Pretoria - Not all consumer information is equal. And credit providers are not compelled to delete all information it has on consumers, especially if they proved to have acted fraudulently.
Last week, the Supreme Court of Appeal handed down judgment in a matter that’s been in contention since 2015, which had the potential to undermine an arrangement between credit bureaus, the South African Revenue Service and credit providers that kept track of fraudsters.
The National Credit Regulator (NCR) had argued that the National Credit Act allowed consumer fraud information to be kept on record for only a year, as required for individual credit behaviour.
But the Southern African Fraud Prevention Service (SAFPS), an NPO whose members include most major credit providers, SA Revenue Service and the Financial Services Board, argued such an interpretation was not only absurd, but it would make access to credit more difficult because credit providers would not be able to protect themselves against fraud.
The SAFPS tracks fraud attempts and shares its reports with credit providers. Its members have access to the database and fraud reports are removed only after 10 years.
The regulator had argued that the SAFPS was not complying with the statutory obligations of a registered credit bureau because it was not expunging the information it collected on behalf of its members in accordance with the NCR’s interpretation of the act.
Under the agreement between the SAFPS and its members, all detected fraud is filed to its Shamwari database within two business days. This includes false identity, impersonation, false employment details; and other forged documents submitted in insurance, internet, business and other suspected fraud.
The SAFPS had argued that fraud was widespread and perpetrators were often repeat offenders, which is why it needed to retain such information for a lengthy period - unless the alleged fraud was clarified and resolved before that date and the listing removed.
The NCR contended that the information the SAFPS obtained from its members constituted consumer credit information, including credit history, financials, education, employment and identity. It argued that retaining consumer information for longer than a year was a violation of the Act.
But in its scathing judgment, the court noted: “In a real sense, nothing could be more relevant to a person’s credit history than that they had previously committed fraud.”
It said expunging objective fraud information would lead to “patently insensible and unbusinesslike results” which “cuts across the purposes of the NCA - it would undermine the ability of the financial industry to protect itself against fraud and in doing so, protect fraudsters and not the victims of fraud; it would not promote a responsible credit market and industry; and it would not protect consumers.
“It would require credit bureaux to expunge highly relevant information about fraud on the part of consumers after one year, but oblige them to retain information about maintenance judgments potentially indefinitely.
“Information about sequestration orders could be retained for five years and, once the consumer had been rehabilitated, that fact could be retained for another five years.”
And it noted “no reason was advanced for affording this benevolence to fraud and fraudsters, but withholding it from maintenance defaulters and insolvents, including after their rehabilitation”.
The NCR had contended that consumer behaviour intending to defraud a credit provider under a prospective credit application “fell within the definition of ‘adverse classification of consumer behaviour’, as contemplated in the NCA; that this was ‘the correct interpretation’; and that otherwise construed, it ‘would defeat the purpose of the NCA’.”
‘Startling and wrong’
But the SCA called the contention “both startling and wrong”.
“It is directly at odds with (section) 81 of the NCA” which provides that credit applicants must fully and truthfully answer any requests for information made by the credit provider as part of the assessment.
“The NCR’s contention that the NCA must be read to protect fraudsters is untenable in the light of s81 and leads to a patently insensible and unbusinesslike result.”
It’s the second embarrassing slap-down for the regulator in the same week - it was forced to withdraw its referral to the Tribunal against The Foschini Group.
Manie van Schalkwyk, the executive director of the SAFPS, says it would have preferred constructive discussion, not court.
“As a non-profit to go to the Supreme Court costs a lot of money. But if we didn’t do it, the credit industry would have suffered significantly. I don’t have unlimited budget to fight unnecessary court cases.”
He says that if the regulator had been successful, it would have had a devastating impact on the credit sector.
“Eighty percent of our data is older than a year - and that would have been removed. Last year, our work saved the industry R2.1 billion. That’s a conservative figure.
“The real figure is probably closer to R6bn. But 80% of that savings business would have had to carry as additional bad debt. The only way to recover that is to put prices up - and the good consumer would have to cover that cost.”
He says the crux of the judgment is that there is no absolute right to credit.
“The NCA is aimed at promoting a fair, transparent and sustainable credit market and industry. The judgment says if we interpret statutory provisions, it needs to make business sense.
“For us, the ultimate sin, of lying and deceiving, cannot be forgiven after one year. That would undermine the Act.”