Amnesty will not open new road to easy credit

2013-11-12 00:00

CREDIT amnesty is not going to open a new road to “easy” credit for consumers and some service providers may have to take extra care when extending credit.

This is the warning from consumer lawyer Stephen Logan, who explained what the Department of Trade and Industry’s (DTI) wide-ranging proposed credit amnesty will mean for consumers with impaired credit records and for credit providers.

The DTI is gathering public comment on the recently gazetted credit amnesty proposal, but major banks — which have opposed the move — have claimed it will create problems for the industry.

According to the latest Credit Bureau Monitor released in June, there are 20,21 million credit active consumers of whom 9,69 million have impaired records. It has been estimated that between 1,6 and three million consumers may benefit from the proposal.

The DTI has proposed the removal of all adverse information listings held by credit bureaus, regardless of value or whether the debt has been repaid. It has also proposed the removal of all paid-up adverse information listings and all paid-up judgments information on an ongoing basis.

conSumers will still be

liable to repay theIR debts

DTI director Andisa Potwana said the aim was to remove barriers for consumers who can afford credit but have poor credit records.

“This will also remove barriers to employment and stimulate economic growth,” Potwana said.

“We are not saying people should take credit and not pay for it, but that those who have paid should not be punished for defaulting earlier,” Potwana said.

Potwana said the National Credit Regulator (NCR) was drafting affordability assessment guidelines to prescribe how credit providers should assess consumers’ financial fitness when granting credit.

However, Banking Association of South Africa managing director Cas Coovadia said banks were “principally opposed” to the amnesty.

“We believe this could result in a contraction of credit, or lead to an increase in the cost of credit because credit providers will price for risk introduced as a result of removal of information,” Coovadia said.

“However, the NCR has released a draft document indicating the intention to go ahead with the removal of adverse information. We are responding to the document with suggestions on limiting the consequences,” Coovadia said.

Logan agreed that removal of adverse information without the affordability guidelines would be problematic because the National Credit Act requires credit providers to do a “meaningful affordability assessment” and to check consumers’ credit records.

“The guidelines are very important as they will close the floodgates and decrease access to unaffordable credit,” Logan said.

However, he explained that there are four kinds of credit information on a consumer’s credit record and not all of the negative information will be removed.

These include:

• Payment profile information, which reflects data for a 36-month period showing how consumers have handled accounts on a monthly basis. For example, whether payments were regular, on time, late or missed. The amnesty will not remove this source of information, which is only available to members of the Credit Providers Association.

• Adverse information, which is drawn from the payment profile information that uses codes to indicate, for example, slow payer, handed over or written off, that reflects on the consumer’s public credit profile that can be accessed by any business with the consumer’s consent.

• Judgments relating to debt.

• Notices about administration orders, debt counselling, sequestration or rehabilitation.

“Lots of medical and other service providers will not see payment profile information and will supply credit. Similarly, people who are checking records for employers will generally not have access to that payment profile information,” Logan said.

Logan said many credit providers were charging the maximum rates for credit and it was “quite possible” that prices could come down if consumers’ credit records improved due to the removal of adverse information.

However, he said many consumers who apply for credit after the amnesty still wouldn’t qualify.

“Payment profile information provides more than sufficient information to price accurately for risk and any suggestion that credit providers would be significantly prejudiced in making a risk assessment is false,” Logan said.

“We have to dispel the myth, there is not going to be any easy credit,” Logan said.

SA National Consumer Union vice chairman Clif Johnston said the amnesty was “very good news” for consumers who often battled to clear adverse records even where conditions had been met.

“For those it will provide an opportunity to clear the debt and make a clean start,” Johnston said.

Johnston added that consumer behaviour was determined by the attitudes and actions of credit providers.

“South African consumers are bombarded with offers of easy credit on the one hand, and face draconian consequences on the other should they fail to meet repayment obligations,” Johnston said.

“The proposed amnesty should moderate this situation by making it less profitable to entice consumers into credit they cannot afford,” Johnston said.

• Send your consumer complaints to Lyse Comins at consumer@3i.co.za

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