BOKSBURG – Credit providers must place the interests of consumers before company profits when granting loans, according to attorney Stephen Logan of Logan Attorneys.
Logan, who was addressing credit industry stakeholders on Thursday, said in past engagements with credit providers he’s heard them say things like, “It really doesn’t matter whether or not they [consumers] can afford it [the loan]. What matters is the probability of default, and how we perform at an overall book level and from a shareholder perspective.”
In an attempt to prevent irresponsible lending that leads to over-indebtedness, far stricter criteria for sound affordability assessments have been explicitly stipulated in amendments to the National Credit Act, which came into effect on March 13.
“CEOs of major and minor credit providers have to say we are going to look after consumers… Can they [consumers] afford the credit or not, irrespective of whether or not it is going to be profitable for us,” Logan, who formed part of a National Credit Regulator (NCR) committee to determine the new affordability assessment guidelines in the National Credit Amendment Act (NCAA), said.
He was addressing a conference hosted by the Department of Trade and Industry (dti), in conjunction with the NCR, to engage credit industry stakeholders on the NCAA.
Logan said there was an attitude of ‘complying with the minimum’ among credit providers and called on them to “fertilise the financial market rather than continue to burn it and do what is minimally required in terms of the regulations”.
Speaking in the same panel discussion, professor in banking law at the University of South Africa (Unisa), Michelle Kelly-Louw supported this view. “If you just follow the regulations as is, you still could have reckless lending if you don’t consider other things,” she said. “It’s a misnomer to think for the industry if you follow the regulations you’ll be safe, that’s the minimum you need to do.”
NCR company secretary, Lesiba Mashapa, commented, “Almost half of all credit active consumers are in some form of financial distress, but I can bet you they still have access to credit”.
Mashapa said consumer over-indebtedness could not be wholly fixed through legislation, suggesting that credit providers needed to take more responsibility.
Newly appointed credit ombud, Nicky Lala-Mohan, meanwhile, maintained that the under-declaration of living expenses by consumers was the starting point for over-indebtedness in that “people who did not qualify for credit, got credit”.
Taking the reins from Manie van Schalkwyk last month, Lala-Mohan served the Banking Association of South Africa (BASA) for 11 years and prior to that held various positions within Standard Bank.
He welcomed the affordability guidelines published in the NCAA, saying they would “solve many problems in terms of income declaration”.
As of last week Friday, lenders must now request three months of pay slips and three months bank statements (or similar credible income and expense verification) before granting a loan.
“We want to get rid of and eradicate reckless lending; lenders who refuse to do robust affordability tests,” noted MP Joan Fubbs, chairperson of the portfolio committee on trade and industry.
Credit providers should issue free credit reports
Logan called on credit providers to provide loan applicants with a free copy of their credit reports, since they were already sourcing them when conducting affordability assessments. This would be particularly helpful in instances where loan applications were declined, Logan said, in which case credit providers could help consumers understand their credit reputation and financial standing.
Consumers are entitled to one free credit report a year and can buy their reports from credit bureaus at a small fee after that.
“Your credit report is your information. Before you apply for credit, you have the right to check your report and have a view of what your report looks like,” said Jeannine Naudé Viljoen, executive manager at the Credit Bureau Association.
Loan sharks beware
Mashapa said the regulator would “publish a notice on thresholds of registration shortly”. “Once we have that notice anyone who lends money in the Republic must be registered. If they are not registered and they lend money they make a donation. We [the regulator] will not force consumers to repay the loans of credit providers that are not registered,” he said.