The High Court decision that may permanently change how credit reporting agencies such as CTOS operate in Malaysia

CTOS Data Systems Sdn Bhd (CTOS), the leading credit reporting agency in Malaysia, made headlines nationwide recently after the Kuala Lumpur High Court found that the company has no legal standing to actually perform the service that it was most known for, which is to formulate a credit score.

Furthermore, in the negligence and breach of fiduciary duty suit initiated by 43-year-old Malaysian businesswoman Suriati Yusof, CTOS was found to have breached the duty of care owed towards the plaintiff. Accordingly, High Court Judge Dato’ Haji Akhtar bin Tahir ordered CTOS to pay RM200,000 in general damages to Suriati and awarded her RM50,000 in costs.

Following the High Court decision, CTOS’s shares plunged a whopping 16% to its lowest point in 20 months, though it has since rebounded. Not only that, the High Court ruling may also permanently change how credit reporting agencies such as CTOS operate in Malaysia.

So, what does the ruling entail? Well, join us as we break down the case in depth below.

Suriati Mohd Yusof vs CTOS

First, let’s establish what the court ruling was all about and why the plaintiff filed a civil suit against CTOS in the first place.

According to the facts of the case, the plaintiff, Suriati Mohd Yusof is the Director and shareholder

of Keranji Beach Resort Sdn Bhd situated in Pulau Perhentian, Terengganu. Sometime in May 2019, the plaintiff, as a result of a negative report from CTOS, had her loan application for a car rejected.

On further inquiry the Plaintiff found out that the data collated and kept by CTOS was inaccurate and false, giving her a negative credit rating. Specifically, one of the information kept by CTOS which was inaccurate related to a sum of money owed by the Plaintiff to a company called WEBE (formerly known as Packet One network SB) which the Plaintiff denied owing.

Apart from inaccurate information, Suriati also contended that CTOS had given her a low credit score leading to a loss of confidence from financial institutions. The Plaintiff found out that the credit score was based on inaccurate criteria which were not updated. Both the inaccurate information as well as a wrong credit score had resulted in the Plaintiff being considered not creditworthy leading to personal and business losses.

Judgement by High Court Judge Dato’ Haji Akhtar Bin Tahir

In his judgement, High Court Judge Dato’ Haji Akhtar found that Suriati had alerted CTOS of the inaccurate information against the Plaintiff. He further asserted that evidence in the case shows that CTOS chose to ignore the communication from Suriati and continued to maintain the said information.

His Lordship asserted that the least CTOS could have done was to suspend the information pending verification or notify the recipient of the information not being verified. Hence, by choosing to be indifferent even after being alerted by the Plaintiff, CTOS, which has a duty of care to the plaintiff in providing accurate credit information as per Section 29 of the Credit Reporting Agencies Act 2010, has clearly breached that duty.

The provision is as follows:

The High Court found that the above provision clearly imposes a duty upon CTOS to verify the credit information received both for the purpose of using or processing the credit information. Hence, the Court therefore ruled that the Defendant’s contention that the recipient of the information has a duty to independently verify the credit information is unfounded and unsubstantiated.

Judge Dato’ Haji Akhtar thus found that while the Plaintiff had suffered losses, she could only prove personal losses but not business losses. Hence, the High Court ruled that the Plaintiff is entitled to be compensated for only her personal losses.

The High Court acknowledged that the Plaintiff’s reputation and her relationship with her husband had broken down as a result of CTOS’ negligence and breach of fiduciary duties. Accordingly, for these losses suffered, the High Court allowed the Plaintiff’s claim and awarded a sum of RM200,000 of general damages to her, as well as a cost of RM50,000.

The High Court found that CTOS has no legal standing to formulate credit score

In his judgement, Judge Dato’ Haji Akhtar asserted that aside from giving out credit information, CTOS also formulated a credit score for the Plaintiff based on criteria such as payment history, amount owed, credit history length, credit mix and new credit. However, the High Court is of the view that the Credit Reporting Agencies Act 2010 has no provision to empower CTOS to formulate a credit score or create its own criteria or percentage to formulate a credit score.

Judge Dato’ Haji Akhtar iterated,

“The Defendant (CTOS) is just supposed to be a repository of the credit information to which the subscribers have access to.

“By formulating a credit score the Defendant has gone beyond its statutory functions and the Plaintiff has suffered a loss as a result of being labelled as a delinquent by the Defendant when they have no right to do so.”

With that in mind, since the High Court has declared that CTOS’ actions in formulating credit scores were against the statutory provisions, the act itself is deemed unlawful and if the company continues to do so in the future, they will be liable to negligence suits such as this. As such applies to other credit reporting agencies too.

Nevertheless, CTOS has since lodged a notice of appeal for this decision by the High Court to the Court of Appeal, though as of the time of writing, no news of the appeal has yet surfaced.

Moving forward, it’d be interesting to see how the case would further develop in the appeals process. In the meantime, let’s hope that the Finance Ministry, which credit reporting agencies such as CTOS comes under the purview of via the Registrar Office of Credit Reporting Agencies can come out with a clarification on the whole situation.

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