No need to panic over credit 'amnesty'

© Ivelin Radkov - Fotolia.com

It is clear the amendments to the National Credit Act have caused confusion‚ with some consumers believing a credit amnesty means you do not have to repay your debt.

The amnesty has also caused anxiety among credit providers‚ who were concerned that they would have less information to assess their risks in providing credit.

However‚ credit providers' fears are unfounded and debtors have little cause to rejoice‚ for although the amnesty marks a change in the type of information that credit bureaus hold about debtors' payment histories‚ there will still be information for credit providers to make use of.

Reduce reckless lending

In fact‚ one of the main aims of the amendment to the act is to tighten controls in order to reduce reckless lending.

The National Credit Act was introduced in 2007 - at the height of economic prosperity and just before the worldwide economic crisis - to reduce reckless lending and to put a lid on the over-indebtedness of South African consumers.

However‚ seven years later‚ statistics supplied by credit bureaus show half of South Africa's credit-active population is credit impaired.

That includes people who have repaid their debt but did not have the money or inclination to go to court to have the judgments against them rescinded.

The government believes that despite the act‚ reckless lending has continued unabated‚ dragging people into a debt pit they seem never to be able to get out of.

Even those who have been able to break the debt spell have in many instances been prevented from finding employment or accommodation or from entering into contracts because of the adverse information kept by credit bureaus.

Controversy

There seems to be a controversy surrounding the credit amnesty‚ says Norton Rose Fulbright director Patrick Bracher.

He says section 73 of the act gives the minister the power to prescribe‚ within six months of the effective date of the act‚ the nature of‚ time frame‚ form and manner in which consumer credit information held by the credit bureaus must be reviewed‚ verified‚ corrected or removed.

That was intended for when the act came into effect in 2007 to enable the government to "clean up" the process.

To say the minister again has the power seems opportunistic and is probably legally wrong‚ Mr Bracher says.

If an act is amended it does not mean the effective date starts afresh and the minister has another six months to tell credit bureaus what to do‚ he argues.

Trade and Industry Minister Rob Davies says the slates have to be cleaned as a new system is introduced through the National Credit Amendment Bill.

Not quite clean

But it seems the slates will not be that clean.

Lesiba Mashaba‚ company secretary at the National Credit Regulator‚ says the factual information pertaining to the payment profile of the consumer will still be retained for a period of five years. It is merely the adverse classification of consumer behaviour and adverse classification of enforcement action that will be wiped clean once a judgment has been paid up.

Mashaba stresses that it was never the intention to wipe clean the payment profile of a consumer as that will not be fair to either the credit provider or the consumer.

He takes serious issue with any suggestion that the credit amnesty was "politically motivated".

He says people who had paid their dues but did not have thousands of rand available to have the judgments against them rescinded by the courts were adversely affected.

Removal of adverse judgments

Bracher says the amendment does not mean credit bureaus have to expunge detailed information‚ but it is the so-called adverse value judgments such as "slow paying"‚ "delinquent"‚ "defaulter"‚ "absconded" or "not contactable" that must be removed.

Adverse classification on enforcement actions such as "handed over for collection or recovery"‚ "legal action" or "write-off" must also be removed. Even any mark‚ symbol or sign in the payment profile will have to be removed.

Bracher says the value judgments do not tell credit providers whether a person was a day late or six months overdue.

The information that is kept will have to be factual‚ stating for example that the consumer paid on 3 June‚ 7 July‚ 10 August‚ 3 September‚ but that no subsequent payments were received.

The records will no longer state "handed over"‚ but rather "summons issued 17 June"‚ for example‚ he says.

The minister has also been quite outspoken about the manner in which credit providers exercised their credit assessments.

Lazy assessments

He said credit providers relied too heavily on information from credit bureaus‚ and were conducting risk assessments in a lazy manner.

The National Credit Regulator published affordability assessment guidelines in September aimed at assisting credit providers to undertake the required assessments on a "more consistent and sustainable basis".

The guidelines provide for a table setting out the after-tax income percentage of monthly income that has to be available as a minimum for repayment of debt.

It is certainly going to be more cumbersome for consumers and for credit providers to jump through all the new hoops.

But‚ given the statistics‚ maybe that is not all bad.

Not what it seems

The credit 'amnesty' is not an amnesty as commonly understood - a chance for errant debtors to have the slate wiped clean.

Rather‚ it entails changes in the type of information that is kept on debtors‚ and puts the onus on credit bureaus to clean up the records of those who have repaid their debts:

• Credit bureaus have until April 30 to remove from the records of those who have repaid their debts any adverse classification of consumer behaviour and adverse classification of enforcement action.
  
• Terms that must be removed include "slow paying"‚ "delinquent"‚ "defaulter"‚ "absconded" or "not contactable".
  
• Under the amended act‚ credit bureaus must automatically remove this information as soon as a debtor repays a debt.
  
• Factual and detailed payment profiles will be retained for a period of five years‚ enabling credit providers to obtain a detailed history of a potential debtor's payment behaviour.