THE NATIONAL CREDIT BILL

Submission by The Standard Bank of South Africa Limited

August 2005

INTRODUCTION

why this submission

· We welcome the initiative taken by the DTI to review current legislation and fully support the policy objectives of the Bill.

· We recognise the new business opportunities that will arise from the implementation of the new legislation.

· This presentation aims to identify aspects of the Bill that we believe will be key to achieving the policy objectives.

· Detailed comment on specific provisions have been included in our written submission.

THE SA CONSUMER CREDIT MARKET

A Divided Credit Market

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A New Unified Credit Market

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Commercial Banking

Operating as a Credit Provider in a regulated environment

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KEY AREAS FOR DISCUSSION

· Unitary Legislation (Sections 4-7)

· Ceilings on the cost of credit (Sections 100-105)

· Reckless Lending & Debt Counselling (Sections 78-82; 86-88; 129-130)

· Credit Insurance Provisions (Section 106)

· Time and Cost to implement

· Conclusion

KEY ISSUES

Unitary Legislation

· The Bill will ensure that all credit transactions are treated in a consistent and transparent manner.

· Although the Bill aims to protect vulnerable consumers, certain provisions create opportunity for abuse by consumers who do not require protection.

· In this regard, consideration should be given to limit the application of the Bill to either:

- Level of income;

- Balance sheet size; or

- Size of relevant loan.

Ceilings on the Cost of Credit

Historically, commercial banks have not operated in the short term, low value credit market, as most lending has been done in terms of the Usury Act.

· The Bill presents commercial banks with opportunity to participate in the normalisation of the credit market.

· In order for this to be achieved, the ceilings need to be set at a level that will enable banks to clear the majority of consumer applications.

· Detailed proposals in this regard have been submitted to the DTI by The Banking Association, South Africa.

Reckless Lending & Debt Counselling

· We believe the provisions that govern reckless lending and debt enforcement should protect customers in the marginal/informal market only.

· If not circumscribed as such, these provisions could:

- increase the cost of credit extension in markets with little or no

problem of over-indebtedness;

- potentially erode progress made towards improving operational

efficiencies; and

- increase the credit risk as a result of a more lengthy collection

process.

· To address these issues, we recommend that:

- The application of the Bill be limited to level of income, balance sheet size or size of relevant loan.

- Seffing aside contracts on the basis of reckless lending be limited to a period of no more than 24 months.

- Prescribed time periods for debt review, be expressed in terms of calendar days.

- Conflicting provisions relating to credit history be addressed.

Credit Insurance

· Although the Bill correctly aims to protect consumers, we are concerned that it could expose consumers and credit providers to undue risk.

This particularly applies to:

- short-term insurance cover on mortgage properties; and

- credit life cover for credit facilities.

· To remedy this, we recommend that:

- in the case of mortgages, credit providers be allowed to insist on insurance to the full replacement value; and

- credit life cover on credit facilities be based on credit limit rather than settlement value.

Time and Cost to Implement

· Banks' capacity and resourcing to practically implement and manage the Bill.

· Banks' credit processes will be severely impacted and extensive effort wilt be required to ensure compliance (18-24 months)

· In Standard Bank:

- 17 Business Areas will be affected

- Substantial computer systems changes will be required -application forms, agreements, letters etc. Cost estimated to be in excess of R100m

- Impact on third parties need to be considered

· Many requirements are still unknown, pending finalisation of regulations.

CONCLUSION

In summary we...

· welcome and embrace the opportunity to participate in the formulation of the National Credit Bill.

· would like to request that the drafting of the regulations be done in consultation with the industry.

· thank the Committee for the opportunity to share our thoughts on this important piece of legislation.