Consumer groups applaud amended credit bill that curbs unscrupulous lending

2014-03-04 00:00

CONSUMERS harassed by unscrupulous debt collectors and victims of micro­lenders who charge excessive interest rates have been thrown a lifeline.

So too have consumers who have paid off their debts, but find they can’t access credit due to a poor credit record.

The lifeline comes in the form of the National Credit Amendment Bill, gazetted by Trade and Industry Minister Rob Davies last week.

Consumer groups and debt counsellors have welcomed the bill, describing it as a “long overdue” clampdown, that will close loopholes in the National Credit Act; rein in reckless lending and release consumers from the shadow of poor credit records.

But credit providers have warned that the removal of historical credit bureau data could drive up the cost of credit and make it harder for consumers to get loans.

According to the National Credit Regulator, consumers owe R1,49 trillion to banks, retailers and other creditors, and of these 20,29 million credit active consumers, almost half (9,76 million) have impaired credit records.

Among its sweeping provisions, the bill promises to review the cost of credit, including a cap on the price of credit life insurance, making it a criminal offence to overcharge.

Blacklisted consumers who have settled debts will have adverse credit information erased from the credit bureaus by the end of May, and in future, adverse data will be expunged automatically when proof of settlement has been provided.

Under the bill, all credit providers will have to be registered, abide by a code of conduct, and follow statutory affordability assessment guidelines when granting loans. Companies who use “predatory and deceptive” advertising to market loans with high interest rates will be named and shamed.

Debt counsellor Philippa Davis said debt counsellors were “dancing for joy” at the clampdown. She said the provisions would halt the practice of one month “pay day loans” — many of which could be considered reckless lending — like those issued at Marikana.

“The consumer advances the bulk of his salary and then is subjected to a payroll deduction of the full amount at month end, pushing him back repeatedly to the microlender,” Davis said.

“This lending practice is rife in Port Shepstone and surrounds amongst municipal workers where we have some clients left with less than R570 a month off an R8 000 basic because of this unscrupulous practice,” Davis said.

“Registration alone means microlenders will have to comply with rule of law in issuing loans and assessing affordability,” Davis said.

Davis said cost of credit life insurance was “astronomical”.

“We often find ourselves in a bizarre circumstance where the cost of insurances on a rearranged loan exceeds the rearranged repayment. Someone is making money hand over fist,” Davis said.

Deborah Solomon, founder of the Debt Counselling Industry Portal, said the bill would “sweep clean” the credit industry.

“We applaud the minister and the government for taking a strong stand and for understanding the plight of consumers who have suffered the brunt of the many loopholes in National Credit Act. Self-regulation by the banks and other credit providers has failed dismally,” Solomon said.

Consumer Fair chairperson Thami Bolani said the provisions would curb abuse of consumers who were being charged excessive fees. However, he said he was concerned about whether the regulator would have the capacity to implement the provisions.

“In one case we had a consumer who borrowed R7 000 from a credit provider and fell into arrears. After a couple of years that loan ballooned to more than R90 000,” Bolani said.

“We really shouldn’t allow debt collectors and lawyers to make business from over-indebted consumers,” Bolani said.

SA National Consumer Union vice chairperson Clif Johnston welcomed the bill, but said it should have banned garnishee orders for debt collection in some cases.

“The evidence is everywhere to be seen, in the form of foreclosures and garnishee orders, that self regulation is not working. There may be doubts as to the effectiveness of the government intervention, but at least they are trying.”

An attorney specialising in the National Credit Act, Paul Esselaar, said the move to force all credit providers to register would level the playing fields.

“If you have a number of players outside the oversight of the NCR the potential for abuse increases dramatically,” Esselaar said.

Esselaar said a statutory process for conducting credit assessments would force credit providers to do a proper credit assessment but would reduce innovation and competition.

“If, for example, a credit provider has found a way to reduce the number of people defaulting on their loans without always getting a credit bureau report every time they decide to provide a loan, then that credit provider has saved the credit bureau fee and in turn will become more competitive,” Esselaar said.

“In contrast if a standard procedure is used which, for example, requires that you obtain a full credit bureau report, then you are essentially legislating a profit for the credit bureau industry.”

Darell Beghin, executive director of the Credit Providers Association, said another factor that would drive up the cost of credit and make it difficult for consumers to get credit was the removal of credit bureau data.

“The removal of data hampers predictability in regard to credit payment performance and is not the ideal means of protecting consumers, facilitating the extension of credit or driving down the cost of credit,” Beghin said.

• Send your consumer complaints to Lyse Comins at

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