Will the 4 million credit profiles you can no longer see, work for you?

The new regulations to the National Credit Act will keep companies in the dark about certain information pertaining to employee applicants and potential vendors.

 

This is according to Jenny Reid, CEO of iFacts, a company that takes care of corporate security and seeks to remove people risk in business through pre-employment screening, background checks, and individual risk assessments.

 

Background to the changes

In late February, Dr Rob Davies, Minister of Trade and Industry, gave notice of new regulations to the National Credit Act, 2005. The change came into effect 1 April 2014 and the Department of Trade and Industry (DTI) has given Credit Bureaus in South Africa approximately two months to remove adverse consumer credit information from, and information relating to paid-up judgements. In other words, 6.5 million status updates relating to 4.2 million credit profiles will soon be deleted.

 

Disappearing histories

This means that negative descriptions—such as slow payer, delinquent, default or non-contactable—will no longer be allowed. The bureau will also not be allowed to give out enforcement action indicators, such as legal action, written off, repossessed or overdue.

Among an individual’s most valuable assets is a healthy credit rating.

 

“Every effort should be made to gain and maintain such a rating, as it will stand you in good stead for all the transactions you undertake in the long-term future,” says Michelle Beetar, MD of information services company Experian SA.

South Africans will forever be admired worldwide for the manner in which the country transitioned from the old Apartheid error to the Democracy of the new Rainbow Nation. For a Constitution that is hailed worldwide as being progressive and for the National Credit Act (NCA) which enforced new ways of protecting South Africans while ensuring banking services were assessable to all.

Paul Greeff, Head of the Banking Sector for Global Credit Ratings (GCR) talks with the Publisher of TheSALeader about micro-financiers and unsecured lending in South Africa.

• Giving a distinction between micro-financiers.
• Where you find exploitation and reckless lending within the industry.
• How credit is controlled to protect the end consumer.
• How micro-financiers and governed and are governing themselves. 
• How Basel III will affect the commercial banks in South Africa and why they are looking at unsecured loans to alleviate the affects of these regulations.
• The change of the financial demographic profile of the end users taking out unsecured loans and how the National Credit Act has affected this change.

The debt industry portal, theDCI recently announced its support for initiatives by the authorities to address a ‘rising flood’ of unsecured debt that threatens to swamp embattled consumers.

 

Initial steps by Finance Minister Pravin Gordhan and National Treasury are welcome, but further action is required, theDCI lead a recent campaign that forced credit providers to suspend their Voluntary Debt Mediation Solution as it was judged to be in violation of the National Credit Act (NCA).

 

The recent meeting between the Minister, Treasury and banking leaders is the first implicit acknowledgement that unsecured lending is a problem and the scourge of millions of South Africans.

 

The authorities stopped short of calling it a ‘bubble’ and highlighted the rapid increase as a ‘concern’. Whether it’s a ‘bubble’ or a rising flood of unsecured debt depends on your choice of words.

 

Thankfully, the authorities are starting to listen to debt counsellors (DCs) and now acknowledge the distress we see daily. Millions are ensnared in debt and it is high time banks reviewed their lending practices. DCs know of numerous abuses and are eager to assist the authorities by providing details.

 

At the end of the banking indaba, Treasury said banks “could do more to ensure they lend responsibly”.

 

Reserve Bank statistics indicate unsecured loans rose 21% to R381 billion in the year to June. This category of lending includes personal loans, credit card debt and credit from retailers.

 

Ramped-up personal debt offsets weak corporate demand for credit while charges on unsecured loans can be five times higher than other categories.

 

Until the NCA’s introduction, banks drove up profits by giving multiple housing bonds to better-off customers. Then the economy hit trouble, higher earners became over-exposed and the NCA tightened up lending criteria on credit.

 

As a consequence banks then proceeded to aggressively market the lucrative unsecured loans sector. Millions of families now face the consequences. Reckless lending is a far bigger issue than what is currently being acknowledged.

 

Figures from the National Credit Regulator suggest 9.3 million South Africans are behind with credit instalments. The outstanding amount totals R1.36 trillion.

 

About 6400 consumers a month apply for debt counselling, the NCA-backed process that helps over-indebted people repay debt.

 

Demand for affordable ways of handling debt has risen so dramatically that theDCI, in collaboration with a leading broker and underwriter, recently launched its own group life insurance product, enabling debts owed by consumers to be provided for in the event of the death of the consumer, in a one cost-effective package.

 

The debt counselling industry works hard to assist debtors, but prevention is better than cure. We must combat reckless lending and credit extension abuses and there are many. We see cases where credit consultants don’t check application forms for obvious misstatements and lies. They focus solely on obtaining new business.

 

There are cases where instead of advising clients to get a bond at affordable rates a lender’s marketing staff encourage them to take out multiple unsecured loans. The reason? Banks make up to 32% and more in profit on these deals.

 

Contrary to misleading statements in the press of late, it is cheaper for consumers to go into debt review than to take out another loan. Debt review is a real solution that works.

The Debt Counselling Industry portal (DCI) today (Monday, August 27) welcomed the finding by the National Credit Regulator that the Voluntary Debt Mediation Solution (VDMS) touted by National Debt Mediation Association (NDMA) contravenes the National Credit Act.

The finding requires the NDMA to stop its VDMS pilot scheme and provide written confirmation of its cessation by tomorrow (Tuesday, Aug 28).

The finding follows a complaint lodged by Deborah Solomon of the DCI to halt the VDMS as a Banking Association of South Africa initiative that prejudiced consumer rights and potentially favoured credit-providers while purporting to be a service to assist those in debt.

Solomon noted: "The regulator's finding that this scheme contravenes the NCA is a victory for the consumer and debt counsellor. It also returns respect and integrity to an already persecuted industry."

"For months, the NDMA has punted the benefits of its so-called 'solution' and certain banks have encouraged indebted individuals to go through these processes knowing their pilot scheme had not been approved by the regulator."

"In effect, the NDMA and banks that eagerly supported this solution have misrepresented the true state of affairs to members of the public. They deliberately, alternatively negligently tried to circumvent the provisions of the NCA. They promoted a scheme that was supposedly beneficial to the public when the scheme compromised consumer rights. On top of that, the NDMA showed disrespect for debt counsellors, the regulator and the spirit of the NCA. They were aware, alternatively ought reasonably to have been aware that debt counsellors hold a fiduciary responsibility and cannot be beholden to the banks while working within the legally sanctioned system."

The media recently reported that the NDMA had responded to criticism that it lacked impartiality as "malicious".

NDMA CEO Magauta Mphahlele reportedly claimed there were "many abuses" in the debt counselling industry and cases where counsellors "absconded with the consumer's money" or "messed up the process to such an extent the credit provider terminates the process and takes legal action".

Solomon added: "These claims are biased, unsubstantiated and designed to undermine the public's faith in independent debt review processes set up by the National Credit Act and thereby punt the NDMA. A few bad apples are not representative of an entire industry. This was a deliberate attack on the debt counselling industry in an effort to gain control of the debt review process that would enable credit providers to dictate the rules, processors and systems right down to the chosen debt counsellor."

"I could not respond at the time to these grossly offensive accusations as I had initiated legal processes requesting the regulator to investigate the NDMA's scheme and call a halt.

"Debt counselling is enshrined in the NCA, with debt counsellors in the role of the Consumer's Debt Guardians. I invite members of the public who trusted the NDMA and their banking sponsors to ask themselves – should we really trust those who promoted the VDMS process as being transparent and sanctioned by both the NCR and DTI when this was clearly a misrepresentation?"

The campaign by Deborah Solomon and the DCI portal (www.thedci.co.za) raised doubts about the ability of a scheme funded by credit providers to act in the consumer's interest while questioning the eagerness of mediators to blow the whistle on any reckless lending.

The DCI also alerted consumers to their NCA right to 'in duplum' protection – a rule that prevents a credit provider from charging interest to such an extent that it more than doubles the original debt. Counsellors frequently invoke the rule to help consumers who despair of ever getting on top of their debts.

In duplum protection did not form part of the NDMA "service".

The NCR decision to halt the mediation solution pilot project follows the issuing of a few letters by Ken Bredenkamp attorney's acting for Deborah Solomon requesting the regulator to institute an investigation.

Deborah Solomon noted: "International banking scandals are a signal we cannot place blind faith in financial institutions. The public has to be vigilant; so do the regulators and media. Hopefully a lesson has been learned and a more vigorous response can be expected in future."

"The success of the debt counselling industry is South Africa's best kept secret. No other industry has saved tens of thousands of homes and cars and possibly some lives as well."

National Savings Month is being turned into ‘a bad joke’ by a deluge of marketing material touting easy finance and quickie personal loans that many consumers will struggle to repay.

It seems that the Savings Month of July is just another month of easy pickings for peddlers of fast and easy credit.

The bad joke is that some institutions that give lip-service to the objectives of National Savings Month also contribute to the flood of marketing material that induces hapless individuals to saddle themselves with debt.

Compare the noble sentiments about the need to save with the personal loan advertising of these banks. It’s a sickening reality-check.

National Savings Month, she says, is an ideal opportunity to start a debate on the mismatch between what some banks preach and what they practise.

Personal loan advertising showed only how easy it was to take a loan without mentioning how difficult it can be to pay off debt.

The advertising creates the impression that debt is a fast, easy and painless proposition. This can be misleading as it is not nearly so easy to get out of debt.

For many, easy loans can lead to years of anguish and humiliation.

The National Credit Act (NCA) outlaws advertising from credit providers that is misleading, fraudulent or deceptive.

I have yet to see an advertiser prosecuted under this section of the NCA. Even if it is held that slick, persuasive advertising doesn’t breach the letter of the law it certainly offends the spirit.

It’s time to put the spotlight on these advertising practices to alert both the public and the authorities.

She says some ads foster a live-now-pay-later attitude by inviting consumers to enjoy the lifestyle they want right now. Ads typically offer easy loans online or over the phone. Even those on a credit blacklist are invited to take loans topping R100 000.

Taking an easy loan, then a loan to pay the first, then another leads to a form of enslavement, while the advertising offers to “help” the consumer.

The reality is that the debts pile up along with despair. The effects might be depression, physical illness, the break up of marriages, the loss of homes and in extreme cases suicide.

Knowingly or unknowingly, banks touting easy credit to often unsophisticated consumers were trading on the trust placed in these institutions.

These are the pillars of the economy. Consumers believe they would never induce them to do anything reckless, anything that might endanger the consumer’s own financial wellbeing.

Many debtors say to me ‘I thought if my bank thinks I can afford it and it’s the right thing to do, it must be OK’. Trust built up over decades is being eroded. The immediate impact is felt by overstretched consumers who feel betrayed. The long-term effect will be felt by banks who will struggle to recover their former standing.

Debt collection ‘bullies’ must urgently review and modify their methods following the landmark Constitutional Court decision affirming a consumers right to proper notification before credit providers can seize assets.

This call went out today by theDCI, the Internet portal of The Debt Counselling Industry.

As a registered debt counsellor, the industry portal and associated debt counsellors are stepping up consumer education on these issues as the ruling confirms that a consumer is not a criminal whose home and possessions are forfeit to aggressive credit providers and their collection army.

Credit providers must now realise that bullying tactics are no longer acceptable. They must review debt collection practices and ensure their agents respect the rights of consumers and follow due process as set out by the Constitutional Court.

In the past, some credit providers have countenanced practices showing scant regard for the rights of others. Following this ruling, a continuation of these methods will lead to huge reputational damage. I call on these credit providers to make a fresh start by scrupulously respecting procedure.

In early June, the Constitutional Court ruled that simply dispatching a notice to a consumer in the hope it will be received is insufficient. Before a summons can be issued, steps must be taken to ensure the demand is received; for instance, by sending registered mail to the correct current address rather than the ‘domicilium’ (often outdated) given on a contract.

The ruling on these Section 129 notices extends beyond procedural issues, said Solomon. The notice also alerts recipients to a key form of recourse – the opportunity to seek the assistance of a debt counsellor and work on a payment plan to clear the debt.

A section 129 notice is not simply one more way of hounding the consumer. It can also signpost a way out the debt trap. Legal opinion supports this interpretation.

Access to vital information like this is the consumer’s right.

She said the court decision supported the consumer protection intentions of the .

I salute the court for its stance as it makes it more difficult for bullish credit providers to ignore the NCR’s intentions by bulldozing their way through the legal enforcement process.

Personal experience of hundreds of cases suggests many credit providers are happy to exploit consumer ignorance and use enforcement methods that seem legally compliant when they are not.

A big consumer education effort is now required to ensure the court’s decision has the desired effect.