REMOVAL OF ADVERSE
CONSUMER CREDIT INFORMATION AND INFORMATION RELATING TO PAID UP JUDGMENTS
By BRIAN KAJENGO
The Government Gazette Notice No. 37386, regulations
for the Removal of Adverse Credit Information and Information Relating to Pay up
Judgments.
This Notice follows extensive and robust public
consultation, including consultation with Parliament and the relevant
provincial authorities.
The public consultation process indicated
overwhelming support for this process, which aimed at removing barriers to,
amongst other things, employment opportunities, rental accommodation, as well
as access to credit to those consumers that can afford it.
This Notice, I must emphasise, is not removing the
obligation on consumers to re-pay debt owed by them to credit providers.
Instead, it seeks to create the incentive for consumers to re-pay their debt
better and timely.
Through this process, we also seek to encourage
consumers to approach credit bureaus to check their credit records, and to move
with speed to settle amounts owed on judgments so their clean credit record restored
immediately.
Checking credit records held by credit bureaus
will also help consumers to also identify in time if there is any fraud
committed using their identity, given the increase in identity theft. The
report also contains information to help the consumer to keep track of his or
her payments on a monthly basis, which will help a consumer to manage their
credit better going forward. The consumer is by law entitled to one free credit
report per year, and we urge consumers to get that credit report.
When Parliament through the Select Committee on
Trade and International Relations requested the Department of Trade and
Industry (the dti) to assess the feasibility of relieving consumers from
the blacklisting with credit bureaus, some negative statements made.
Some alluded that a credit amnesty will not be in
the interest of the economy as credit providers will not be able to assess the
risk in extending credit, and that credit extended recklessly. Also, it stated
that credit providers will be reluctant to extend credit or that where they do,
they will extend credit at significantly high costs.
The minister further indicated that the credit
amnesty implemented in 2007 was not effective as about 48% of the 64% of people
who granted such amnesty soon found them back on the blacklist held by credit
bureaus.
“Therefore, it is their assertion that this process
will also not be effective. In addition to the above, there was also the
assertion that this will be a blanket amnesty, which will encourage non-payment
of debts and increase the levels of over-indebtedness, and worse, prejudice
customers that are good payers. I want to assure you that all these concerns taken
into account, and I have to share with you today the essential elements of this
well considered process.” Minister Davies.
The fact that in 2007 credit amnesty was granted to
allow consumers to start on a clean slate following the passing of the National
Credit Act, 2005 (“the Act”). The weaknesses of this amnesty however lie
largely in that a consumer had to take certain steps to action and benefit from
it.
“Knowing the extent of the information gap in our
society, it is obvious that most consumers could not take advantage of the
amnesty as they were either not aware of it, and where they were aware, the
processes were not simplified enough to extend this benefit to the affected
consumers. This led to this 2007 amnesty benefitting only a handful of the
affected consumer.” He said.
I must recognise upfront that this government far
sighted in passing the Act when it did in 2005. Had it not been of the
implementation of this Act, the effects of the 2008 global financial crisis
would have been worse for South
Africa. This Act cushioned the economy, and hailed
by many jurisdictions as the best piece of legislation, and many have visited South Africa to
learn more about this Act.
Statistics provided by credit bureaus tell us that
of the handful that benefited from this 2007 amnesty, about 48% of the 64% soon
negatively listed again. While this statistics may be true, the reasons why
consumers blacklisted during this period vary. For instance, you will recall
that it was during this period that the global financial crisis happened.
Despite the cushion provided by the Act, it is an open secret that this global
financial crisis did not only affect companies, but individual consumers as
well.
While at that time measures taken by government to
intervene and assist companies that were in financial distress as a result of
the global financial crisis, such relief and assistance necessarily extended to
individuals. The lack of knowledge about debt counselling and debt review
mechanisms provided by the Act also exacerbated the problem and we saw most
consumers’ homes repossessed and judgments obtained against consumers from
courts by credit providers.
Even where
credit providers were aware of debt review processes, most did not assist
consumers to restructure their debts, but sadly opted for repossessions of
property.
It is also during this global financial crisis where
we saw our economy shedding a significant number of jobs, thus compounding the
financial difficulties most consumers faced with. We have also seen over this
period an increase in the cost of credit to consumers, which was also evidenced
by the apparent abuse of credit life insurance, and the sharp increase by 50%
in unsecured lending, which attracts high interest rates for consumers. Also,
the collection methods employed by credit providers, including the sale of loan
books to debt collectors, have added to the capital amounts owed by consumers
under credit agreements, thus making it difficult for consumers to settle their
debt on time.
It is against this background that the National
Credit Amendment Bill (“NCAB”) that considered by the National Assembly today
introduces provisions to prevent costs of credit from spiralling in this manner
to the detriment of vulnerable consumers. Within six (6) months, I will also be
reviewing the regulations to ensure that the caps currently applicable are
still appropriate, and where they are not, I will introduce further caps, after
consulting stakeholders.
One of the key pillars of the Act is the requirement
for credit providers to conduct affordability tests before extending credit to
consumers. The research we commissioned for the purposes of assessing the
feasibility of removing adverse consumer credit information has revealed glaring
gaps in how these tests conducted by credit providers. In some instances these
affordability tests conducted at all. The NCR investigations and recent actions
against credit providers show this worrying tendency.
Failure to conduct these affordability tests has
results in reckless loans extended to consumers that are already over-indebted,
thus impacting on their ability to repay such loans.
In Marikana alone, the NCR investigated eleven (11)
credit providers, and all found by the NCR to have contravened the Act and
referred for prosecution. Of primary concern also is the trend among credit
providers to lazily use blacklisting at the credit bureau as the substitute for
affordability test. It is not uncommon for a consumer to be declined credit
purely on the credit bureau blacklisting without even conducting the
affordability test.
But what we find strange is where a consumer
declined for a home loan, but accepted for a personal unsecured loan of the
same amount as in the declined home loan application. This shows that to some
credit providers profits at times prevail over affordability to repay credit.
This gap in affordability tests has led to an
increase in blacklisting at the credit bureaus, with almost 50% of the about 21
million credit active consumers having impaired records. Moreover, this
contributes to increased household over-indebtedness.
The NCAB provides for the Minister to issue
regulations to ensure uniformity and consistency in conducting affordability
tests. These regulations will include the direction on discretionary income and
provide the buffer in respect of income that be considered when conducting
affordability assessments. These regulations will be binding on the credit
providers as it is clear that the self regulatory method has not yielded
positive results.
The NCAB also empowers the National Consumer Tribunal
(“NCT”) to consider and adjudicate on reckless agreements. The NCR is also
empowered to vigorously investigate matters of reckless lending and refer them
to the NCT for prosecution.
We inundated with
correspondence from the public showing clearly that the blacklisting at the
credit bureaus has now become a new impediment to employment opportunities.
With the unemployment rate of 24%, it is our priority to create a conducive
environment for employment opportunities to created, and thus government has
taken a decision to address this challenge. We caution companies to refrain
from using the blacklisting information held by credit bureaus incorrectly to
deny people employment.
We accept that in some
financial positions, such as those in the banking sector, the credit bureau
information used as a reference in considering persons for employment in that
sector. However, we will not allow the continued abuse of consumer credit
information held by credit bureaus for dubious reasons. We have impressed on the
NCR to monitor the use of consumer credit information held by the credit
bureaus very closely.
While others can turn a blind eye to the predicament
of many South Africans, it is difficult to ignore instances such as the one
contained in the email that the dti received yesterday from a
54-year-old father with four sons, who is currently unemployed and cannot get
employment due to his negative credit record.
In his email
he desperately says “Bottomline is, I (listed in red with credit bureau)
need to earn money in order to achieve and maintain a positive credit record,
but if I am refused any work, how on earth can I repay my debt and clear my
name? I am certain that your department will come up with a solution for this
national problem in the near future.”
This is one of the many emails received, including
from graduates that cannot find jobs due to blacklisting arising from student
loans. The purpose of this process is to assist people who are in the same
situation as this 54-year old father and those graduates that wish to employed
so they can be able to repay their student loans.
Having alluded to circumstances that led to
consumers blacklisted, it is a fact that some credit providers to deny
consumers access to credit to secure homeloans, even where their financial
position has changed, have used adverse consumer credit information incorrectly.
In terms of the regulations, a judgment reflected on the record of a consumer
for five (5) years at the credit bureau, irrespective of the consumer having paid
up. The process to remove such negative listing involves the court, which adds
another cost to the consumer unnecessarily.
This Notice provides a simple and quick process to
remove such negative information without approaching the court once the consumer
has paid up. It also provides relief to a consumer, whose financial position
has changed to start on a clean slate and maintain a clean credit record going
forward. While there is a chance that a few consumers that should not benefit
from this Notice due to their repeat dishonest behaviour in regard to credit
repayment, it would be easy to identify these consumers. Most consumers have
however welcomed this second opportunity, and have committed to keep their
credit record clean going forward. This Notice must benefit these most
deserving consumers.
The NCAB also amends the Act to allow for early
rehabilitation of a consumer who has demonstrated financial ability to repay
his or her debts, and has settled all his or her short term debts, with only a
mortage agreement remaining. A debt counsellor is empowered to issue a
clearance certificate to such a consumer, provided that the consumer does not
have any arrears on the outstanding mortgage debt as rearranged during the debt
review process. This amendment will complement this Notice to facilitate early
rehabilitation, otherwise a consumer could be barred from accessing further
credit for the term of the mortgage agreement, which could be up to thirty (30)
years.
Our research and consultation processes have
highlighted a need to enhance consumer awareness both on the part of the NCR
and the credit providers. There is also a need to demystify the role of credit
bureaus as consumers currently perceive them as a barrier to accessing credit,
or even obtaining employment. Credit bureau information is critical for the
consumer, and for effective management of extension of credit in the industry.
Credit providers must enhance the manner in which
they offer products to consumers, and ensure that consumers clearly understand
the products, and costs associated with such products. Consumer agreements must
be explain in a simple and understandable language to consumers. Credit
providers must also communicate the available mechanisms under the Act, such as
debt counselling and debt review, to assist consumers that may be having
financial problems. The first price however is for a credit provider to
voluntarily re-arrange payment terms with the consumer where it is clear that a
consumer has financial difficulties. This means the consumer must also be open
upfront to the credit providers about financial problems he or she is
experiencing.
As indicated, the process leading to this Notice considered.
Extensive research conducted, and further engagement with stakeholders allowed
at all times. The impact assessment based on information that accessed conducted.
Therefore, this implemented as part of a package of solutions to help affected
consumers. It complemented by, amongst other things, a communication plan that
aims to educate consumers on financial literacy and saving, amendments to the
Act to introduce affordability regulations, as well as guidelines to deal with
discretionary income and listing requirements.
This Notice includes regulations to remove adverse
consumer credit information (such as adverse classifications of ‘handed over’
or ‘written off’) and information relating to paid-up judgments (such as
default judgments where the consumer has settled the capital amount under the
judgments). The payment profile of a consumer will remain available for credit
providers to help assess the risk in extending credit to consumers.
This Notice comes
into effect on 1 April 2014 and credit bureaus must remove
all such information within two (2) months, i.e. April and May 2014. Therefore effective from 1 April
2014 credit bureaus prohibited from displaying or providing information
that ought to removed in terms of this Notice to anyone. The credit bureaus
must within thirty (30) days after May 2014 submit a report by an independent
auditor confirming that all such information removed.
This Notice is applicable automatically to all
affected consumers, unlike the 2007 amnesty whereby a consumer was required to
follow a particular process to benefit from the amnesty. This means a consumer who
may not even be aware of this Notice will nevertheless benefit.
Once the relevant
information removed in terms of this Notice, no credit provider may use that
information again in respect of a consumer applying for credit. This goes for prospective
those companies that use this information incorrectly to deny South Africans
employment. Credit bureaus must not provide such information to anyone for any
reason.
This Notice makes it
clear that the consumer remains liable to meet his or her obligations in respect
of any credit agreement that settled with the creditor. This Notice does not
take that obligation away.
The
dti
and the NCR will implement a communication plan that will ensure that the
people that should benefit from understand this Notice. This plan also aims to
encourage consumers to use credit responsibly, provide honest and true
information when applying for credit and practice a culture of saving.
