Banks want credit data of former defaulters to stay

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Johannesburg - The Banking Association of SA (Basa) will not budge on its rejection of proposals to remove adverse credit information for rehabilitated defaulters.

Yesterday it told the portfolio committee on trade and industry that an incomplete credit history would pose a challenge for credit providers when it came to credit scoring.

Instead, the association wanted the records to have additional information indicating that the consumer has paid the judgment debt in full and default has been cured. “Not having complete information poses a risk, and that risk will have to be priced for,” Basa managing director Cas Coovadia said.

Basa opposed a number of key proposals in the National Credit Amendment Bill, including compliance with a code of conduct prescribed by the minister, which would set out guidelines for affordability assessments. It also objected to the reviewing or correction of consumer credit information held by the credit bureaus; the revision of some procedures lenders are required to follow before debt enforcement; and the amendments to the application for debt review.

“It is in the interest of the banks to have a prosperous nation because then they can lend money… but I don’t believe the removal of credit information creates an environment that facilitates responsible lending,” Coovadia told the committee after it put it to him that denying access to credit to people who had previously had credit judgments against them went against the creation of a prosperous nation.

Christoph Nieuwoudt, FNB’s chief risk officer, told the committee that with compromised risk assessment as a result of the proposed credit amnesty, the “good payers” would be unfairly treated as banks would have to price for high risk on everyone.

He said Basa had agreed that if a consumer had paid up a judgment and did not have money to go to court to have the judgment withdrawn, credit providers could take that information to the credit bureaus.

“Basa has agreed that on a voluntary basis, we will address these issues. That said, we do not believe that just deleting the information that was there has any value to the economy, to our ability to access credit,” he said.

The association went on to suggest that continued removal of adverse credit information could affect South Africa’s sovereign rating and result in contraction of credit granting.

But the committee proposed enlisting the National Treasury’s help in assessing whether the amnesty proposals would create any microeconomic problems.

“We must ask Treasury to comment on these issues,” said Daryl Swanepoel, a member of the committee, referring to Basa’s comments and the concerns raised by Moody’s Investors Service earlier this month.

Moody’s said the government’s interventions to assist over-indebted consumers could have unintended consequences detrimental to credit providers, especially if South Africa’s economic situation worsened.

“We must be cognisant of the impact this might have on the microeconomics of the country. I’d like to hear Treasury’s view on this,” he said.

The committee was appalled at Basa’s “lack of co-operation”, saying its rejection of the mill “clause by clause shows the issue of co-operation we are speaking about doesn’t arise here”.

Basa wanted the credit providers’ code of conduct to be drawn up by the providers but approved by the National Credit Regulator (NCR).

The bill proposes that for any credit provider to be registered in South Africa, they would have to comply with a code of conduct or a guideline prescribed by the minister or the NCR.

Nieuwoudt said banks were not against the guidelines per se. FNB believed these could protect low-income earners and create regulatory certainty for lenders. “It could be a step in curbing excessive pricing… addressing this matter has benefits for both.”

But the committee said lenders should not be allowed to draw up their own guidelines and subscribe to them voluntarily because there was clear evidence of reckless lending taking place, which led to over-indebtedness. - Business Report


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