Tag Archive | NCR

Credit regulations to squeeze racketeers

Debt relief and credit under microscope

… sent to clients 22 Dec 2016…. Further powers for the National Credit Regulator to regulate against reckless lending have been reaffirmed as necessary and the subject of debt relief for needy persons considered.

This conclusion was the result of a series of hearings conducted by Parliament and criteria are to be developed for the application of debt relief measures and how this could be achieved are now being studied.

Such criteria could include target groups of debtors who would be eligible for the relief; the period in which the measure would apply; the type of debt that would be covered and how the measure could be implemented.

An earlier study, commissioned by the National Credit Regulator (NCR) some months ago, concluded that there was a need for the National Credit Act to make provision for the introduction of some form of national debt relief but the NCR decided to consult Parliament and to involve public input.

Growing debt bubble

Whilst reckless lending and irresponsible borrowing which led to the disastrous housing bubble in the US, Joanna Fubbs, as chairperson of the Portfolio Committee on Trade and Industry, acknowledged that the situation regarding any retail debt bubble is not as bad in SA.   Nevertheless, she said that for some time she has been concerned that the National Credit Amendment Act is not working in the best interests of vulnerable groups.

On the issue of debt relief, whether from reckless lending or not, it was agreed some time ago by the Committee that it was important for stakeholders to be consulted to establish a better picture.  A parliamentary select committee, chaired by MP Eddie Makue of the same Committee, was formed to investigate whether debt relief would be an acceptable policy for SA and to organise parliamentary hearings focusing on banking input and debt control aspects.

The brief

The Portfolio Committee also recommended to this subcommittee that there needed to be a better understanding between the excesses of lending, the plight of borrowers and a view established on regulations which should refrain from fostering any culture of not paying debt in the hope that it might be written off.

Meanwhile, it has been proposed by the Department of Trade and Industry (DTI) to extend the powers of the National Credit Regulator to conduct proactive investigations into reckless lending . They would also be asked to impose administrative fines and to empower the Minister to provide debt relief mechanisms through further regulations, yet to be drafted.

Also, NCR submitted that it had already laid out its own proposals to tighten up existing regulations and penalties for perpetrators of reckless lending which the Regulator was currently entitled to enforce under the Act but the views of the Regulator were to be sought on debt relief by Makue’s Committee.

DTI view

DTI has since confirmed to this Select Committee that it was their view was that the Minister of Trade and Industry, Rob Davies, should be given the power to prescribe debt relief measures, the nature of which must be carefully thought through . At the time, DTI acknowledged that banks and credit providers had to make their views known preferably in a series of hearings now conducted.

NCR view

National Credit Regulator, Nomsa Motshegare, has confirmed to the Select Committee that in their view some form of debt relief is necessary given the reasons of the country’s slow economic growth; retrenchments that were taking place; and rising unemployment figures.

In general, she said, these factors had already diminished household income and led to difficulty for consumers to repay loans.   The NCR had found, they said, that there was a willingness in general amongst banks to find ways to relieve the financial burden of indebted clients, many of them stating that they did this already, but there was considerable doubt on whether this should or could be backed up by any enforcement measures and regulations.

 The banks

In this regard, during further public hearings, Cas Coovadia of the Banking Association of SA (BASA) emphasised that legislated debt relief for all would have negative consequences since this was far too prescriptive. He  called for “a customised debt relief approach that would suite various portfolios” as a better principle to follow.

At the outset of the discussions, Coovadia stated that BASA did not support the principle of debt forgiveness as an objective.  One of the banking system’s foundation principles, he said, was the need to efficiently and legally lend money to borrowers and to collect repayments from borrowers to settle the loans.

He told parliamentarians. “A confluence of pricing, regardless of individual consumer risk, will arise at a portfolio level to offset the inability to price for the risk.    This will mean that consumers who have a good repayment history will no longer be rewarded for such behaviour when they apply for further credit.”

He warned that blanket debt forgiveness would accelerate irresponsible borrowing and said all banks offered means to repay and gauged the circumstances when lending.   Any failure to perform on this principle would have severe consequences for the industry and economy; would increase risk to depositors/savers; would impose a cost on society; and would limit credit providers’ ability to extend credit, he said.

Making a plan

Nedbank said that the option of rehabilitation was always a preferred course rather than hard legal collections and the bank had recently adopted a philosophy in general banking terms that to become proactive in terms of debt relief solutions was the far better solution for those who had over-extended themselves.

They said the situation between credit provider and consumers should remain “mutually beneficial”, which principle bore in mind that the economy of the country was less affected.   Nedbank confirmed that a satisfactory low, in their view, of 4.6% of their clients could be classified as technically in total default without the any possibility of rescue, as at the end of 2015.

Too prescriptive

Individual banks, such as Standard Bank, Absa, First Rand, Capitec and African Bank generally supported BASA’s view that prescriptive laws or regulations regarding lending, collection and debt relief would remove the principle of case by case treatment which in turn, they said, would probably inhibit loans being granted or drive up their cost

Debt and labour

Chamber of Mines was blunter and took the view that employee over-indebtedness was a major problem in labour relations and “fed into unrealistic wage demand” scenarios.  Indebtedness, they said, was one of the major catalysts in recent mining unrest.

They were clear that education on family accounts and the implications of over borrowing had to be stepped up, rather than complicated prescriptive measures on relief that would favour one and not the other.  More important they said was that loan sharks should brought under control and whose malpractices were rife amongst the mine working community.

Ms Sue Fritz, speaking for the Chamber, said that any form of debt relief provisions must consider the danger of undermining the basic principle that with the ability to borrow came the understanding such debt had to be repaid or quality lending would cease and debt might increase.

Cosatu view

Cosatu’s Matthew Parks urged that some form of debt relief be provided to a defined base of categories, such as retrenched workers; those only on social grants; the poor; working-class and middle-class students with student loans and borrowers who had paid off a large part of a loan but fallen on hard times. He also appealed to parliamentarians that there was a need to crack down on loan sharks, formal and informal.

Paul Slot, speaking as president of the Debt Counsellors Association, said some form of debt relief was necessary to counter the current high level of household debt, noting that according to the association, 54% of those in financial trouble simply applied for more debt to extricate themselves.

Conclusions in process

The Select Committee has now made a call upon on the National Credit Regulator to tighten regulations further on loan sharks and the registration process.  Chairperson Eddie Makue has now reported back on the hearings to the Portfolio Committee but has noted in Parliament that he was deeply concerned that a large amount of vulnerable people remain exposed to unregulated credit and can become victims purely because of greed alone on the part of the lender.

On reckless lending, it was noted that often ridiculously high repayments from the poor were a weapon used to gain control of assets.    Makue said, “The NCR has to protect poor South Africans against such lending by unregistered and immoral micro-lenders.   In most rural and semi-urban areas people maintain their existence through borrowing and the interest they sometimes get charged is shocking, and interest rates should be capped by law”, Makue said.

State debt relief and debt relief regulations

The “jury is still out” therefore for 2016 on the issue of DTI tabling a Bill and the subject of debt relief generally.

Parliament closed 7 December and will resume this debate early in 2017

 Previous articles on category subject

National Credit Act Bill aims to help consumers – ParlyReport

Treasury proposals on debt control approved – ParlyReportSA

National Credit Amendment Bill changes – ParlyReportSA


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Credit amnesty proposals pushed through

ANC majority agrees to idea….

The department of trade and industry’s (DTI) credit amnesty proposals aimed at reducing “credit impairment” were voted through by the parliamentary trade and industry portfolio committee, opposition members either abstaining or opposing the proposals.

A draft Bill, following a thirty day period for hearings, will be tabled in the next and final session of Parliament once approved by cabinet and before the present government ends.

The proposals, which came unexpectedly and at the last minute of the present parliamentary session, were proposed by the minister of trade and industry, Dr Rob Davies and the office of the National Credit Regulator (NCR).

Customer credit “impairment”

The amnesty proposals, it was stated, were aimed at “reducing credit impairment, by addressing its cause;  allowing for restorative justice;  and aimed also to redress the failure of credit providers to make proper assessments of risk.”

The credit amnesty is also intended to address over-pricing, stimulate economic growth and address some of the barriers to credit, McDonald Netshitenzhe, acting director general, DTI,  told parliamentarians. He replaces Lionel October as head of DTI.

In an earlier meeting in August on the subject, Netshitenzhe said before the same committee that the proposals were not only to reduce credit impairment by going to the root cause of the problem cause and legislating for “restorative justice” but in addition DTI’s proposals intended to cover the issue of the “failure of credit providers to consider broader economic factors”.

Three options

As a result of investigations by the NCR, he said at the latest meeting, three different amnesty options had been considered, all with the extent of mitigation in mind that such an amnesty would have on the provision of credit facilities by credit providers when considering their credit risk offerings.

Option one, said Nomsa Motshegare, CEO of NCR, at an earlier meeting, was the “least risk” option, with credit providers being the least disturbed; option two being “medium risk” and option three being “high risk.  Motshegare told parliamentarians that her department had appointed an independent firm to carry out an analysis of the impact assessment of the likely effect of removing various data scenarios from credit records according to the three options.

This study, she said, looked at the number of consumers that would be impacted; the totals of credit granted; the possible risk to the portfolios of credit providers and possible consumer impact.

End result

In terms of the proposal considered, i.e. option two for medium risk, NCR would remove certain categories of credit information from the record to be seen by banks, as well as the removal of all paid-up judgment data and adverse information listings on credit default following satisfactory conclusion of payment of the underlying debt.

The NCR spokesperson was outspoken on the issue that credit providers must conduct more stringent “affordability assessments” and advise “discretionary income guidelines” when providing credit facilities to consumers. NCR advised that reckless lending was to be isolated and “dealt with”.

Too much haste

In answer to opposition objections on the speed of introducing the amnesty proposals and the apparent wish to fast-track the proposals, acting DG Netshitenzhe said that whilst DTI acknowledged that their proposals had come before Parliament without the normal notice, the fact was that the credit situation was “spiralling” dangerously and the build up of genuine consumer complaints that was complicating the issue had to be addressed.

He said that many credit producers had been consulted with in the survey but that they looked forward to further constructive proposals from the major banks.   NCR separately acknowledged the haste had been applied “out of necessity”.

Half on credit prejudiced

NCR added that it was probable that some 50% of consumers with credit facilities were “impaired” from further credit in some way or another and the causes for this had to be assessed and regulated for. Ill advised lending was the main cause for concern, with unsecured lending a major issue and the need for affordability guidelines, it was said.

It was recommended by DTI that any legislation should be aligned with other laws dealing with debt as an issue, involving both debt collection and garnishees. The proposal before Parliament was that the minister should draft regulations in terms of the option agreed to in order to give effect to a credit amnesty, a notice being published giving 30 days to comment on the draft.

Date to remember

The period of comment will be gazetted, Netshitenzhe said, in the period June to September 2013 to allow for DTI to assess these by October 2013.   Meanwhile a number of reputable voices have expressed dissatisfaction with the proposals in the media.

Opposition members objected to the idea that options and drafts should be considered by Parliament before DTI had received the benefit of public hearings, saying that full legislative proposals and the choice of options should come forward following such hearings, especially any submissions from the banks.

They agreed, nevertheless, that reckless lending had to be curbed in the national interest, proposing that hearing and submissions with further investigations by NCR should be conducted over three months, not one month, and carried forward into the new government as far as debate was concerned. DTI said again that the matter was particularly urgent.

More analysis to be done

DTI said that more investigation would be carried out at the same time as the hearings took place and a report for cabinet would be drafted and confirmed and, as asked by the chair, a further report on that investigation be submitted to Parliament.

After considerable debate and objection by opposition members that the proposals were “being rushed through to satisfy a policy agenda”, and despite even a comment from one ANC member “that not enough time was being given to the public” with just a thirty day consideration period for submissions, it was agreed by a majority of members, with opposition members voting against, that DTI’s request should be approved and that should proceed on the basis proposed of the medium risk option credit amnesty provision in terms of regulations to be published.

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