State’s credit amnesty lifeline

Johannesburg – More than a million South Africans whose names are listed by credit bureaux, but have settled their debt will no longer be blacklisted as part of the government’s new credit amnesty reprieve.

The credit amnesty, known as the removal of adverse credit project, will see about 1.6 million consumers taken off the credit bureaux blacklists, opening the way for them to gain access to credit and housing and, in some instances, jobs.

But the credit industry is up in arms over the move, fearing it could throw the lending industry into a “major crisis” as creditors will not be able to properly vet consumers with bad credit histories, making them more susceptible to debt they cannot afford.

In addition, they argue, credit will become more expensive for South Africans as the risk of more consumers defaulting on debt will increase.

The cabinet last week announced the government’s intention to remove, on a continuing basis, all listings by credit bureaux of adverse information about consumers once they had paid their debts, as well as of all paid-up court judgments.

“These are consumers who may have paid their debts in full and are in a position to afford credit but whose access is currently impeded by negative credit information on their record.

“This is primarily about ensuring that the National Credit Act works as intended in terms of ensuring that consumers who can afford credit are able to access it. Inaccessible or expensive credit hinders growth. Access to (the) sustainable credit market is essential to all developmental goals,” a cabinet statement read.

Neil Roets, chief executive of national debt counselling firm Debt Rescue, said however that the amnesty would effectively make credit bureaux impotent because they would not be allowed to keep the credit histories of persons who defaulted, had records as bad payers, or had judgments against them for the currently prescribed periods of three to five years, depending on the listing.

“The whole purpose of credit bureaux is to provide credit grantors with a history of how consumers managed their debt and whether they were a good or a bad credit risk.

“The plan now accepted by (the) cabinet will effectively remove all listings once the debt and any associated court costs had been paid, leaving retailers and banks without any indication of how their prospective clients behaved in the past.”

He said if the decision to go ahead with the amnesty were enacted in law, it would in real terms have a negative impact because it would encourage consumers, who were already drowning in debt, to borrow more.

It would also make it more difficult for people who in the past had good credit histories to get credit because it would be difficult for credit providers to determine their creditworthiness without complete records.

The first credit amnesty was granted to consumers between 2006 and 2007. During this period, 600 000 consumers’ names were taken off credit bureaux.

According to the Parliamentary Monitoring Group, 64 percent of affected consumers had taken up further credit.

Of that number, 74 percent ended up having bad accounts – defined as accounts three or more months in arrears – while 44 percent had judgments and adverse records, with 19 percent having judgments taken against them in the last five years.

Lesiba Mashapa, Company Secretary at the National Credit Regulator (NCR), said the removal of adverse credit project is meant to help comsumers obtain credit at a reasonable cost, obtain employment, and obtain rental accommodation.

He said the concerns by the credit industry was “misplaced and exaggerated”.

Mashapa said it was time-consuming and expensive for them to approach the courts to rescind judgments that are listed on the credit records.

“These problems cannot be resolved without implementing the project and putting in place measures to address consumer indebtedness, thereby reducing credit impairments in the long term,” Mashapa said.

“Reckless lending, job losses, slowdown in economic growth among others are key contributory factors to the credit crisis. To single out credit information as a single course of economic meltdown is baseless.”

In addition, consumers are debt stressed: close to half of the total number of credit active consumers in the country have impaired records. This number has been growing substantially over the past few years in the absence of the removal of adverse listings.

There has been growth in unsecured lending over the same period in an environment where the credit records of so many consumers are impaired,” he said,

Magauta Mphahlele, chief executive of The National Debt Mediation Association (NDMA), said while the amnesty had good intentions, the plan could backfire on consumers.

“The NDMA believes there should be incentives to encourage consumers to repay and manage their debt responsibly. In order to ensure proper rehabilitation, each consumer’s case should be assessed individually, and where the consumer can prove that they have entered into or implemented a rehabilitation programme, they can apply to have their record expunged,” Mphahlele said.

“The amnesty also ignores the fact that many consumers who cannot pay are willing but unable to pay the expected instalments due to a change in circumstances.”

In order to provide a sustainable solution, payments will need to be restructured to affordable monthly repayments.

“This can only happen if there is an agreed process on how these payments are going to be restructured so that consumers can afford repayments and rehabilitate themselves.

“It is therefore possible that many consumers may not meet the basic criteria of paying off the loan or being able to within a reasonable period of time,” she said.

Bernadene deClerq, Head of Unisa’s personal finance research unit, said the amnesty would result in credit becoming more expensive.

“While it will bring relief to some people, we believe it was not necessarily the best way to resolve the problem of debt.”

“It is like medicine for a cold that does not address the ‘flu. The problem that consumers have of over-indebtedness will not disappear because of this credit amnesty.

“However, it will be good for those who have not been able to find work because of bad credit, and this we support,” she said.

Consumer activist Ina Wilken said the amnesty was good news for people on the blacklist.

“It will make it difficult for credit providers, but this is good news for people who desperately need credit like buying a home, but cannot.

“People who will have their names removed must take this as a fresh start and not get themselves in debt again. The important thing for them is to only take credit on what they desperately need,” she said.

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