The ABCs of Colombia's Credit-Reporting Fresh-Start Law (Part I)


Note: this article was originally published in 2021, during the COVID-19 health emergency, and is kept here as a historical reference on Colombia's credit-reporting fresh-start law. The special one-time amnesty it describes (in effect for 12 months from the law's entry into force) has already expired; the permanent rules on how long negative credit reports last are explained in our updated habeas data guide.

Colombia's Constitutional Court gave the green light to the so-called "borrón y cuenta nueva" (fresh-start) law, which amends nothing less than Statutory Law 1266 of 2008 on Habeas Data. Once fully in effect, the law throws a lifeline to people whose credit history suffered during the pandemic due to financial hardship, letting them restore their credit history and access financing to start a business.

Although the full text of the ruling wasn't yet public at the time, we wanted to lay out the basics of the new law that would govern once signed by the President.

For at least a year — the term the law set for the ONE-TIME AMNESTY on Habeas Data rights — debtors would have 12 months to catch up on their obligations and demand that credit bureaus remove their negative information. People who refinanced their debt or reached an agreement with their financial institution could also have their credit report cleared once caught up.

The approved text contained 15 articles covering topics such as: prior notice to the data subject, how long negative information stays on file before expiring, negative information for credit purposes, checking your own report, cases of identity fraud, positive administrative silence, updating and correcting data, transition rules, alerts for new obligations, financial education, demonstrated accountability and effective internal policies, and penalties at both the personal and institutional level.

The institution has a maximum of six (6) months to correct and clean up the requesting user's credit history — and in turn improve their credit score faster. If the user isn't removed from the credit bureaus once they've met their obligations, they can file a request with the institution, and if the negative information persists, they can file a tutela action, without prejudice to the penalties the law sets out for violating it.

The heart of the law is precisely the transition regime, or so-called amnesty, set out in article 9 — this is where a "clean slate" is given to people with negative information at the credit bureaus, which, in compliance with this law, must erase negative financial information in the following cases:

• Debts with financial and credit institutions paid off within the year following the law's entry into force: credit bureaus have six months to erase the negative financial information, counted from the date the obligation was paid.
• An overdue debt that has already been paid, with a negative report that's been on file for at least six months since the obligation was extinguished: that information expires immediately and must be erased automatically.
• An overdue obligation that has already been paid, with a negative report on file for less than six months since the obligation was extinguished: the information stays on the credit bureaus for whatever time remains to complete that six-month term. Once six months have passed, the negative information expires.
• A debt overdue for less than six months: "the negative information will stay reported for the same length of time it was overdue, counted from when the obligation was extinguished."

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WHAT THE FRESH-START LAW IS NOT: The fresh-start law does not forgive financial obligations or debts.

Credit bureaus will keep processing information from every institution that extends any type of credit, both from the financial system and the real economy, consolidating it into the reports they issue. What changes are the conditions under which negative data stays on file.

WHO GETS THE IMMEDIATE BENEFITS? That is, who doesn't have to wait the six (6) months — as long as they catch up on their obligations, they come off the negative report right away.

• Students and co-signers with Icetex education loans.
• Small producers and micro/small businesses (Mipymes) as well.
• The tourism sector.
• Small agricultural producers.
• Individuals engaged in commercial or independent activities.
• Victims of the armed conflict.
• Rural young people and women with Finagro agricultural loans.

At Consejurídico #WeWantToBeThere

Source: Draft bill. Constitutional Court Press Release No. 32 of 2021.

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