Posted: November 5, 2013
Address by the Minister of Trade and Industry, Dr Rob davies, on the Removal of Credit Information to the National Council of Provinces (NCOP), Cape Town
|The National Credit Act was introduced in 2006 with the aim of facilitating access to credit to a broad section of the South African population while addressing the abusive practices that have plagued the credit market for many decades. Many of these abusive practices have been addressed and was established to oversee compliance with the Act.
The challenge over the last four years has been the growing number of consumers that are over-indebted and struggling to pay their bills. Many factors, such as economic and personal circumstances, contribute to this problem. Most consumers were affected by the financial crisis during these years, and their credit status impaired significantly as a result. However, the weaker affordability assessment on credit applicants is one of the causes of this problem. Consumers continue to receive credit from reckless borrowers, who fail to do proper affordability asessments, thus putting consumers in a continouos debt cycle.
The NCR is in the process of introducing affordability assessment guidelines to address this. Further, education and awareness camaigns will be implemented directly intended to asssist consumers to better understand their finances and fully and honestly disclose their fnancial status to credit providers when applying for credit.
Over and above the guidelines and the awareness interventions, the dti has made proposals to amend various sections of the Act to close loopholes that have undermined the spririt and objectives of the Act. In particular, the debt counselling process has been undermined firstly by lack of cooperation from credit providers who continue to implement court processes despite a debt counseling process being initiated. Secondly, consumers that have paid off their short term debt remain unrehabilitated due to debt such as homeloans that take a longer period to repay. The amendment thus seeks to also bring about early rehabilitation of consumers to enable them to interact with the economy further. The National Credit Amendment Bill has been introduced into Parliament last month and will be processed to bring about thes changes.
The other intervention proposed is the removal of adverse credit regulation, as was proposed by Parliament. The purpose of this process is to provide relief to consumers listed at the credit bureaus to access credit if they can afford it, pay less for credit and to obtain employment and rental accommodation. A number of consumers’ acccess to credit is barred by adverse listing which is referred to irrespective of whether or not the financial position of a consumer has changed.
The proposal is to remove all adverse information listings from the credit records of consumers. This move would provide relief to the affected consumers to obtain employment, rental accommodation and credit if they can afford it. The payment profile information which reflects how an account is paid on a monthly basis will not be removed from the credit records of consumers through this process. This payment history information will allow credit providers to adequately assess the application against the risk, and price for risk appropriately. The credit bureaus display this information on the credit records of consumers for up to three years and are allowed by the Act to display it for five years.
With proper affordability assessments and the retention of the payment profile information, credit providers will be able to ensure that consumers who are already over-indebted do not obtain more credit. These will also mitigate the risk of unhealthy surge in credit acceptances following the removal of adverse credit information.
It is expensive for many consumers with judgments listed on their credit records to apply to the courts to have these judgments rescinded so that they can be removed from their records. The removal of this information will address this problem by requiring credit bureaus to remove judgment listings from credit records following payment of the judgment debts. Consumers will no longer have to incur legal costs to remove their names from credit bureaus. Consumers would also no longer have to wait for five years to pass before the judgments are removed from their credit records.
Similarly, consumers with adverse information listings would also have these removed from the credit records following settlement of the underlying accounts. They will no longer have to wait for one or two years to pass before the listings are removed. These changes are fair and will provide an incentive to consumers to pay the debts while also benefitting credit providers.
There is a widespread use of credit reports for employment positions which do not entail the handling of finances. Credit bureaus will be required to stop issuing credit reports to agencies which use these reports for non-financial jobs. This reckless and inappropriate use of a consumer’s credti information goes against the objectives of the Act and needs to be arrested immediately as it impacts on employment opportunities of many consumers when this country has such high unemployment figues.
The role that credit bureau information could play in combating consumer over-indebtedness is acknowledged but this information should be improved to enable credit providers to conduct adequate affordability assessments on credit applicants. The changes to be introduced to achieve this include requiring all credit providers to report new credit granted to the credit bureaus frequently and within a short space of time.
The proposal to remove adverse credit information was endorsed by the Select Committee on Trade and International Relations and supported by Cabinet as an approach that will be beneficial to both consumers and the industry. In order to sustain the effect of this process, other interventions such as the affordability assessment guidelines, discretionary income guidelines, and credit literacy programmes for consumers will be implemented.
the dti published a notice in the Government Gazette (Notice 966 of 2013) on the 30th of September 2013 inviting stakeholders to submit comments to the dti within 30 days after the publication of the Notice. The consultation workshops on this are proceeding as we speak.
These changes will benefit all South Africans regardless of race or affiliations to different organizations. Close to 2 million consumers will benefit from this process.