Credit Information Amnesty Project: Progress report: Department Trade & Industry & Credit Regulator
The Department of Trade and Industry (dti) and the National Credit Regulator (NRC) gave a preliminary report on the Credit Information Amnesty Project. Hearings were held in 2012 by the Committee on a possible credit information for consumers whose poor credit records prevented them from engaging in commercial transactions even after settling their debt. The Committee had asked that dti and NCR consider options, particularly given the fact that the 2006/07 credit amnesty had been largely unsuccessful, and come up with a report.
The dti and NCR both indicated their support for an amnesty and for protection of the public. Substantial lessons could be learned from the previous amnesty attempts, and it was necessary to conduct full research into what form this proposed amnesty should take, what it should entail, how it could be made sustainable, and why the previous attempts had not succeeded. The NCR’s studies extended into consumer issues, and the dti and NCR had held discussions with a number of stakeholders, including sector associations, the Registrar of Banks, and the National Economic Development and Labour Council (NEDLAC). In addition, it would engage with consumers, and an independent consumer credit consultant and lawyer were commissioned to investigate and report on the proposed data removal exercise. An impact assessment on the likely effects for consumers and credit providers had been done. The exercise also looked into possible affordability assessment guidelines, credit literacy initiatives, and additional measures to assist consumers. Some preliminary findings showed support for affordability assessment guidelines, since the present Credit Act was not clear on this point, and support for credit literacy programmes, which should stress that consumers must take responsibility for their credit ratings, and exercise caution when applying for credit. Some opposition from the credit providers to the removal of information was attributed to the fact that they may not have understood what the dti was intending to do. The definition and focus of amnesty would need to e narrowed down. Discrepancies, such as credit providers continuing to use even removed information, would be addressed by legislation. A further report by the actuarial firm appointed on the numbers of consumers affected, and risk to credit providers would be given. It seemed, however, that removal of adverse information relating to debts under R10 000 would assist some credit-impaired consumers to obtain home and micro loans, would probably benefit 86% of people earning under R10 000 but removal of dormant information would have no significant effect. Final reports could only be submitted in about one month, when the conclusions and recommendations had been finalised.
Members agreed that substantial communication with consumers was necessary and asked how the dti and NCR would reach those in rural areas. They agreed that regulation and standardisation on the affordability assessment was desirable. They asked what the effect of “archiving” of records would be,
asked if any precise figures were yet available on the number of people who could benefit and urged that poor and possibly illegal services by credit consultants had to be addressed. The research methodology was questioned and explained.
Credit Information Amnesty Project: Department of Trade and Industry (dti) and National Credit Regulator (NCR) Feedback Report
The Chairperson reminded the Committee that its main aim, after considering the proposals around credit information amnesty that were presented to the Committee in 2012, was to approve a suitable amnesty project. The relevant structures, such as the National Credit Regulator (NRC), the Department of Trade and Industry (dti or the Department) and consultants had put a lot of work into the project. The Committee should therefore to use all avenues to get a Bill approved. He noted that it would be necessary to hold public hearings on the matter in all provinces.
Ms Zodwa Ntuli, Deputy Director-General, Department of Trade and Industry, agreed with the Chairperson that approval for the amnesty project was important one, especially to ensure protection of the general public. A team from the Department, with representatives also from the NCR, was attending this meeting to demonstrate the sincere commitment of all structures in supporting an approved amnesty project.
Ms Ntuli gave a brief outline of the background of the project. The proposal for the adoption of the amnesty project for consumers came about as a result of the concerns raised by Committee Members about what was happening in their constituencies, which was important for the dti to know. Consumers with negative credit ratings, as shown on their credit records, were currently hindered from accessing credit, and this was the main reason for the proposal for an amnesty in relation to credit information. A credit information amnesty was first offered in 2006/2007, but it was not successful. Ms Ntuli stressed that adequate research would have to be conducted before the implementation of this proposed amnesty, to investigate in full what form the amnesty should take, and what it should entail. Significant lessons could be learned from the 2006/07 amnesty experiences, as well as the reasons why that had not achieved the desired impact.
The NRC had therefore undertaken a study to asses a number of issues concerning consumers, such as their employment details and the mechanisms necessarily for the sustainability of the amnesty project. The purpose of this meeting was to share the findings from the NRC study. However, she had to state that the NRC’s final report had not been yet finalised, and the recommendations would only be finalised within the coming month. The NRC and the Department would then be drawing the final conclusions from those recommendations, in order to present them back to the Committee.
Ms Ntuli noted that the reasons why the dti had commissioned the report were, firstly, that the amnesty project was important, secondly, that the dti believed it should be implemented, but that it also recognised that there was a need for a detailed study into the possible options for implementation of the project, with an evaluation of all alternatives and unintended consequences, to gauge what the most successful plan would be. Here, the experts played a significant role. In addition to the research, an impact assessment on all the outlined alternatives was also commissioned, and the relevant stakeholders within the industry were also consulted.
Ms Nomsa Motshegare, Chief Executive Officer, National Credit Regulator, also emphasised that the NRC was highly committed to the amnesty project and, in order to make sure that the project was implemented in a responsible manner, agreed that research had to be conducted and various industries had to be consulted to get their input into the impact assessment study.
She outlined the process followed by the NCR and the dti. The respective teams from each institution had firstly met and discussed their approach to this project, covering various issues including proposed data removal, affordability guidelines and other additional consumer protection measures. They had then held discussions with the following stakeholders:
The Banking Association of South Africa
The Credit Providers Association
Micro Finance South Africa
The Consumer Goods Council
The National Clothing Retail Federation
The Credit Bureaux Association
The Registrar of Banks
The National Economic Development and Labour Council (NEDLAC)
The Department of Justice.
Ms Motshegare stated that there was good cooperation from all the named stakeholders. Further consultation with NEDLAC would be done, and there would be further engagement with consumers. An independent consumer credit consultant and lawyer were commissioned to investigate and report on the proposed data removal exercise. It was necessary that the exercise also cover possible affordability assessment guidelines, credit literacy initiatives, ways to ensure that any amnesty project implemented was sustainable, and additional measures to assist consumers.
The tentative conclusions drawn from the consultations were as follows:
-There was significant support for appropriate affordability assessment guidelines, but it was noted that at present the Credit Act was not clear about the affordability guidelines
- There was significant support for appropriate credit literacy programmes. It was agreed that consumers needed to take responsibility for their credit ratings
- There was significant opposition from credit providers and credit bureaux for the removal of any credit information, but this was possibly due to the limited understanding of what the Department was seeking to achieve.
- There was, however, an agreement and general acceptance that this proposal did not relate to a blanket amnesty and that a proper impact assessment needed to be done.
- It was accepted that it would be possible to significantly improve the credit records of credit impaired individuals. The NRC and dti had agreed, in principle, that there should be a credit amnesty, but still would define and narrow down the focus of the idea of amnesty.
- It was agreed that it would be possible to achieve a marginal increase in credit acceptance rates through a limited data removal exercise
- Any data removal exercise must be accompanied by significant education, particularly to explain that any data removal exercise did not amount to writing off the payment obligation, that a clear credit record would be only one consideration when a person applied for credit, and that consumers should at all times exercise caution when applying for and using credit.
Ms Motshegare noted that the amendments to the Credit Act would be prepared by the dti and Department of Justice and Constitutional Development (DOJ&CD).
She reiterated that the comments she had made were not the final report, and that further deliberations and discussions would still be ongoing. Only after the final conclusions and recommendations had been formulated would a final report be provided to the Committee.
She noted that the NCR had appointed Matlotlo Group (Pty) Ltd, an independent firm of actuaries and analysts, to conduct an impact assessment into the likely impact of various data-removal scenarios. They would be reporting upon the number of consumers affected, the degree to which consumers were impacted, credit acceptances and the risk to credit providers’ portfolios.
Ms Motshegare then outlined the NCR tentative impact assessment findings as follows:
-The removal of judgment information may also benefit credit impaired consumers
-The removal of adverse information relating to debts under R10 000 would assist some credit impaired consumers to obtain home and micro loans
-The removal of adverse information relating to debts under R10 000 would benefit 86% of people earning less than R15 000
-The removal of dormant information (inactive accounts) would not significantly benefit credit impaired consumers.
In conclusion, Ms Motshegare reiterated that once the various reports hade been finalised, the NCR and dti would discuss their recommendations made and submit a final report to the Committee.
Ms Ntuli added that there was still a need to further engage with consumer groups. So far, the focus of the dti had been largely on the credit providers, the main group which would be affected by the proposed amnesty. However, there was still room to include consultation with consumers, and she recognised also the role of the Committee in this regard. One of the issues that emerged from the study in relation to the removal of information was that even where credit information was removed, some credit providers still used that information illegally, so there was a need also to consider amending the law to curb this. Another point related to the affordability assessment guidelines, since dti felt that credit providers needed to be regulated so that they all operated consistently, and the way to do this was by having credit affordability assessment guidelines. The main purpose of the proposed legislation was to protect vulnerable consumers.
Mr Trevor Bailey, Chairperson, National Credit Regulator Board, said, in conclusion, that the research conducted showed that there was a need for the credit amnesty to help consumers to fix their credit ratings. Draft credit affordability guidelines would indeed go a long way to assisting consumers. These were currently being drafted, and would soon be published for public comment. He noted that the removal of adverse information of consumers who owed less than R10 000 would not result in a rise in portfolio risk, that research showed that 85% of consumers who earned less than R15 000 would benefit from the amnesty. Any proposed amnesty bill would be working its way through to the middle class. Other benefits of the amnesty would be an increase in employment opportunities and access to accommodation, such as rentals and ownership. It was accepted that the credit amnesty needed to take into account that people should only access credit if they could afford it. The further research and consultation was well worth pursuing. The consultation with the financial sector would ensure that this sector was not prejudiced.
The Chairperson thanked the Department and the NCR for showing their commitment to the amnesty project. He noted that a number of applicants for the 2006/2007 amnesty application did not meet the requirements, which was one of the reasons why it could not be implemented and did not work as intended. He noted the need also to take account of the fact that many consumers were also victims of the recession. He saw the potential of the amnesty to improve the economy and create better chances for employment.
Ms B Abrahams (DA, Gauteng) asked how the Department would be communicating with the communities on the education programmes, especially in rural areas.
Ms Motshegare responded that, in order to improve education programme outreach, the NRC would be working with already-existing structures in the communities to disseminate information to consumers. The NRC had also embarked on an initiative, with the dti, to reach rural areas, through activities such as road shows.
Ms Abrahams asked if consumer credit portfolios would be archived for future reference, or completely removed from the system.
Mr Bailey replied that the consumer files would not be completely destroyed, but credit providers would not be able to take them into account when assessing creditworthiness.
Ms Motshegare added that the data made available on consumers would be removed so that it did not prejudice consumers, and NRC would come up with a proper plan to educate consumers at large.
Ms E Van Lingen (DA, Eastern Cape) stated that 77% of civil servants were blacklisted. She also noted that living expenses were rising; Eskom would be increasing its rates, and this and other issues needed to be considered in relation to consumers. She wanted to know the actual amount that the 86% figure mentioned related to.
Mr Bailey replied that the NRC did not have an exact figure, but an estimated 2 million people would benefit from the amnesty.
Mr K Sinclair (COPE, Northern Cape) stated that South Africa needed to get to the point where it could establish an economically active middle class which could safely get into borrowing. He said it was necessary to consider several processes and considerations around the National Credit Act, like the fact that there were several debt counsellors whose capability, let alone compliance with the legal systems, was questionable. He wanted to know if anything was in place to deal with this. He also questioned the research methodology that the independent firm had used to reach its conclusions.
Mr Steven Logan, Consultant on Confidential Information Systems, presently to the National Energy Regulator of South Africa, explained the methodology used. He noted that the report was about understanding market conduct industry associations. The significant issues uncovered and their impacts were assessed, and written submissions were received from various industry associations. The Credit Bureau also conducted its own research and came up with its own scenarios. A firm of actuaries was appointed and had given information about the consequences of a removal of judgement information, with particular thresholds. Six scenarios were received and analysed by the actuaries. The real concerns of the credit providers had been heard, and now the parties were considering how they could be addressed, and the appropriateness of the proposals around the credit amnesty.
Ms Ntuli responded to the comments on the legal processes, fees charged, and the competence of the debt counsellors in particular. She agreed that because there were doubts raised, an impact assessment into the effect of the credit amnesty on the debt counsellors was also commissioned. One of the suggestions was that legislative amendments were necessary, and this was on the parliamentary programme. Processes administered by the DOJ&CD, for example, also needed to be reviewed, as some of them undermined credit legal processes.
The Chairperson reiterated that the Department still needed to meet again with the Committee with a full report, and the Committee Members still needed to meet with their constituencies. It would be necessary to set another date for a future meeting.
Ms Abrahams asked on what dates the Department would meet with the communities.
Ms Ntuli requested that the Committee allow the dti and NCR another month to come up with a full and final report.
Mr F Adams (ANC, Western Cape) raised the issue of prescription of debts.
Ms Motshegare responded that that was one of the legal issues that would be looked into by the NRC.
Mr Bailey added that consumers need to be informed about their rights and should not be ignored, which was why the education outreach programmes were important.
Ms Ntuli stated that the NRC needed to investigate, and come up with proper mechanisms for full enforcement of any illegal actions, to protect vulnerable consumers. The strategy to educate consumers needed also to be revised.
Ms Abrahams asked whether the report from the actuaries was available, and if not, when it would be available.
Ms Motshegare responded that it would be brought back by the Department and NCR during the follow up meeting.
The Chairperson stressed the need for more education of consumers about their rights, and urged that the media become involved to assist this.
Mr Adams stated that the Department needed to be part of the road shows around the country, to educate consumers. He asked whether the Department and the NCR had outlined who would be qualifying for the amnesty.
The Chairperson responded that these questions would be addressed in the dti and NCR’s next presentation to the Committee.
The meeting was adjourned.