Experts are warning consumers that the credit amnesty regulations, set to take effect from 1 April 2014, are not a get out of jail free card for over indebted consumers who still have outstanding loans that are yet to be repaid.
The Credit Information Amnesty involves the scrapping of adverse credit records for those who have paid up their loans in full. However, the complexity of the Amnesty has caused wide-spread confusion among consumers, and now some wrongly believe that it removes their debt entirely.
“Even though adverse listings from previous debts will be removed from credit bureau records, consumers will still be liable for current debt,” said Kevin Hurwitz, chief executive officer at Wonga.com SA.
The wait for a clean record
Poor credit information won’t be wiped immediately as credit bureaus will have two months to remove any adverse classification of consumer behaviour and adverse classification of enforcement action from the records of those who have repaid their debts.
There are two parts to the credit information removal process. The first is a once-off removal of all adverse information; and the second is the ongoing removal of paid-up judgments.
What will be removed?
The types of information that will be removed under the new Amnesty include; adverse credit information (such as negative classifications or terms used to describe consumer behaviour e.g. ‘default’, ‘slow payer’, ‘absconded’, ‘not contactable’ etc.), information relating to paid-up judgments (such as default judgments where the consumer has now settled the debt under the judgment), details relating to disputes lodged by consumers regarding listings on their credit records, as well as adverse credit information in the payment profile represented by a mark, symbol or sign.
The types of information/data excluded from the Amnesty include notices such as sequestrations, administration orders, rehabilitations and debt review data.
What will these changes mean for consumers?
It means you can start with a clean slate. “We want to encourage them to maintain a clean credit record to allow them to regain access to affordable credit, rental accommodation and employment. This initiative does not seek to remove the consumers’ obligations to repay their debts, but rather seeks to create the incentive for consumers to repay their debts more diligently and in a more timely fashion,” said Nomsa Motshegare, CEO of the National Credit Regulator (NCR).
“Effectively this means that negative records, which had been held by the credit bureaus, showing how a consumer previously managed or (mismanaged) their debt obligations will no longer be held on record – and won’t be visible to credit providers,” added Hurwitz.
Credit bureaus will also be required to automatically remove any adverse credit information as soon as a consumer has repaid the outstanding debt, on an ongoing basis. Previously once a judgment had been paid up, the consumer would have to approach the court to have the listing of the judgment removed - now it will be removed automatically.
Will it be easier to take out loans?
The removal of bad credit history for those who paid up their loans may not, in fact, create a more loan friendly market. “If anything, most credit providers will be implementing stricter credit vetting processes to ensure that the consumer will be able to afford taking out the loan in the first place. To date, a number of credit providers have relied solely on the information from credit bureaus without doing proper risk assessments before credit was granted to consumers. However, the introduction of the new regulations will require lenders to introduce stricter credit approval controls,” explained Hurwitz.
He says that in terms of Wonga’s own system, prior to this Amnesty applicants with adverse listings would have been declined straight away, but now they will proceed through the company’s own automated risk engine. “We are confident that we will be able to identify those customers who are credit worthy and those that are not because we constantly update and evolve the data we consider when making a decision.”
Hurwitz urges consumers to not rely on the amnesty as an excuse to continue mismanaging their debt. “Consumers need to take ownership of their debt and credit profiles. Credit bureaus provide one free credit report a year to consumers and they are encouraged to obtain these in order to be clear about their debt obligations, as well as pick up any irregularities on their credit profile.”
“If consumers feel that adverse credit information has not been removed from their credit profiles after they have paid their debt, it is important that they contact their respective credit bureaus to ensure that this is done,” he adds.
He says that in order to improve their credit score, consumers should always pay their accounts on or before the due date. “In addition, they should close any accounts that they no longer use or have a need for. If consumers are not able to repay any loan or credit that they have, it is important for them to speak to their credit providers to negotiate a payment plan. In these instances, it is essential that the minimum amount is paid.
“There will always be a mainstream need for credit as it plays a vital part of the economy. Whilst the credit amnesty will provide relief to consumers, it is equally important that everyone is aware of what the impact of these regulations will be and what responsibility consumers will have in managing their own debt,” concluded Hurwitz.
Who do I contact?
You are by law, entitled to one free credit report per year, and you can get a free report from any of the registered credit bureaus. There are 13 registered credit bureaus:
• TransUnion - 0861 482 482
• Experian S.A – 0861 105 665
• Xpert Decisions Systems (XDS) – (011) 645 9100
• Compuscan – 0861 514 131
• Consumer Profile Bureau – 010 590 9505
• CreditWatch (Pty) Ltd - 011 483 0086
• Crosscheck Information Bureau (Pty) ltd (previously known as MLCB) - 0105 909 505
• Inoxico – 010 001 0540
• LexisNexis Risk Management – 011 245 6500
• Managed Integrity Evaluation (Pty) Ltd - 012 644 4000
• Robertsons International Reports (Pty) Ltd - 011 777 4000
• Tenant Profile Network (Pty) Ltd - 086 187 6000
• Tenant Watch Business Activities (Pty) Ltd - 011 394 6828