Truworths fully supports the broad purposes of the National Credit Bill. We respect the principles around this bill, particula4y the aspects of full disclosure of costs relating to credit, the avoidance of over indebtedness and discouraging of reckless credit, and the extension of credit to those that have been precluded in the past.

However we feel the bill in it's current form might have the unintended consequences in some respects, i.e. it could make it more expensive for consumers who are regarded as higher risk, or even result in credit hungry consumers resorting to borrowing in the informal unregulated market.

The bill, if passed in its current form, could unfairly penalise retailers that have used industry best practice for years to manage consumer credit obligations. Historically Truworths has offered credit on a responsible basis to a broad range of the population, including many consumers who would not otherwise have had access to credit.

We feel there are aspects of this bill that could increase the cost of credit, that will take away our ability to accurately assess risk, and that will slow the process down to such an extent that financial performance will suffer. This will ultimately lead to less profit, and therefore less job creation. In addition to this it will lead to less access to credit for the very people the bill is trying to protect, chasing them to informal and unscrupulous lenders in greater numbers.

We feel the recommendations made by Truworths are not onerous and go some way to balancing credit cost and risk.

Section 63 - Right to information in official language

A credit provider must make documents available in at least two official languages. A proposal can be made to use the same two official languages throughout the republic or different official languages for different parts of the republic.

While we fully understand the need to communicate to customers in a language that is easily understood by them, there are large cost and system implications if different languages are used in different areas.

Documents" have not been defined although there are a number of places in the bill that refer to them. We believe it includes the likes of credit application forms, contracts, statements and collection letters

Recommendation

Due to cost and systems implications we recommend that one official language is chosen, namely English, and where cost-justified other languages may be chosen. We feel the cost associated with multiple languages will result in large increases in expenditure and in some cases will be technically very difficult, costly and time consuming to achieve. The end result will be an increase in cost and effort that will ultimately lead to a more expensive credit offering to the consumer.

Alternatively if two languages are required, one of them must be English and the second language as selected by the credit provider or the National Credit Regulator should be capable of application throughout the country.

A third possibility (if there is a need for multiple languages) could be to permit a reasonable period to phase this requirement in.

Section 71 - Removal of record of debt adjustment

A consumer whose debts have been re-arranged may apply to a debt counsellor for a clearance certificate. A debt counsellor may issue the clearance certificate if the consumer has fully satisfied the obligations of every credit agreement that was subject 10 debt re-arrangement. Once issued, the consumer can approach a bureau who, upon receiving the certificate, must expunge from its records:

• the fact that the consumer was subject to debt-rearrangement

• any information relating to any default by the consumer that may have precipitated the debt rearrangement

• any record that a particular credit agreement was subject to the relevant debt rearrangement order or agreement As retailers rely heavily on the use of scorecards and models to price credit risk, we feel the removal from the bureau of all information regarding the debt (default information) would impact our ability to make accurate decisions on the risk of the consumer. This would lead to higher bad debt and therefore a higher cost of credit. The result would be to either pull back on credit extension on higher risk consumers, or increase the cost of credit to them. Both of these are in conflict with what the bill is trying to achieve.

Recommendation

To keep the existing arrangement at the bureau, where default information is expunged only after 3 years and judgement information only after 5.

Section 73 (2) Negative option marketing and opting out requirements

Subject to section 119(4) a credit provider must not make an offer to increase the credit limit under a credit facility, or induce a person to accept such an increase, on the basis that the limit will automatically be increased unless the consumer declines the offer.

Currently retailers evaluate the risk of a consumer on an ongoing basis. Internal scorecards are computed on a monthly basis and consumer bureau records are accessed regularly to obtain the highest degree of accuracy with regards to the risk profile of the consumer. This evaluation gives retailers an indication of the ability a consumer has to pay back debt. Based on this evaluation retailers either increase or decrease a customer's credit facility. Increases and decreases generally happen on a monthly basis, although an individual consumer is normally assessed every 3 - 6 months for a credit limit increase.

Taking away the facility to automatically increase a credit limit will severely impact retail turnover with implications on profitability and job creation. Statistics can be provided to prove this

Recommendation

For credit grantors to continue to automatically adjust credit limits as long as they have a formal process in place to evaluate affordability, for example internal / external scorecards and models to determine consumer risk.

Section 78 (3) Interpretations relating to reckless credit

The term "financial means, prospects and obligations" includes income, or any right to receive income, regardless of the source, frequency or regularity of that income and the financial means, prospects and obligations of any other adult person within the consumers immediate family or household.

When evaluating over-indebtedness the "financial means, prospects and obligations" at the time of extending the credit are taken into account. We believe the definition of "financial means, prospects and obligations" is too broad and may result in retailers overextending credit to consumers. It is also very difficult to accurately assess once-off income, income from other sources and income from immediate families or households.

Recommendation

To change the definition to one that includes "regular income from consumer and spouse or partner only"

Section 81(2) Prevention of reckless credit

A credit provider must not enter into a credit agreement without first taking reasonable steps to assess (a) (i) the consumer's general understanding and appreciation of the risks and costs of the proposed credit.

Firstly this clause is very broad and can lead to misinterpretation when assessing reckless credit. Secondly with the volumes retailers have to deal with, for example it is not unusual to process over 50,000 applications in any one-month, it would be enormously difficult to determine the consumer's general understanding and appreciation of the risks of credit.

Recommendation

To utilise the scorecards (internal and external) to help determine the level of understanding. One can assume that those with a good record at the credit bureau understand credit.

To define the process that should be followed for those consumers that are higher risk, taking into account the volumes retailers need to deal with.

Section 119(3) Increases in credit limit under a credit facility

Before increasing a credit limit the credit provider must complete a fresh assessment of the consumers ability to meet the obligations that could arise under that credit facility as required by section 81, i.e.

• The general understanding and appreciation of the risks . . .of the proposed credit agreement...

• Debt repayment history ...

• Existing financial means

From a retail perspective (if the agreement is the same except the amount of credit available), why reassess the understanding of credit if this was performed when credit was first given? In addition to this and due to the volumes facing retailers on a monthly basis it would be impossible to re-look at the existing financial means every time an increase is given. Industry best practice is to make use of scorecards and modelling techniques to evaluate risk, and on this basis make a decision on whether a consumer's credit can be increased.

Recommendation

In the credit product has not changed materially other than an increase in the credit limit, the assessment must take into account the:

• Debt repayment history and /

• The existing financial means of the consumer.

Section 119(1) Increases in credit limit under a credit facility

A credit provider may automatically increase the credit limit under a credit facility only (a) once each year.... and (b) by an amount not exceeding the lesser of the average monthly purchases or average monthly payments during the 12 months preceding the date on which the credit limit is increased.

The restriction to automatically increase once per year will likely result in material declines in retail turnover and job losses. Similarly the increase amounts recommended are very low and we question how these were calculated.

Recommendation

To continue to follow worldwide best practice by making use of scorecards and underwriting techniques to calculate affordability and to then automatically increase credit limits as required, depending on a companies appetite for risk. The consumer in any event has recourse to companies that are unscrupulous in terms of section 80.

As an alternative allow these automatic increases to take place more frequently, for example four times annually.

Conclusion

We trust that you find these recommendations constructive and we will readily make ourselves available for further consultation if required.

Representatives

The following persons will represent Truworths at the public hearings on the bill:

Gerhard Beukes - National Credit Manager

Gary Barnard - National Credit Risk Manager

Chris Durham - Company Secretary

Yours sincerely

Chris Durham Company Secretary

Truworths limited No 1 Mostert Street

Cape Town

8001