Banks' debt assessment plan rejected

Permission for banks to apply thier own affordability assessments have been rejected by the Department of Trade and Industry. Image: Stuart Miles Free Digital Photos

The National Credit Amendment Bill‚ which will amend the National Credit Act and which entered a public hearing phase last month‚ also proposes that adverse information held by credit bureaus be removed.

This was rejected by the banking sector - but the department has not budged from its resolve to embark on this initiative either.

Deputy director-general‚ Zodwa Ntuli and chief director MacDonald Netshitenzhe gave initial feedback on the submissions made by the public on the bill during the parliamentary hearings organised by the portfolio committee on trade and industry.

A more comprehensive report will be submitted later this week.

Banking Association of SA's managing director Cas Coovadia said banks would prefer to have voluntary affordability guidelines incorporated in their self-regulated code of conduct‚ rather than having them imposed through regulation.

In terms of the bill‚ the criteria necessary to be registered as a credit provider would include compliance with a prescribed code of conduct. This would include an affordability assessment guideline prescribed by the minister after consultation with the National Credit Regulator (NCR).

Voluntary code of conduct

At the moment‚ credit providers have to subscribe to a voluntary industry code of conduct approved by the regulator. Coovadia says banks want to retain the status quo.

In the event that the portfolio committee decides in favour of a prescribed code of conduct‚ the association has urged that the powers of the minister be limited and that he be required to consult the industry when formulating it.

But Netshitenzhe stated emphatically: "Self-regulation never works and therefore we would like the minister to prescribe through regulations and those regulations must be binding." He said banks often did not apply the affordability criteria in their industry codes.

Coovadia believed the voluntary code of conduct had worked and warned of the danger of over-regulation‚ as this could stifle innovation and growth.

The association was also concerned that the minister's powers to change prescribed codes could bypass the legislative and parliamentary processes.

"There needs to be a fine balance between enabling lenders to be innovative‚ creative and responsible and over-regulating an industry to such an extent that it constricts growth and constricts talent.

"At the end of the day over-regulation will push people into the informal market and actually increase indebtedness‚" said Coovadia. "

The association is participating in a technical committee on draft affordability guidelines issued by the NCR.

These have not yet been finalised‚ but Coovadia said the proposals were problematic "in that they don't cater for every part of the market".