Education is key to implementing Credit Act

The National Credit Regulator has given its first report in the follow-up to the implementation of the National Credit Act this year.

The Regulator, established in June 2006, told MPs in the Trade and Industry Portfolio Committee of the education and outreach programme for consumers, the lender and the courts.

The NCA, which kicked in on 1 June this year, protects consumers from undue risk and creates a fair and non-discriminatory lending market.

By prohibiting reckless credit extension and providing for debt reorganisation in cases of over-indebtedness, the Act determines the way consumers apply for, and get access to credit.

Another big benefit of the act is that it specifically outlaws the practice of job applicants being denied a job because of a poor credit history.

The Committee was concerned about the information reaching those who were indebted and the crucial role of debt counsellors for which the NCR currently had no budget.

Gabriel Davel, Chief Executive Officer of the Regulator acknowledged this, saying a major challenge faced by the NCR was how to address consumer education and awareness.

"Creating a high level of awareness of consumer rights prior to the effective date of relevant sections of the Act would have been counter-productive," he explained.

The Regulator had therefore focused on incremental awareness on the general content of the Act; cautionary messages in relation to over-indebtedness; rights in respect of credit bureau information.

Further to this, the NCR hosted consumer education and industry workshops: 128 consumer education workshops, 32 workshops and presentations on the Act to industry, 37 'educational adverts' were placed, 185 articles on the Act in the print media and 170 radio and 25 TV interviews.

Regarding the implementation of the NCA in the courts, Davel said training magistrates was important.

He explained to MPs that officials dealt with approximately 65,000 debt related judgements per month.

The National Credit Act was a radical departure from the previous legislation so this would put huge demands on magistrates who had to interpret and apply it in the courts.

Accordingly, the Justice College had developed a training manual and implemented a training programme for magistrates.

More than 700 magistrates would undergo training during 2007. The experience was an invaluable contribution to the successful implementation of the National Credit Act.

"There was a huge effort in preparing for the implementation of debt counselling, and it remains the biggest challenge of the institution," said Davel, going on to explain the various initiatives that had been undertaken to facilitate smooth debt counselling.

The effective implementation of debt counselling depended on the good will and co-operation of a number of stakeholders, including credit providers, credit bureaus and magistrate courts.

The CEO noted that the registration process for credit providers began with provisional registration which gave them time to review the documentation delivered by the providers.

There had been 3,968 credit providers with 19,574 branches provisionally registered by 31 March 2007.

Davel told MPs that the presentation focus is from 31 March 2006, but that his verbal comments would include the period after 1 June 2007 when the Act came into effect.

Eight credit bureaux were fully registered and 51 debt counsellors had submitted applications for registration. Davel also pointed out that 1% of credit providers provided 99% of the credit and 99% of the credit providers produced 1% of the credit.

As of September 2007, 89% of the providers were fully registered.

The outstanding applications for registration were primarily those of creditors from the "small" category which required much follow-up because of incomplete documentation.

He stated the NCR was making progress and there was no major concern about the registration process.

NCR had also conducted some research and the following were key findings on growth in credit extension:

• Household credit (by banks) increased by R391 billion over 4 years, that is 135% growth;
  
• The bulk of this growth was mortgages, which grew by R270 billion over the period, Credit cards also grew considerably, but amounts remain relatively small ... however, an important contributor to debt stress.
  
• Consumer credit extension grew faster than household consumption, GDP or growth in formal employment.

The NCA requires credit bureaus to remove information on a number of small debts (below R500) and paid up judgements.

All credit bureaus must also be registered with the National Credit Regulator and will have to follow the steps clearly laid out by the NCA, which sets out how consumer information can be used.

Consumers can request their credit records from the credit bureaus once a year at no charge, thereafter at a fee not more than R20 per record.

To verify that the information held by a credit bureau is correct, members of the public may enquire at the credit bureau and present their Identity Documents and address.

To complain for non-compliance by the credit bureau, consumers can contact the Credit Information Ombudsman at 0861 622 837. Further to this, complaints can be lodged with the National Credit Regulator at 0860 627 627.

Article published courtesy of BuaNews