Johannesburg - The recommendations for credit amnesty that were recently approved by the Cabinet are likely to prejudice the very people who are intended to benefit from it, according to sources within the industry.
Not only is it likely that the cost of credit will be increased to deal with the increased risk, one debt counsellor says the recommendations will make it much harder for consumers to challenge credit providers on the basis of reckless lending.
There has been little clarity on the precise recommendations that the cabinet has approved. In its background documentation, the Department of Trade and Industry (dti) referred to three proposals, which it termed least risk, medium risk and high risk. Even the dti’s “perceived least risk proposal” is cause for considerable concern, says Deborah Solomon of the Debt Counselling Industry (DCI).
The lowest-risk proposal recommends the removal of adverse information listings with a value of R10 000 or less, “irrespective of non-payment”; in addition, it recommends the removal of all paid-up adverse information listings on an ongoing basis and the removal of all paid-up judgments on an ongoing basis. The dti estimates that this proposal would affect 1.5 million consumers.
The medium-risk proposal differs from the least-risk proposal in so far as it involves the removal of all adverse information listings irrespective of value and irrespective of non-payment. It would affect 1.6 million consumers.
The highest-risk proposal would result in the removal of all the information held by credit bureaux. In this proposal, the dti recommends the removal of all adverse information and judgment listings irrespective of value and irrespective of non-payment. It would affect 2.2 million consumers.
According to the National Credit Regulator, there were 11.36 million impaired credit accounts in June 2007, rising to 18.31 million in June this year.
While the cabinet has not indicated which of the three proposals it has approved, industry sources believe that the least-risk plan is the most likely. But even this proposal has met with stiff opposition, with concerns raised about the dti’s stated objective of encouraging consumer spending through the increased access to credit that the amnesty is expected to provide. Economists have pointed out that this objective is at odds with the Reserve Bank’s oft-stated concerns about debt-fuelled consumer spending.
Solomon says even the least-risk proposal “will enable debt stressed and over-indebted workers to dig an even deeper financial hole for themselves as they rush out to take more loans once their credit records are cleared”.
It would make it much harder for consumers, assisted by their debt counsellors, to challenge a credit provider in court on the basis of reckless lending in terms of the National Credit Act, she adds.
“Credit providers will simply be able to state that there was no record of adverse listings available indicating that the consumer posed a high risk. The responsibility will now fall squarely on the shoulders of the consumers to protect themselves against the potential harm of recklessness.”
She adds that it is extremely difficult to see how the proposed amnesty would achieve any of the aims that have been set out by the dti.
In addition, Michelle Dickens, the founder and managing director of credit bureau TPN, says consumers need to realise that the amnesty does not mean that the obligation to settle any unpaid debt falls away.
“On the contrary, you will still be held 100 percent liable for any monies still owed.” - Business Report