Michelle Dickens, founder and managing director of credit bureau TPN, has slammed the Department of Trade and Industry (dti) and the National Credit Regulator’s (NCR) credit amnesty plans as a bad idea. “It’s not a good idea to roll this out without some kind of financial education and literacy program,” said Dickens.
Last month, NCR chairman Trevor Bailey said it had shown that the removal of adverse credit information under R10,000 would benefit 86 percent of people earning less than R15,000, which translated into about two million people. The object of the credit amnesty is not to abolish debt but to remove impaired credit records, which are recorded by South Africa’s credit bureaus.
The department believes that by giving borrowers a clean slate it will give them the opportunity to apply for home loans and jobs.
According to TPN, there are 19.69 million active credit consumers, of which 53.1% are considered to be in good standing. However, the number of consumers with impaired credit records has slowly been deteriorating from only 37.7% (in late 2007) to the current level of 46.9%.
Dickens points out that the last credit amnesty, which was applied in July 2007 didn’t deter those with a poor credit score from borrowing more money. “The 2007 credit bureau amnesty applied resulted in the automatic deletion of certain judgements. Research undertaken by the Credit Bureau Association on a sample of 600 000 affected consumers revealed that 64% of these consumers who benefited from the amnesty entered into new credit agreements and 74% of the individuals who obtained credit had bad (3+) or adverse accounts,” said Dickens.
There are currently consultations underway to assess a second credit information amnesty. The dti and NCR recently provided interim feedback on the key findings of an impact assessment. Some of these key findings include:
• The need for appropriate affordability assessment guidelines.
• Appropriate credit literacy programme.
• Any amnesty should take place after affordability assessment guidelines have been implemented and should include a consumer education process highlighting the amnesty does not result in a writing off the debt nor the obligation to pay but merely expunges the display of the judgement or adverse information on the credit bureau.
The final report is expected at the end of March this year; which should give clarity on what the final amnesty will include. The roll out of the second amnesty, if approved, is expected to occur at the end of this year in December.