could doom their chances of
accessing favorable credit terms.

The lack of alternatives in the formal, well-regulated financial institutions for these Filipinos
lead them to resorting to more expensive, poorly-supervised and potentially illegal lending
operations that impose abusive interest rates and practice predatory lending activities.

Many micro, small, and medium enterprises (MSME) which operate in semi-formal economic
spaces, and farmers could also be potentially excluded from credit access under conventional
credit scoring.

Under Republic Act No. 9510, the Credit Information Corporation has the powers and
functions to receive and consolidate basic credit data, to act as a central registry or central
repository of credit information, and to provide access to reliable, standardized information on
credit history and financial condition of borrowers. The CIC largely still operates under
conventional credit reporting mechanisms.


To ensure that more Filipinos have access to well-regulated, formal, and affordable means of
credit, the Fair and Inclusive Credit Information and Scoring Act aims to encourage the
development of non-traditional approaches to credit scoring, to include more segments of
society that have previously been excluded under more conventional approaches. With fair and
more inclusive credit scoring, more small businesses, farmers, informal sector workers, and
other vulnerable groups will be able to access more affordable credit that could uplift their
economic conditions and enable them to engage in more productive economic activities.

This Act specifically provides for the following:

1, Mandating a credit inclusiveness study to determine whether conventional credit
scoring techniques exclude specific segments of Philippine society;

2. Granting the Bangko Sentral ng Pilipinas (BSP) clear regulatory oversight of credit
scoring methods;

. Requiring a regular review of credit scoring models to assess their inclusivity; and

. Allowing the BSP to prohibit credit scoring models that are deemed to be unduly
exclusionary.

AY

This bill also responds to the urgent need to translate more financial system liquidity into credit
in the real economy, to help the country recover from the economic fallout of COVID-19. By
allowing more people to access loans at fairer and more inclusive terms, this bill will help spur
more productive economic activity in the most vulnerable segments of society.

In view of the foregoing, the approval of this bill is urgently sought.

JOEY SARTE SALCEDA


Republic of the Philippines
HOUSE OF REPRESENTATIVES,
Quezon City, Metro Manila

EIGHTEENTH CONGRESS
Second Regular Session

House Bill No.__ 7863

Introduced by REP. JOEY SARTE SALCEDA

AN ACT
TO ESTABLISH FAIR AND INCLUSIVE CREDIT REPORTING MECHANISMS
TO ENSURE EQUITABLE CREDIT ACCESS TO THE MOST VULNERABLE
SEGMENTS OF SOCIETY AND FOR OTHER PURPOSES

Be it enacted by the Senate and House of Representatives of the Philippines in Congress
assembled:

SECTION 1. Short Title. — This Act shall also be known as the “Fair and Inclusive
Credit Information and Scoring Act.”

SEC. 2. Definition of terms. — As used in this Act, the terms —

(1) “Alternative Modeling Techniques” shall refer to statistical and mathematical
techniques that are not traditional modeling techniques, including decision trees, random
forests, artificial neutral networks, nearest neighbor, genetic programming, and boosting
algorithms;

(2) “Consumer Report” shall refer to any written, oral, or other communication of any
information by a consumer reporting agency bearing on a consumer's credit worthiness, credit
standing, credit capacity, character, general reputation, personal characteristics, or mode of
living which is used or expected to be used or collected in whole or in part for the purpose of
serving as a factor in establishing the consumer's eligibility for (1) credit or insurance to be
used primarily for personal, family, or household purposes, or (2) employment purposes, or (3)
other purposes authorized by law.

(3) “Non-Traditional Data” shall refer to data related to telecommunications, utility
payments, rent payments, remittances, wire transfers, data not otherwise regularly included in
consumer reports issued by consumer reporting agencies described under section 603(p), and
such other items as the Bureau of Consumer Financial Protection deems appropriate.

(4) “Traditional Modeling Techniques” shall refer to statistical and mathematical
techniques (including models, algorithms, linear and logistic regression methods, and their
outputs) that are traditionally used in automated underwriting processes.

SEC. 3. Credit Inclusiveness Study. ~ The Credit Information Corporation (CIC), in
collaboration with the Philippine Institute for Development Studies (PIDS) and the Bangko
Sentral ng Pilipinas (BSP) shall carry out a study to assess the impact (including the availability
and affordability of credit and other noncredit decisions, the potential positive and negative
impacts on consumer credit scores, and any unintended consequences) of using traditional



modeling techniques or alternative modeling techniques to analyze non-traditional data from a
consumer report and of including non-traditional data on consumer reports on the following:
1) Consumers with no or minimal traditional credit history;
2) Traditionally underserved communities and populations, such as members of
indigenous communities;
3) Consumers residing in rural areas;
4) Consumers residing in urban areas;
5) Religious and ethnic minorities;
6) Consumers across various income strata, particularly consumers earning less than
less than the annual median income as determined by the Philippine Statistics
‘Authority (PSA)
7) Refugees and non-permanent residents;
8) Self-employed and small and medium enterprises; and
9) Consumers residing in informal housing and or state-funded housing projects for
low-income families.

SEC. 4. Additional considerations in the credit inclusiveness study. ~ In assessing

impacts under Section 1 of this Act, the CIC, PIDS, and BSP shall also consider impacts on —

1) the privacy, security, and confidentiality of the financial, medical, and personally
identifiable information of consumers;

2) the control of consumers over how such information may or will be used or
considered;

3) the understanding of consumers of how such information may be used or considered
and the ease with which a consumer may decide to restrict or prohibit such use or
consideration of such information;

4) potential discriminatory effects; and

5) disparate outcomes the use or consideration of such information may cause.

SEC. 5. Consideration of other state studies. — In assessing impacts under Section 1 of
this Act, the CIC shall also consider recent Government studies on alternative data, including
the body of research on financial inclusion which may be available from the BSP.

SEC. 6. Annual report to Congress. ~ Not later than one (1) year after the date of the
enactment of this Act, the CIC shall issue a report to the Committee on Banks and Financial
Intermediaries of the House of Representatives and the Committee Banks, Financial
Institutions and Currencies of the Senate containing all findings and determinations, including
any recommendations for any legislative or regulatory changes, made in carrying out the study
required under Section 3 of this Act.

SEC. 7. Oversight of credit scoring models. — Not later than 1 year after the date of the
enactment of this Act, the Monetary Board shall (in consultation with the Philippine Deposit
Insurance Corporation, the Securities and Exchange Commission, and the CIC) issue final
regulations applicable to any person that creates, maintains, utilizes, or purchases credit scoring
models used in making credit decisions to establish standards for validating the accuracy and
predictive value of all such credit scoring models, both before release for initial use and at
regular intervals thereafter, for as long as such credit scoring models are made available for
purchase or use by such person.

SEC. 8. Inclusivity and fairness in credit scoring models. ~ At least once every two (2)
years, the BSP and CIC shall conduct a review of credit scoring models to determine whether


the use of any particular factors, or the weight or consideration given to certain factors by credit
scoring models, is inappropriate, including if such factors do not enhance or contribute to the
accuracy and predictive value of the models. Upon the conclusion of its review, the BSP may
prohibit any of its supervised financial institutions from weighing, considering, or including
certain factors in, or making available for purchase or use, certain credit scoring models or
versions, as the BSP determines appropriate.

SEC. 9. Review of changes to credit scoring models. ~ With respect to a person that
creates credit scoring models used in making credit decisions, if such person creates a new
credit scoring model (including a revision to an existing scoring model) that would, when
compared to previous credit scoring models created by such person, lower the credit scores of
a class of consumers, the BSP may review such new credit scoring model and, if the BSP
determines that such new credit scoring model is inappropriate (including, with respect to a
revision to an existing scoring model, if such revision does not enhance or contribute to the
accuracy and predictive value of the existing scoring model), the BSP may prohibit such new
credit scoring model.

SEC. 10. Implementing Rules and Regulations. ~ Unless otherwise stated, the BSP and
the CIC shall jointly issue the rules and regulations necessary for the implementation of this,
Act, within ninety (90) days upon its effectivity.

SEC. 11. Oversight Committee. — The Committee on Banks and Financial
Intermediaries of the House of Representatives and the Committee on Banks, Financial
Institutions and Currencies of the Senate shall select, from each committee, a delegation of five
(5) members, with at least one (1) member representing the legislative body’s minority
coalition, to constitute the Congressional Oversight Committee on Fair Credit Reporting,
which shall be co-chaired by the Chairs of both Committees.

The Oversight Committee shall convene within one hundred and twenty (120) days
after the date of effectivity of this Act to determine whether:
1) The BSP and the CIC have issued the Rules and Regulations necessary for the
implementation of this Act;
2) The study mandated under this Act has been initiated; and
3) Other mandates under this Act have been initiated or fully complied with.

SEC. 12. Separability Clause. ~ If any part or provision of this Act is held invalid or
unconstitutional, the remaining parts or provisions not affected shall remain in full force and
effect.

SEC. 13. Repealing Clause. — All laws, decrees, orders, rules and regulations
inconsistent with the provisions of this Decree are hereby repealed or modified accordingly.

SEC. 14. Effectivity. — This Act shall take effect fifteen (15) days after its publication
in the Official Gazette or in any newspaper of general circulation.

Approved,