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Treasury issues credit guidelines

The Treasury has issued guidelines for households and lenders in an effort to prevent excessive borrowing. Photo: Timothy Bernard

The Treasury has issued guidelines for households and lenders in an effort to prevent excessive borrowing. Photo: Timothy Bernard

Published Dec 13, 2013

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Johannesburg - The government has issued guidelines for both credit providers and households in an effort to prevent borrowers from becoming over-indebted in future.

The move to protect consumers and guide credit providers comes at a time when more than 4.2 million South Africans, or one in five of the 20 million people who are credit active, are in arrears for more than three months.

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“While the government recognises that access to credit is critical for household consumption expenditure and economic growth, it is concerned about the very high levels of household debt and over-indebtedness,” the Treasury said yesterday.

Efficient Group economist Merina Willemse said while credit could boost the economy, it could also strangle it.

She added that in consumer-driven economies such as South Africa’s, credit was needed to stimulate growth, but it was unfortunate that most people who were in debt were in the low-income brackets.

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“In years to come there will be much more pressure on credit providers to start limiting credit,” Willemse said.

The Treasury said Finance Minister Pravin Gordhan and Trade and Industry Minister Rob Davies would develop a more detailed implementation framework next year.

“Government has identified poor market conduct practices by some players in the financial industry as major problems. This includes a multiplicity of fees and commissions that are often high and opaque, inadequate or poor disclosure to customers, and the sale of unsuitable products,” it said.

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Some of the preventative steps to minimise the risk of over-indebtedness include setting clear affordability criteria that all retail lenders must adhere to.

This will also clearly define a “reckless” loan.

Unregistered credit providers will be shut down and the debt collection law will apply to law companies.

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In assisting households, the government will engage with lenders and their industry associations to provide appropriate relief to qualifying distressed borrowers by reducing their instalment burdens.

This should happen without additional cost to the borrower.

One of the major players in the unsecured lending space, African Bank, said that it welcomed these guidelines and had been assessing the criteria for about 12 months.

The bank added that a number of proposals had been made on how to calculate a consumer’s affordability and the impact of these proposals on customer segments needed to be weighed. “The formulation of these guidelines needs to be done carefully,” it said.

“On the one hand they need to deal with the current extent of over-indebtedness. On the other hand, they need to ensure ongoing access to credit for lower-income earners and small to medium enterprises.”

Capitec, which also offers unsecured loans, said it supported the government in the process of driving down indebtedness through the process of providing responsible credit.

The head of communication at Capitec, Charl Nel, said: “This will formalise the process for the entire industry, guarantee responsible credit and thereby assist sustainable growth in South Africa.”

FNB said that it did not believe that affordability standards would have a negative impact on credit origination as the banking group already had similar measures in place to protect customers. - Business Report

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