File photo: Reuters

Johannesburg - The National Credit Amendment Bill, which will be presented in the National Assembly tomorrow, will fundamentally change the industry landscape by imposing tougher requirements on credit-granting entities and providing greater protection for borrowers.

The new legislation comes into effect just a few months before the general election and at a time when it has become evident that credit retailers have been lending recklessly. This has prompted calls for a review of remuneration paid to retail executives in the past few years.

However, industry players have warned that the success of the proposed changes would be heavily dependent on effective oversight by the Department of Trade and Industry.

A critical amendment in the bill relates to the proposed change in the governance structure of the National Credit Regulator (NCR). The bill provides for the removal of the NCR’s board and requires the regulator to account directly to the minister of trade and industry. This proposal reflects the widely held view that the board has been ineffective in enforcing the National Credit Act since its implementation in 2007.

If the Department of Trade and Industry is unable to play an effective oversight role then the bill may chill lending activity without improving the quality of credit granting.

“You only have to look at last week’s results from the major retailers such as Edgars, Truworths and JD Group to see there has been a lot of inappropriate lending to consumers. If the new act can protect against this, then in the longer term everyone will be better off,” one retail analyst told Business Report. But he queried whether the Department of Trade and Industry had the capacity to oversee the tighter regime.

While the portfolio committee on trade and industry introduced a few unexpected amendments to the bill in the final stages of the process, it avoided possible conflict with the National Treasury by agreeing that the trade and industry minister would consult with the minister of finance on three finance-related clauses. These clauses related to the maximum insurance and interest rates that can be charged.

Joan Fubbs, the chairwoman of the committee, said the Treasury and the Department of Trade and Industry agreed that the main issue was the affordability of credit.

“There was an acknowledgement that financial institutions have been offering credit recklessly. We’re saying, ‘No more’, and if financial institutions want to go through the red light there will be consequences.”

The bill provides for much tighter oversight by requiring all credit providers to be registered, and introducing regulations to govern affordability criteria. At present, affordability assessments rely on self-regulation and an industry code of conduct.

Ahead of the new legislation, only credit providers with a loan book of more than R500 000, or a minimum of 100 credit agreements, have to register. However, the National Credit Regulator found that many unregistered providers were contravening the act by charging excessive interest rates and behaving unscrupulously because they believed the act did not apply to them.

One of the most controversial proposals, which related to the removal of adverse credit information, appears to have been watered down in response to widespread opposition. The final proposal that will be considered by the National Assembly tomorrow allows for adverse credit information to be removed as soon as the credit provider has submitted proof that the consumer has paid.

Debt collection agencies will be severely affected by the banning of the sale, collection or reactivation of debt that has been “extinguished” through prescription. Prescription occurs when a credit provider has not legally pursued a consumer who is in default for three years and the consumer has not admitted to the debt. After the three years, the credit provider is no longer able to pursue the debt. However, frequently the debt is sold to collection agencies which then continue to pursue it.

The bill also requires payment distribution agencies to comply with strict registration standards, such as holding a trust account and being compliant with the National Payment Systems Act. In addition, once a debt review application has been filed in court, or with the National Credit Tribunal, a credit provider will not be allowed to pull out of the debt review process. - Business Report