The Department of Trade and Industry and the National Credit Regulator (NCR) have made a proposal to the cabinet for a credit information amnesty, which is to be put into place by the end of next month.
This amnesty will have the effect of removing negative debt information from a consumer’s credit profile, such that credit providers would not be able to take these adverse listings into consideration when a person applies for credit.
The NCR’s initial recommendation asked for the removal of adverse credit listings up to R10 000, irrespective of whether the debt had been paid or not.
In June, the majority of Parliament’s select committee on international trade and relations voted in favour of dropping this cap so the amnesty would apply to any amount, whether it had been paid or not.
The NCR has argued that this proposal does not amount to a blanket amnesty that would result in creating more debt for consumers who cannot afford credit.
It has released affordability assessment guidelines and adverse listing rules which providers are to comply with before granting credit. The NCR aims to audit these assessments on an ongoing basis and will prosecute cases of reckless lending.
The motivation for removing adverse data is that it would benefit 86 percent of people earning below R10 000, assist the middle class to access credit such as home or educational loans, increase employment opportunities and prove beneficial to those who cannot afford fees for the rescission of judgment debts that have been settled.
The removal of negative debt data from a credit profile does not write off the duty to repay a debt. A consumer’s payment history would not be destroyed and credit bureaux would be required to maintain a record of the monthly payments. But credit providers will have lost the benefit of viewing adverse credit listings. The NCR has confirmed that although there is a possibility that debts may remain unpaid after amnesty, a provider would not be able to blacklist a consumer for the same debt.
Key stakeholders in the economic sector, such as banks and other credit providers, have rightly expressed opposition to the proposal. Their primary concern is that the lack of access to adverse listings would lead to an increase in risk, as providers would not be able to tell the difference between consumers who have received amnesty although they are high-risk borrowers and those who are low-risk borrowers who can manage credit. This means that those with positive credit records may be prejudiced by high lending rates for home loans, microloans and other sorts of credit, after the amnesty.
It raises the question of whether a credit provider will have legal recourse against the state for unpaid credit which was granted after amnesty, as a primary source of assessing credit risk would be removed from the profile of a consumer. Another issue raised is that 74 percent of consumers whose credit records were cleared under the first amnesty in June 2007 are defaulting on payments.
The NCR has acknowledged concerns regarding the proposed amnesty and advises it will be working with pre-existing structures within communities to educate consumers to take on credit wisely.
On September 5, the cabinet released a statement confirming its approval of the proposal. If all goes according to plan, it would appear the credit amnesty may be implemented by the end of this year.
* Sika Ackotia is a candidate attorney at Schindlers Attorneys.