More at­tempts to curb reck­less lend­ing

Finweek English Edition - - INSIDE - BY INA OP­PER­MAN

The re­cent credit amnesty for South African con­sumers, passed in March, has re­ceived so much pub­lic­ity that many peo­ple think that this is all that changed in the Na­tional Credit Act (NCA). How­ever, sev­eral other mea­sures to curb reck­less lend­ing were also added when the pres­i­dent signed the amend­ments into law in May.

The Min­is­ter of Trade and In­dus­try (DTI) Dr Rob Davies has now pub­lished the new Na­tional Credit Reg­u­la­tions and reg­u­la­tions for the amend­ment of ex­ist­ing reg­u­la­tions. The other amend­ments in­clude the re­quire­ment that all credit providers must now reg­is­ter with the Na­tional Credit Reg­u­la­tor, a com­pul­sory af­ford­abil­ity as­sess­ment must be used when grant­ing credit, con­sumers who de­fault must be given the op­por­tu­nity to rem­edy the de­fault and cer­tain charges are now pro­hib­ited.

The NCA Amend­ment Act ad­dresses the con­cern that credit providers are still in­volved in ir­re­spon­si­ble and reck­less lend­ing prac­tices as well as pro­vid­ing clar­ity on some of the pro­vi­sions in the NCA.

Zodwa Ntuli, deputy direc­tor-gen­eral of Con­sumer and Cor­po­rate Reg­u­la­tion at the DTI, said in a state­ment that credit providers in­con­sis­tently de­ter­mined the mod­els for af­ford­abil­ity as­sess­ments. This re­sulted in credit in ex­cess of bil­lions be­ing granted to con­sumers, in­creas­ing the level of house­hold in­debt­ed­ness.

Over-in­debt­ed­ness is caused by reck-

less lend­ing by mar­ket­ing un­so­licited loans, pro­vi­sion of pre-ap­proved credit fa­cil­i­ties, in­clud­ing credit cards and fail­ure by some credit providers to con­duct af­ford­abil­ity as­sess­ments, Ntuli said.

EV­ERY­BODY MUST REG­IS­TER

The NCA cur­rently only re­quires lenders with more than 100 credit agree­ments or prin­ci­pal debt ex­ceed­ing R500 000 to reg­is­ter with the NCR. The amend­ment now re­quires all credit providers, in­clud­ing smaller credit providers to reg­is­ter.

PRE­SCRIBED AS­SESS­MENTS

Af­ford­abil­ity as­sess­ments, which will now be­come com­pul­sory, rep­re­sent the most im­por­tant change be­cause they will pro­tect con­sumers from be­com­ing the vic­tims of reck­less lend­ing, which has been at the core of credit prob­lems in the in­dus­try and com­mu­ni­ties where con­sumers are of­ten in so much debt that they are un­able to af­ford food. This kind of lend­ing was said to have con­trib­uted to labour un­rest among work­ers.

The cur­rent pro­vi­sions in the NCA al­low credit providers to de­velop their own af­ford­abil­ity as­sess­ments, but with the amend­ment, the min­is­ter can pre­scribe af­ford­abil­ity as­sess­ment reg­u­la­tions about dis­cre­tionary in­come and the por­tion that must be left out when af­ford­abil­ity as­sess­ments are done to pre­vent credit providers from pro­vid­ing credit to the max­i­mum of a con­sumer’s in­come. Ntuli ex­plained that the in­tro­duc­tion of the af­ford­abil­ity as­sess­ment reg­u­la­tions is nec­es­sary and ur­gent in order to stop reck­less lend­ing and, be­cause it is le­gally bind­ing, credit providers are com­pelled to use it. Credit providers must, be­fore pro­vid­ing credit, de­ter­mine con­sumers’ fi­nan­cial means and prospects, ex­ist­ing fi­nan­cial obli­ga­tions and debt re­pay­ment his­tory.

This in­volves cal­cu­lat­ing con­sumers’ in­come that has been ear­marked for cer­tain reg­u­lar pay­ments as well as in­come that can be used for any other spend­ing. All debts, in­clud­ing monthly debt re­pay­ment obli­ga­tions, as ref lected on the con­sumer’s credit pro­file held by a reg­is­tered credit bureau, must be in­clud- ed. An im­por­tant fac­tor here is that main­te­nance obli­ga­tions must also be in­cluded.

In ad­di­tion, the af­ford­abil­ity as­sess­ment in the new reg­u­la­tions makes pro­vi­sion for a ‘ buf­fer’, an amount that will en­sure that house­holds can put es­sen­tials on the ta­ble af­ter re­pay­ing their debts. “The suc­cess of the af­ford­abil­ity as­sess­ment to pro­tect con­sumers de­pends on the hon­esty and re­spon­si­bil­ity of con­sumers and credit providers,” Ntuli said.

Credit agree­ments such as de­vel­op­men­tal credit agree­ments, school or stu­dent loans, pub­lic in­ter­est loans, pawn trans­ac­tions, in­ci­den­tal credit agree­ments, emer­gency loans, tem­po­rary in­creases in credit fa­cil­i­ties, uni­lat­eral credit in­crease, cer­tain pre-ex­ist­ing credit agree­ments, changes to credit agree­ments and cer­tain mort­gage credit agree­ments are ex­cluded.

GIV­ING CON­SUMER A CHANCE

While the cur­rent pro­vi­sions in sec­tion 129 of the NCA list the pro­ce­dures a credit provider must fol­low be­fore start­ing with the process of debt en­force­ment, the amend­ment will of­fer con­sumers the op­por­tu­nity to pay all over­due amounts, ad­min­is­tra­tion charges and rea­son­able costs be­fore the credit providers can­cel the agree­ment.

Ac­cord­ing to the amend­ment, con­sumers will also be able to spec­ify in writ­ing how no­tif ica­tion of a de­fault must be de­liv­ered and how this de­liv­ery must be proven to en­sure that there are no mis­un­der­stand­ings, such as writ­ten con­fir­ma­tion by the postal ser­vice or its au­tho­rised agent or by “sig­na­ture or iden­ti­fy­ing mark of the re­cip­i­ent”.

CHANG­ING THE CHARGES

The NCA pre­scribes a list of fees, charges, in­ter­est and items a credit provider can charge the con­sumer, but the amend­ment makes any con­tra­ven­tion an of­fence. It also gives the min­is­ter the power to cap the cost of credit in­sur­ance in con­sul­ta­tion with the Min­is­ter of Fi­nance.

CRI­TE­RIA FOR PAY­MENT AGENTS

Cri­te­ria for pay­ment dis­tri­bu­tion agents that in­clude train­ing, ex­pe­ri­ence, com­pe­tence, cap­i­tal in­vest­ment, du­ties and obli­ga­tions and crim­i­nal record have also been added.

THE CREDIT AMNESTY

The credit amnesty came into ef­fect on

1 April when all 15 credit bu­reaus in South Africa were given two months un­til 1 June to re­move any ad­verse con­sumer clas­si­fi­ca­tion from the records of con­sumers who have set­tled their debts. This in­cluded all judg­ments for debts that were paid up af­ter judg­ment was granted as well as ad­verse clas­si­fi­ca­tions or in­for­ma­tion that in­cluded com­ments such as ‘de­fault’, ‘not con­tactable’, ‘handed over for col­lec­tion, ‘le­gal ac­tion’ and ‘write-off’.

Un­til now, con­sumers who have paid up their bad debts had to ap­proach a court to re­move the judg­ment from their records and usu­ally pay an at­tor­ney to help. The credit amnesty opened the door to em­ploy­ment and ob­tain­ing small busi­ness fi­nance for many con­sumers who could not get jobs or credit be­cause they had a bad credit record in spite of pay­ing off their bad debt. ■

Dr Rob Davies COM­MENTS ON THESE CHANGES Peo­ple have un­til 31 Au­gust to sub­mit com­ments on these changes.

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