The number of consumers with impaired records increased by 95 000 to 9.34 million in the fourth quarter of 2012, from 9.25 million in the quarter ended September 2012, according to the National Credit Regulator’s (NCR) Credit Bureau Monitor. This means that of the 19.97 million credit active consumers, 46.7% were three or more months in arrears. The startling percentage of consumers that are struggling to remain up-to-date with their credit repayments, points to the severity of over-indebtedness in South Africa.

Although the National Credit Act (NCA) was implemented in order to suppress reckless lending and curb over-indebtedness, the National Credit Regulator (NCR) has recently expressed concern at the extent of over-indebtedness.

For this reason, the Regulator has announced that it will be introducing affordability guidelines to be followed by all credit providers. A definite date has not yet been given as to when the guidelines will be introduced but the NCR has outlined the purpose of the guidelines. The NCA stipulates that an affordability assessment has to be carried out by a credit provider before the issuing of credit to a consumer. However, the NCA does not indicate the particular manner in which the affordability assessment has to be carried out. The open-endedness of this regulation has meant that not all credit providers’ assessments have been conducted as accurately as they should be due to numerous reasons, including consumers misstating their income or expenses or taking out multiple loans at various credit providers and the credit providers’ failure to check this, as well as the credit providers’ failure to check the consumer’s credit report before granting credit, according to Lesiba Mashapa, Company Secretary of the NCR.

In yet a further attempt to combat over-indebtedness, the NCR announced, on 28 April 2013, the amendment of “the Credit Providers Code of Conduct to Combat Over-indebtedness, the Debt Counsellors Code of Conduct for Debt Review and the Payment Distribution Agencies Code of Conduct for Debt Review.” The NCR issued a statement to communicate that it has withdrawn “its recognition of the Debt Mediation Association (NDMA), the Credit Ombud and Debt Counsellors’ Association of South Africa (DCASA) regarding any roles they perform in the Codes and to remove them from the Codes.”

According to Nomsa Motshegare, CEO of the NCR, the purpose of this change in credit industry codes is “to ensure that they are within the spirit and letter of the National Credit Act 34 of 2005.”

Furthermore, the aim is to gain authority in terms of responsible lending as well as the authority over the resolution of complaints.

According to Lesiba Meshapa, “What the NCR wants do is to exercise full regulatory authority and oversight over the commitments made by credit providers to combat over-indebtedness and to lend responsibly.” The concern was that not all credit providers were abiding by their commitments to lend responsibly as the codes had outlined. The NCR thus plans on carrying out inspections and efforts to monitor whether, going forward, credit providers are keeping to these commitments. The new amended codes came into effect as of 1 May 2013 and have replaced the previous NCR approved credit industry codes.

The announcement of the amended codes has sparked a mixed reaction in the industry. In response to the amendments, the NDMA has highlighted the fact that it has dealt with over 23 000 calls to its helpline, 5155 enquiries and over 6000 complaints. It has furthermore pointed to the fact that 72% of the 453 cases with a final outcome in the first quarter of 2013 were in favour of the consumer. It therefore reiterates the fact that it remains a trusted mediation service provider and a respected institution in terms of consumer education.

Also with the intention of curbing over-indebtedness, Cas Coovadia, managing director of the Banking Association of South Africa (BASA), stated in recent reports that the association plans to propose new rules by the end of the month to manage unsecured lending and better control the risks associated with borrowing. Last year November, BASA and the National Treasury addressed the issue of the expansion of unsecured debt and it is as a result that the new rules have been proposed. In an interview with Summit TV, Cas Coovadia stated that the purpose of these suggested rules are “to take care of any abuse that is happening in the system of both lending to people who are asking for money and in the system of collections […] So, to a certain extent, this will deal with any abusers in the system, it will make the system more efficient, it will bring about more clarity on what we mean when we say a person is over-indebted. So it’s to actually make the system more efficient, to get rid of abuse, to bring more transparency into the system so that borrowers know exactly what they’re getting into and lenders are quite clear where they are.”

The credit industry is set to undergo a significant amount of changes that may continue to evoke mixed feelings amongst operators in the industry and those who wish to obtain credit and may find it increasingly difficult to do so. However, considering the magnitude of the problem our country is faced with in terms of consumer over-indebtedness, finding a solution to improve individuals’ financial well-being as well as the state of the country’s economy must remain the highest priority.

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