SUBMISSION BY LOGAN ATTORNEYS AND THE VETERANS FOUNDATION (PTY) LTD ON THE CONSUMER CREDIT BILL 2005

12 August 2005

Logan Attorneys specialises in lawfully rescinding judgements and in negotiating the removal of defaults and other adverse credit listings from consumers’ credit records on instruction of consumers. Logan Attorneys has first hand knowledge of the credit repair industry and wishes to suggest amendments to the Consumer Credit Bill to

eliminate unfair business practises prevalent in this area of the credit industry.

The Veterans Foundation (Pty) Ltd acts for all South Africa’s veterans and they are concerned that the National Credit Bill 2005 does not address inter alia the practical issues relating to the denial of credit to those who have paid their debts and remain excluded from obtaining credit.

Logan Attorneys made submissions on the draft regulations set out in Government Gazette No 24738, Notice No 1249 of 11 April 2003 (the "Regulations"). Together with the Veterans Foundation (Pty) Ltd, Logan Attorneys hereby makes a joint submission, as set out hereunder, on the Consumer Credit Bill 2005, as set out in Government Gazette No 27529 of 26 April 2005 (the "Bill").

Our submissions principally derive from Logan Attorneys experience in relation to legitimate credit repair and debt settlement, areas in which we specialise and have practical, everyday, working knowledge. Furthermore, it is our hope that unfair business practises perpetrated by creditors and illegal credit repair companies be properly addressed by the Bill.

At the outset we wish to commend the Department of Trade and Industry for the Bill, which we believe to be of immense value and a major contribution towards the empowerment of consumers. Our comments largely aim at suggesting appropriate measures to address issues which are not addressed by the Bill.

 

OUR COMMENTS ON THE BILL

 

  1. Section 68(1)(b)(ii)(aa) – Right to confidential treatment
  2. The Bill ought to prescribe that complete credit data be given to the consumer’s authorised representative. Credit bureaus and credit providers must be required to give duly authorised persons, such as attorneys and debt counsellors, acting on behalf of consumers, full access to their client’s credit profile/record. At present the Consumer Credit Association data, such as the payment profile, and Joint Bank Credit Bureau data, such as Bank Defaults, are withheld by the credit bureaus, despite duly authorised persons requesting same. The Bill currently provides in section 72(1)(b)(aa) that a consumer is entitled as of right to inspect their credit information once a year. It is our submission that many consumers would require their attorney or a debt counsellor to exercise this right, in terms of section 72(1)(b)(aa), on their behalf. We therefore propose that the Bill specifically allow a duly authorised representative of the consumer to inspect the requisite credit information in terms of section 72(1)(b)(aa), on behalf of the consumer concerned, so that the consumer may be properly advised without additional cost being incurred.

  3. Section 70(2)(f) – Credit Bureau Information
  4. The Bill ought to require the removal of judgement data by Credit Bureaus on presentation of a court order by a practising attorney evidencing rescission of the judgment.

    At present, the Credit Bureaus refuse to remove judgement information, even when presented by an attorney with an original court order, obtained by that attorney, rescinding the judgement. This refusal is due to credit bureaus having previously been the victims of unscrupulous credit repair companies.

    This practice of failing to accept original court orders, proving the rescission of the judgment, from an attorney is unacceptable, as an attorney is required to act ethically and should be reported to the Law Society should such an attorney falsify the rescission of a judgment. The credit bureaus should not be placed in the unfortunate situation of having to check on the veracity of each order rescinding a judgement. The current situation results in extraordinary delays in the removal of the judgment as the credit bureaus must have their court agents verify each rescission. This proposed requirement, to remove a judgment on confirmation by an attorney that the judgment has been rescinded and following receipt of an original court order, should be made mandatory in line with the requirements set out in section 71(5).

     

    Automatic removal of all default data where related debt is paid and abolition of unfair business practice by CCA relating to the non-removal of default data

    We believe that former debtors are unduly prejudiced by credit grantors who use paid up defaults or paid up judgements as an excuse not to lend credit to otherwise deserving credit applicants. It is for this reason that we strongly support the removal of any default on proof by a debtor to the credit bureau that the debt has been repaid in full. The policy of the Consumer Credit Association’s ("CCA") members, amounts to punishment of the debtor for a past mistake and is tantamount to defamation of the debtor, as the account is listed as having been in default despite having been paid in full.

    The CCA rule that defaults will not be removed until the three year data retention period has lapsed is both unjust and unsupportable.

    The CCA is an association of credit grantors consisting mainly of retailers. Members of the CCA have agreed not to remove default listings from consumers’ credit profiles, even where such underlying debts have been fully paid.

    This agreement not to remove defaults even though the debt to which the default relates has been paid is: 1) unjust, as the consumer has a default listing on their credit profile when they are no longer in default; 2) amounts to defamation of the consumer as the credit grantor is effectively stating that the consumer is a bad credit risk even though the debt has been properly paid, and, 3) makes use of past slow / non-payment to prejudice current and future business activity on the part of the consumer.

    The CCA’s main alleged reason for imposing a non-removal policy is to protect the credit interests of its members. The CCA membership agreement premises the retention of the default data on the assumption that the predictive quality of the credit data will be prejudiced by removing the default. We believe this argument is made nonsense by the fact that the consumer has proved their bona fides by paying the account in full and therefore the associated risk of providing credit to that former debtor has been minimised. Furthermore, why should CCA members be allowed to act as "credit police", a role which a creditor has no authority, either legally or otherwise, to perform?

    The fair approach, is the approach taken by a hand full of creditors whereby, once the debt is settled, the credit bureaus are automatically instructed to remove the default. This requirement to remove ordinary defaults, where the account in question has been repaid or otherwise settled, should be made obligatory by the Bill.

     

    Automatic removal of all joint bank default data where related debt is paid

    This injustice, of retaining paid up default information, is also perpetuated by commercial banks who retain negative joint bank default information, even when the associated debt has been fully paid. The commercial banks will, in our experience, occasionally remove these bank defaults, but in these rare instances they insist on the provision of onerous case histories or other arguments to be put forward, which such banks then often regard as insufficient. We have been told by commercial banks that they do not wish to remove these defaults as they serve to protect the wider banking industry from slow payers. This is completely unacceptable as it penalises the consumer even though they have proved their good faith by paying the debt in full.

    The commercial banks also retain the default on the consumers’ credit records for a period of three years. We believe that the banks’ failure to remove these joint bank listings amounts to unfair discrimination, and they should not be allowed to collude by sharing such joint bank information, to the detriment of ex-borrowers. We would repeat our arguments relating to the removal of ordinary default data, see above, here as the same principles apply. Commercial banks should not be excepted from the proposed requirement to remove the negative default data once the related debt is paid in full.

    Unless paid up defaults are removed, many hundreds of thousands of ex-debtors will remain unable to move on with their lives. Credit providers and others often fail to realize that their arbitrary decision not to remove a default once the debt is paid, results in severe discrimination both in the workplace and in the broader economy.

    There is no good reason not to remove such defaults, as the credit grantor in question is free to retain it’s internal records and is thereby able to distinguish between individuals with a perfect credit record and other less fortunate individuals.

    This issue could be addressed by adding a further section, possibly, Section 71A, mandating the "Automatic removal of default data from credit bureau records following settlement of the related debt."

     

    Data Retention Periods for Credit Information

    While this aspect is not provided for in the Bill we believe a new section ought to empower the National Credit Regulator to revise the data retention periods from time to time.

    While the data retention periods with respect to the credit record currently mirror those in many other jurisdictions, we believe that given: a) the gigantic number of affected persons and b) the negative impact on any credit application, of so much as a single paid-up default from a creditor, the data retention periods should be shortened. Specifically, the data retention period relating to the notice of rehabilitation, following the rescission of an administration order, which is currently five years, should be no more than one year, as an administration order once rescinded should not be considered any more serious than another civil judgement. Likewise the notice of rehabilitation, following the rehabilitation of an insolvent, which is currently five years, should be no more than two years.

    Section 70(7) may possibly be added to read: "The Minister shall prescribe data retention periods relating to each category of adverse data held by credit bureaus. On the expiry of such data retention periods, the related adverse data shall be expunged from the credit bureaus records in terms of section 70(2)(f)."

    Prescribed claims may not be listed

     

    Creditors list prescribed claims, such as Health & Racquet accounts, despite the fact that the claim has long since prescribed.  Where a creditor has failed to take judgment within the three year period prior to prescription of the claim, the creditor or its collection agents should not be able to prolong the listing of the default, post the expiry of the prescription period. Each default listing on the credit profile should have a default date (i.e. when the account went into arrears) and three years after the default date the listing should automatically be removed by the credit bureau, irrespective of payment.  Clients are frequently listed well after they defaulted and yet the listing is added for a full three year period; this despite the fact that the claim has or is about to prescribe. 

     

  5. Section 130 – Debt Procedures in Magistrate’s Court
  6. Requirement that creditors consent to an application for rescission of judgement where the judgment debt has been paid

    In terms of section 36(2) of the Magistrates Court Act 1944 as amended, the judgement creditor must agree in writing if a civil judgement (which has not been sought or granted in error) is to be rescinded by the Court. As most judgments are properly taken the refusal by the creditor to consent to the rescission of the judgment effectively prevents the former debtor having the judgment rescinded and the judgment therefore remains on their credit profile for the balance of the five (5) year period. Section 36(2) of the Magistrates Court Act 32 of 1944 was specially amended in 2002 so that judgments may be more easily rescinded, yet many creditors still refuse to consent to the rescission despite payment. Therefore where the creditor does not agree to the rescission, the judgment usually remains as the application for rescission is usually dismissed by the court. In our experience Standard Bank of South Africa Ltd goes so far as to state that it will not oppose the application for rescission but then withhold their consent to the application, thereby forcing debtors to attempt to prove the judgment was sought or granted erroneously.

    A civil judgement is granted in order to compel payment and allow for the attachment of goods or the salary of the debtor to be attached. Once the debt is paid, the judgment has served its purpose and the judgement creditor ought to be compelled by the Bill to agree to the rescission of the associated civil judgement.

    We believe a further sub-section should be added to section 130 providing that:

    "Judgment creditors shall consent to the rescission of civil judgment where debt is paid. The proposed addition could be drafted along the following lines:

    "Section 130(5): Upon receipt of a written request from a judgment debtor, where the judgment debt has been paid, a judgment creditor shall promptly provide such judgment debtor with the required agreement in writing to allow that judgment debtor to have the judgment rescinded and thereafter expunged from the data held by the credit bureaus with respect to that judgment debtor."

     

  7. Credit Repair – Request for a new section to be added possibly under Part B

Empower the National Credit Regulator to enforce the provisions of the Notice (see below) and specifically address illegal credit repair.

The area of credit repair has been partly regulated by Government Gazette No 18646, Notice No 169 of 6 February 1998 (the "Notice"), in which the Minister of Trade and Industry (the "Minister") firstly, prohibited any business or person, other than attorneys, credit bureaus, universities and the Legal Resource Centre, from receiving money or other valuable consideration for any [credit repair] service and secondly, required credit repair entities to publish and have their clients sign the required written statement.

The Notice is valuable and welcome. However, despite the Notice, credit repair entities, such as Credit Clear Nationwide cc, Registration Number 1999/025619/23, Credpro (Pty) Ltd, Registration Number 2003/021436/07, Credit Fix cc, Registration Number 1993/006132/23 and SA Credit Bureaux Administrators cc, Registration Number 2001/039565/23 continue to conduct the harmful business practice set out in the Notice. When bringing this to the attention of the Consumer Affairs department, Ms. Astrid Ludin, explained to Logan Attorneys that the Consumer Affairs department lacked the necessary powers to enforce the Notice. For this reason, we wish a new section to be added under Part B of the Bill, which would give the National Credit Regulator power to enforce the provisions of the Notice and specifically address illegal credit repair.

We welcome any questions relating to our comments and commend the Department of Trade and Industry for the insightful terms and proposed framework as set out in the Bill.

Yours faithfully,

 

LOGAN ATTORNEYS AND

THE VETERANS FOUNDATION (PTY) LTD