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New credit act leaves lenders exposed

National Credit Regulator coy on approach to non-compliance.

JOHANNESBURG – Lenders are being kept in the dark as to how fiercely the National Credit Regulator (NCR) plans to crack down on credit providers that fail to adhere to new affordability assessment rules. 

Speaking at a Department of Trade and Industry (dti) conference last week, NCR CEO, Nomsa Motshegare rather ambiguously said that the regulator would work with the industry to ensure compliance but would not hesitate to enforce the law where warranted.

A range of representatives from the credit industry attended the dti conference, including credit providers, industry bodies, lawyers, credit bureaus and debt counsellors.

“We’re not saying we’ll wake up on Monday and decide to prosecute, but at the same time, in instances where we find serious reckless lending we will not hesitate to take serious action. But we will work with the industry,” Motshegare said in response to a question attempting to gauge how quickly and aggressively the NCR would pursue implementation and enforcement of amendments to the National Credit Act (NCA).

The National Credit Amendment Act (NCAA), which came into effect on March 13, requires credit providers to secure three months’ payslips before granting you a loan or three months’ bank statements that show your latest three salary deposits.

If these exact documents are not available then similar income and expense verification must be obtained from consumers, according to the NCAA, with bank statements a consistent requirement.

This is a significant step up from the previously vague “reasonable steps” that credit providers were required to take in terms of the NCA to assess a consumer’s affordability.

Credit providers that fail to adhere to these rules could be referred directly to the National Consumer Tribunal (NCT) by the NCR for reckless lending.

System changes take time – Nedbank

Deputy director general (DDG) of the dti, Zodwa Ntuli, told Moneyweb that the banking sector had requested a delay in implementation of the NCAA to update its systems, but that the dti had insisted the amended Act come into effect immediately.

Ntuli stressed that these amendments have been a long time in coming, with guidelines first published in 2013 for consultation. “If somebody tells you ‘No, we can’t do it’, then it means they were not doing affordability assessments in the first place,” she emphasised.

But Pragnesh Desai, head of credit risk management and monitoring at Nedbank Retail, said that compliance is largely a practical issue relating to system changes, rather than a question of weak affordability criteria.

“There were some changes between the draft regulations and the final regulations and thus sufficient implementation timelines being afforded to the industry was warranted,” said Desai.

For instance, where previously Nedbank would request three months bank statements and only one payslip, it now needed to obtain three months bank statements or three payslips, Desai said. This required training its frontline staff and educating customers on the changes, he added.

Desai also pointed out that changes were made to figures included in the ‘Minimum Expense Norms’ table, to determine a consumer’s minimum monthly expenses. Two numbers under the minimum monthly fixed expenses category have indeed been changed since they were published in August last year.

“We were hoping for a clause-by-clause implementation timeline. One of the adverse outcomes of the immediate implementation requirement is that the industry becomes immediately non-compliant with the law,” he commented.

Hannalie Crous, head of retail credit at FNB, said changes to the affordability assessment regulations were expected. “As such we do not anticipate any material impact on new business volumes, our customers or our loan origination processes,” Crous said.

Similarly, Finbond said it had anticipated the implementation of amendments since August 2014, when proposed amendments to the NCA were first published by the dti. “Finbond had prepared since that time for the amendments to occur,” said Rudi Hinze, head of collections at Finbond. According to Hinze, processes did not need to be materially amended “given that Finbond’s governing scoring models are and have consistently been very conservative and client centric.”

An Absa spokesperson said the bank had implemented key components of the new NCA requirements based on the draft regulations released last year, including affordability assessments to protect customers from over-indebtedness.

Standard Bank declined to comment.

“We think it’s absolutely crazy what government has done,” commented Capitec CEO, Gerrie Fourie. “It doesn’t matter who you are, you need to change something. So suddenly there is a law and there is going to be a period where everyone is non-compliant because you need to make changes to your system,” Fourie said, insisting that government should’ve published the final amended Act and given the industry an implementation period. 

“On affordability we are comfortable, but in certain areas we are not compliant and have a task team looking at it and correcting it as quickly as possible,” he said. For instance, loan contracts now needed to show the credit multiplier, which they didn’t before.

According to Ntuli, the NCR will be given additional capacity to assist credit providers with compliance and ensure repeat offenders are punished. The NCT, meanwhile, has a serious backlog of debt review cases but is putting together a plan for more capacity and funding. “We’ve seen cases moving now,” said Motshegare.

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