A Short-Lived Pardon Under The Credit Amnesty
The Department of Trade and Industry (“DTI”) and the National Credit Regulator (“NCR”) have made a proposal to the Cabinet for a credit information amnesty, which is to be put into place by the end of October 2013. This credit amnesty will have the effect of removing negative debt information from a consumer’s credit profile, such that credit providers would not be able to take these adverse credit listings into consideration when a consumer applies for credit.
The NCR’s initial recommendation entailed that adverse credit listings up to the value of R10 000.00 (Ten Thousand Rand) would be removed, irrespective of whether the amount of debt had been paid or not.
In June 2013, the majority of the Parliament’s Select Committee for International Trade and Relations voted in favour of dropping the monetary cap of R 10 000.00 (Ten Thousand Rand), in order that the credit amnesty would apply to any amount of debt, irrespective of whether the amount had been paid or not.
The NCR has argued that this proposal does not amount to a blanket amnesty which would result in creating more debt for consumers who cannot afford credit. It has further released affordability assessment guidelines and adverse listing rules which credit providers are to comply with before granting a consumer credit. The NCR aims to audit these affordability assessments on an on-going basis and will prosecute cases of reckless lending.
The NCR’s motivation for removing adverse data is that it would benefit 86% of people earning under R10 000 (Ten Thousand Rand), assist the middle class to access credit such as home loans, educational loans, increase employment opportunities and prove beneficial to those who cannot afford fees for the rescission of judgment debts which have already been settled.
It must be noted that the removal of negative debt data from the credit profile of the consumer does not write-off the duty to repay a debt to the respective credit provider. Further, a consumer’s payment history would not be completely destroyed and credit bureaus would still be required to maintain a record of a consumer’s monthly payments. Credit providers, however, will have lost the benefit of viewing adverse credit listings and the NCR has further confirmed that although there is a possibility that outstanding debts may remain unpaid post-amnesty, a credit provider would not be able to blacklist a consumer for the same debt.
Key stakeholders in the economic sector such as banks and other credit providers have rightly expressed general opposition to the proposal. Their primary concern is that the lack of access to adverse listings will lead to an increase in lending risk, as credit providers will not be able to tell the difference between consumers who have received amnesty although they are high-risk lenders and consumers who are, factually, low-risk lenders who can manage credit well.
This means that those with positive credit records may be prejudiced by high lending rates for home loans, micro loans and any other sort of credit, post-amnesty. It further raises the question of whether a credit provider will have legal recourse against the State for unpaid credit which was granted post-amnesty, as a primary source of assessing credit risk would be removed from the credit profile of a consumer. Another issue which has been raised is that 74% of consumers who received clear credit records under the first credit amnesty in June 2007 are currently defaulting on credit payments.
The NCR has acknowledged concerns regarding the proposed credit amnesty and advises that it will be working with pre-existing structures within local communities in order to educate consumers to take on credit wisely.
On Thursday, 5 September 2013, the Cabinet released a statement confirming their approval of the proposal, and, if all goes according to plan, it would appear that credit amnesty may be implemented by the end of 2013.