Banks opposed to debt amnesty

Banks, however, have expressed concern about the credit amnesty proposal - which still has to be taken to the Cabinet by Trade and Industry Minister Rob Davies - because it will expunge the adverse credit histories of consumers held by credit bureaus and complicate the assessment of their risk.

Three options for the amnesty‚ which has been under discussion for about nine months‚ are being considered.

The department's acting deputy director-general‚ MacDonald Netshitenzhe‚ told the select committee on trade and international relations of the National Council of Provinces that the least risky option would continually remove adverse information on all consumers with unpaid loans of R10‚000 or less‚ as well as all court judgments when loans were fully paid up.

Various options proposed

This option would affect 1.5m consumers and have the least effect on the risk portfolios of credit providers.

The second option‚ which has the support of African National Congress MPs‚ would continually remove all listings of adverse information on credit consumers once they had paid their debts‚ as well as all paid-up judgments.

This proposal would affect 1.6m consumers and "result in a small increase in credit providers' risk portfolios‚ and in smaller credit providers' closure and a decrease in the supply of credit"‚ Netshitenzhe said.

The department did not recommend the third‚ "highest-risk" option‚ which would affect 2.2m credit consumers and remove all adverse information and judgment listings irrespective of the loan value and whether it had been paid.

Aligned with the amnesty will be the introduction of affordability assessment guidelines that aim to prevent reckless lending by credit providers. Draft guidelines were issued for public comment earlier this month.

The National Credit Regulator's chief executive Nomsa Motshegare said the listing of adverse credit information was prejudicing many consumers who had settled their debts but continued to be denied credit.

Impaired credit ratings

She said more than 50% of South Africa's 19.6m credit users had impaired records for being three or more months in arrears with payments. Often non-payments were the result of people losing their jobs and when they returned to work they could not access credit because of their bad records.

Netshitenzhe proposed to MPs that an enabling provision for the proposed amnesty be included in forthcoming amendments to the National Credit Act so that the minister was properly empowered to issue regulations providing for the amnesty.

He said consultation on a notice of amnesty could be finalised by June and the notice issued by September‚ with implementation of the five-year amnesty starting on 1 October.

A consultant to the department and the regulator‚ Stephen Logan‚ supported the introduction of an amnesty‚ saying that the length of time that an adverse listing lasted - long after full payment had been made - was a disincentive to consumers to repay their loans‚ as the blacklisting continued regardless.

However‚ Logan argued against the inclusion of court judgments in the credit amnesty‚ as they were not common and were of "huge benefit" to credit providers. Expunging information about court judgments would prejudice most consumers by raising the price of credit‚ he said.

Compuscan credit bureau legal representative Annelene Dippenaar said she supported the amnesty proposal as long as it was not rushed through. She pointed out‚ however‚ that the proposed timelines were very short.

Soource: Business Day via I-Net Bridge