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Why doesn't the BKR system work?

Written on August 17, 2017 by Deepak Thakoerdien
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Creditworthiness regarding bkr

The Bureau of Credit Registration (BKR) registry can prevent problems, but it can also create new ones. It is not unlikely that individuals will be wrongly registered or that inclusion in the BKR register will haunt someone for an unnecessarily long time. As a result, those registered may be barred from obtaining a mortgage or loan.

Although banks have a legitimate interest in using the BKR register, it remains a sensitive tool. Dynamite Netherlands urges caution in its use, and if a negative BKR (blacklist) code is registered as yet, this must be done with great care.

What is the purpose of the BKR?

A lending bank wants to be aware of the loan applicant's income, assets and other debts. Banks are required to report every loan contract and expiration to the BKR. This enables banks to assess the creditworthiness of the credit applicant and prevents overcrediting. This is referred to as a positive BKR registration. A positive BKR registration is usually not an obstacle to obtaining a mortgage or loan.

In addition, the BKR has agreed with banks to report irregularities during the repayment of credit. Irregularities occur if the borrower has not repaid the agreed installment amount within two months after the due date. Based on the nature of the irregularity, a type of negative BKR code is assigned to it. For those who have a BKR code behind their name, it is in practice extremely difficult, if not impossible, to take out new financing. To that extent, the BKR can be considered a blacklist.

The blacklist

The BKR blacklist is aimed at prevention. Banks warn each other about the risk that certain persons may not fulfill their payment obligations. A bank thus prevents entering into an agreement with a person who has not (properly) fulfilled his obligations in the past. Banks can consult the BKR register when entering into an agreement to check whether the loan applicant is listed here in negative terms. Those listed have done something objectionable; they are tainted.

Being registered on the blacklist is, as a rule, a serious disqualification: 'be careful with this person'. The financial integrity of the registered person is called into question by registration. One is considered "suspicious" by the mere fact of having a BKR code.

The effect of the blacklist is that banks will not (no longer) enter into agreements with the registered. In terms of effect, the blacklist is akin to boycotts. After all, the purpose of a boycott is also to put a person or company out of business by no longer entering into agreements with them.

Boycott

By boycott, we mean the refusal of financing. People agree to provide each other with information via the BKR register about persons whose financial integrity is questioned. Agreements are not concluded with the negatively registered person or are concluded under other than usual conditions. This may make it very difficult or impossible for the boycotted person to obtain equivalent financing elsewhere, causing them to suffer or risk suffering considerable damage.

The interests of the registered

The consequence of registration on a blacklist is that the registered will not be able to enter into an agreement with the banks or on more unfavorable terms, for example, a higher interest rate. Banks should ask themselves the following before they want to report a negative BKR code.

  1. Is it necessary to completely disconnect someone from banking? What options remain?
  2. Should this person actually be protected?

The seriousness of the wrongdoing

No one wants to do business with defaulters. Every bank has an interest in keeping such individuals out. After all, they can cause great (financial) damage to the banking system. However, this does not mean that this makes every unpaid bill reason for a negative BKR code. Defaults come in many varieties. Everyone occasionally fails to pay a bill on time. However, it is not sufficiently onerous if the entire banking system rejects someone solely on the basis of not paying a single debt.

If for small unpaid debts a person is already blacklisted, the purpose of such a list is not to keep out defaulters. In those cases, blacklisting essentially provides a strong incentive to meet payment obligations.

The conclusion is that a payment default of minor proportions ('an incident') should not lead to placement on the BKR blacklist. The 'abuse' is not serious enough for that. The purpose is impermissible because other banks are induced not to provide financing in order to pressure the debtor to pay his debts. Only when there are structural defaults can blacklisting be justified. After all, the debt not paid on time will have to be sufficiently high to constitute structural default.

 

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