Reckless lending to consumers curbed

2014-02-28 08:56

Members of Parliament have given the green light to a bill that will see tougher new measures govern credit providers.

The national credit amendment bill will provide a uniform risk assessment process for credit providers to curb reckless lending practices.

“We have over the years seen the increase in the accessibility of the credit market, but we have equally seen the increase in unsecured loans that are expensive to the poor, reckless credit caused by failure to conduct proper affordability tests, as well as levels of over-indebtedness and impaired consumer records,” Trade and Industry Minister Rob Davies told MPs yesterday.

While the existing credit act was lauded for largely cushioning South Africans from the fallout of the global recession, Davies said gaps still existed.

“For instance, gaps in the implementation of debt counselling and debt review processes have led to credit providers using parallel legal processes such as repossessions of homes in total disregard of the mechanisms in place to assist consumers to meet their obligations.”

The bill creates a uniform affordability test for prospective lenders.

“Credit providers are allowed in terms of the act to develop their own affordability assessment models, but research revealed serious discrepancies in how the credit providers do this, and in most cases it appears that such assessments are not done at all,” Davies said.

“The affordability assessment regulations will include elements relating to discretionary income, as well as determine the buffer in respect of income that should not be taken into account when conducting affordability assessments.”

The bill’s passage through the National Assembly came a day after Davies published regulations, which would ensure the removal of adverse consumer credit information and information relating to paid-up judgments from credit bureaux.

“The notice comes into force on the first of April, meaning that information cannot be used and this information can’t be used from that date, and then the credit bureaux have got two months thereafter to clear up their systems,” said Davies.

The regulations did not mean people who did not pay their debts would be automatically cleared.

“It says that a paid-up judgment ... it’s out, it’s off. You don’t have to go to court. You don’t have to do all those other things you did before,” Davies said.

“If they’ve got terminology applying to you saying you’re a slower payer or irregular payer or something like that, that must also be removed.”

But, the credit profiles of South Africans would still show on the system.

The profiles included information on how many credit agreements people had and how they were making payments against those loans or accounts.

“It’s a once-off exercise, so if thereafter you incur a judgment, it doesn’t mean you’re off forever, you go back on the system,” Davies explained.

Credit providers would still be able to assess risk by looking at one’s profile.

Half of the of the 21 million credit-active South Africans had credit impairments.

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