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Credit Reporting Agencies Are Not Authorised to Formulate Their Own Credit Score

On 7.3.2024, the Kuala Lumpur High Court in the case of Suriati binti Mohd Yusof v CTOS Data Systems Sdn Bhd [2024] MLJU 437; CLJU 440; (Civil Suit No. WA-23NCvC-8-01/2020) ruled that credit reporting agencies are not empowered to formulate a credit score or create their own criteria/ percentage to formulate a credit score.

The High Court found that the credit reporting agency in this case provided inaccurate/ false credit information and awarded a sum of RM200,000 as general damages to the person whom the credit information was related to.

Background Facts
The Plaintiff, Suriati Binti Mohd Yusof, is the director and shareholder of a resort situated in Terengganu.

The Defendant, CTOS Data Systems Sdn Bhd, is a credit reporting agency registered under the Credit Reporting Agencies Act 2010 (Act 710) (“CRAA 2010”). The Defendant is responsible for collating credit reports from various sources for the purpose of disseminating the information to its subscribers.

On or around May 2019, the Plaintiff discovered that her loan application for a car was rejected due to a negative report from the Defendant. The Plaintiff further discovered that the data collated and kept by the Defendant was inaccurate and false, which led to her negative credit rating.

The Defendant also gave the Plaintiff a low credit score leading to loss of confidence from financial institutions.

The Plaintiff filed a civil suit in the High Court against the Defendant to claim for damages suffered as a result of the Defendant’s negligence and breach of fiduciary duty in misrepresenting her credit rating leading to a loss of reputation, personal losses as well as business losses.

The Plaintiff contended that as a result of the inaccurate information and wrong credit score provided by the Defendant, the Plaintiff was considered as not creditworthy and suffered losses.

The Defendant contended that the Defendant’s role was merely to collate the information and it was not the duty of the Defendant to verify the accuracy of the information.

Grounds of Judgment of the High Court
1. Accuracy of Credit Information

The High Court observed that pursuant to the CRAA 2010, the Defendant as a credit reporting agency is tasked with the main role of collecting, recording, holding and storing credit information. The Defendant is also empowered to disseminate the information to its subscribers, which includes financial institutions.

The High Court ruled that Section 29 of the CRAA 2010 imposes a duty upon the Defendant to verify and to ensure the accuracy of the credit information/ credit report.

Further, CRAA 2010 was enacted to empower credit agencies such as the Defendant to provide accurate information to financial institutions in approving and disbursing financial aid to applicants. Therefore, the Defendant had a duty of care to provide accurate credit information to financial institutions and the persons concerned against whom the information was related to. The Defendant owed a duty of care towards the Plaintiff in providing accurate credit information.

The evidence in this case showed that the Plaintiff alerted the Defendant that the information against her was inaccurate. However, the Defendant ignored the communication from the Plaintiff and continued to maintain the inaccurate information. The High Court was of the view that the Defendant could have suspended the information pending verification or notify subscribers that the information was pending verification.

The High Court ruled that the Defendant breached the duty of care owed towards the Plaintiff as the Defendant was indifferent even after being alerted by the Plaintiff.

2. Credit Score Formulated by Credit Reporting Agencies

The Defendant formulated a credit score based on certain criteria which include payment history, amount owed, credit history length, credit mix and new credit. Using this criteria, the Defendant classified the Plaintiff as a serious delinquent.

The High Court held that there is no provision in the CRAA 2010 which empowered the Defendant to formulate a credit score or create its own criteria/percentage to formulate a credit score. The Defendant is just supposed to be a repository of the credit information to which its subscribers have access to.

By formulating a credit score, the Defendant has gone beyond its statutory functions. The Plaintiff suffered losses as a result of being labeled as a delinquent by the Defendant when the Defendant did not have the right to do so.

3. Compensation Awarded by the High Court
The High Court held that the Defendant had (i) breached the duty of care owed to the Plaintiff; and (ii) overstepped the functions they were registered for under the CRAA 2010.

The High Court ruled that the Plaintiff suffered personal losses. The Plaintiff’s reputation and relationship with her spouse had broken down as a result of the Defendant’s negligence and breach of fiduciary duties.

The High Court awarded the sum of RM200,000 as general damages and costs of RM50,000 to the Plaintiff.

Note: The Defendant has filed an appeal against the decision of the High Court to the Court of Appeal. This matter will be heard before the Court of Appeal.

This article is intended to be informative and not intended to be nor should be relied upon as a substitute for legal or any other professional advice.

About the author

Chew Jin Heng
Dispute Resolution
Halim Hong & Quek

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