Tag Archive | Nedbank

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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Smart card ID upgrade for South Africa

Smart card ID trials with banks

Despite a highly upbeat presentation by the department of home affairs (DHA) on the position with regard to the issuance of a smart card ID card to all citizens of South Africa,  the actual final implementation of the full system using bank premises for issuance would still seem time away.

DHA said that in all, the new process involved the replacement of some 38m ID books involving a further 70 DHA offices or “booths” being created throughout the country which will also process new passports.

However, said DHA, to speed up the process; create greater access to the Smart Card issuance: reduce queues and, importantly, to reduce the whole timeline of eliminating the old bar-coded system, DHA was now working with the banking world with pilot propositions based on using the outreach of banks as well, in order to reach a greater proportion of the general public and speed up the process.

Payment and issuance at bank

So far, MOUs had been signed with FNB and Standard Bank to set up pilot “booths” at a number of trial bank locations in order to study the options and strategies to involve banks with the issuance of cards and possibly payment by swipe. Studies were also being conducted with the SA Post Office (SAPO).

DHA said the consideration of SAPO had arisen because of their “large footprint” in rural areas and, together with an evaluation with trials at the two banking pilots, the entire IT system developed by DHA for their own 407 outlets, would be tested, adapted and fine-tuned. National treasury would then be approached on the additional costs of including the four private sector banks and SAPO.

DHA’s own system in hand

The budget for DHA to handle the system alone and by itself was R120m.   Contracts to card makers had been finalised in terms of a highly satisfactory and approved tender process.

MOUs with Nedbank and ABSA were now also being initiated, as an extension of the arrangements with the first two banks mentioned, in order to then involve all four major banking groups in South Africa to widen the whole process, the department said.

The matters being investigated at present were the entire security risk of such an operation, this being paramount to DHA; the possibility of online payment for application of documents produced; fingerprint and photos on site (an essential if the documents were to be collected later from the same location); and return of revenue and reconciliation of cash with DHA.

First and second class

DHA told parliamentarians that citizens would therefore have a choice between the DHA option, for which an ID would probably cost in the region of R140 and a passport R800, or at banks where no doubt a premium would have to be charged worked out after the pilot scheme was found to be workable or not.

Under questioning, particularly led by ANC chairperson Buoang Mashile, DA’s Mohammed Hoosen and ANC’s Bonsile Nesi, extreme circumspection was expressed on the involvement of SAPO ; the quality of its staff to handle highly sensitive and personal information; and the fact that some SAPO outlets only had two staff members in small stations and rural outlets.  The recent SAPO strikes, where no mail was delivered for three months, added to their disquiet

DHA responded that they were highly conscious of this and a decision to involve SAPO was yet to be made from evidence collected.

DHA presence at banks

DA’s Hoosen also stated that “nothing ever came free from banks”. He expressed disbelief that the all four major banking institutions were seriously going to involve themselves in such monetary matters and reconciliations with DHA and integration of DHA staff on their premises for free.

DHA replied that what was being undertaken was a pilot which involved a “stand alone” DHA booth to handle information input, fingerprints and photos and that bank would accept monies and credit DHA as did some retail outlets with municipal matters. DHA staff would be involved.

Security of info

To some extent the DA were satisfied to hear the banks themselves did not deal with the personal details of applicants, leaving DHA as sole handler of the any information on their data capture system, as in the past. Nevertheless they asked for  a “ball park figure” as an  idea of what the private sector involvement would add to the cost of an ID and passport.

DHA responded that it might double the cost of a Smart Card ID and push passport costs well up to R1,500 but at this stage all was conjecture as the pilots with the two banks had only just started.  If it was decided to go ahead, then the whole process would have to be costed before it went to National treasury for approval as a possibility and the involvement with the banks would have to be a “self reducing” exercise but faster.

Quo vadis?

On questions on the need to communicate with the public, DHA said the whole issue was early stages and in any case the process was a five to seven year plan and communications would come up only when the entire system was wrapped up and ready to go.

On the ability of DHA to handle such a national campaign of this magnitude, a number of MPs queried whether the department, as it was presently constituted, was able to handle such a programme.  DHA said part of the plan involved the hiring of staff and a major focus was on an extensive training programme. DHA said they were used to handling such matters as elections and there were a number of common factors involved.

Fingerprints may overcome

The main areas of concern to DHA, the presenter said, was rather in the area of fingerprint verification where “swopping” between immoral staff and the public was concerned and outside scam organisers who deluded the public with false information but they felt that the photo verification system, when added, would eliminate most of the physical fraud possibilities in collection by the right person.

DHA said that in their experience, the areas of cutting, pasting and manual tasks were the areas that the risk analysis project had mainly to focus on. The risk analysis project was the vital undertaking that was being assessed at the moment,

When asked by members where the two pilots were being conducted, DHA said that this was being undertaken with Standard and FNB in Gauteng, who were helping with risk analysis.

Other articles in this category or as background
Home Affairs gives reasons for visa changes – ParlyReportSA
Home Affairs fails on most targets – ParlyReportSA
Private Security Industry Bill comes closer – ParlyReportSA

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