Credit providers will from June this year have to change risk models as the credit amnesty by government will mean that credit histories have been wiped out, say lawyers.
Rob Davies is keen to get new credit regulations in place. Image: GCIS
Credit providers will no longer be able to rely on the historical behaviour of consumers, increasing concerns that credit may become more expensive, or fewer people will get credit.
The proposed affordability assessment guidelines published by the National Credit Regulator last year will set the tone for new risk models, though the guidelines have already drawn criticism from banks because of its one-size-fits-all approach.
Trade and Industry Minister Rob Davies introduced the National Credit Amendment Bill to the National Assembly last week after publishing regulations that would give effect to the credit amnesty, whereby people who have paid up debts would be removed from all registered credit bureau records.
All adverse terminology such as "slow payer", "delinquent" or "defaulter" will also be removed in future.
The head of law firm Hogan Lovells consumer credit practice, Simone Monty, said the main problem with the amnesty was that though someone might have paid up his or her debt, they might have defaulted on agreements before paying up. "No credit provider or supplier wants that, because it is a cost to collect money," she said.
She said the credit amnesty was a political move, because for someone relying on the credit history of a person the amnesty made "no sense" as they could not properly assess their risk.
Monty said credit bureaus' records reflected "ticks" against names to indicate credit judgments against them. These markers will now be taken away, leaving a consumer's credit history wiped out.
Source: Business Day via I-Net Bridge
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As someone in the credit industry who builds risk assessment tools (affordability models and scorecards), I have this to say. As TruthGuy says, the Payment Profile information will remain, but valuable information about defaults and judgments will be wiped out (all 3 are used extensively in scorecards). Risk assessment will be less effective and thus become more expensive. Good customerrs will be lumped with not-so-good and therefore may not be able to benefit from preferential risk-based-pricing.
The affordability rules are moving in the right direction (still far from adequate). Objective assessment is used by some, but should be used by all. Customer declared expenses is simply not good enough.
The amnesty is a political move to give many another chance (and just before an election). As we saw in 2007, the same customers who benefited from amnesty will be allowed to take out new loans and will end up defaulting again in 12 months time.
Before lending money creditors will now be forced to check that consumers can actually afford it...this is something that was previously not done...too well. Rather a quick and often superficial look at the consumers credit report was sometimes used.
These changes will mean that creditors will have to apply their minds somewhat to who they give money to. That may take a little more time but it will also prevent them from lending funds recklessly (which they dont want to do anyway).
Your article is factually incorrect. The payment profile information showing how a person pays their debt every month will remain untouched. The key information remains, so credit providers will have ample information to do a risk assessment. Stop the shoddy journalism and get your facts right. Monty really should consider another career if she told you otherwise.