NCA shields consumers from financial fallout

Consumer Profile Bureau managing director, Fred Steffers.

In a landmark ruling, the National Consumer Tribunal, a body set up to enforce the NCA, has revoked Frabert's licence as a registered financial provider.

The company, which trades through 11 Cashwise franchise branches in the Northern Cape, was investigated by the National Credit Regulator (NCR) at the beginning of the year.

The NCR found that Frabert was holding customers' bank cards and pin codes, as well as pension cards, as a method of debt collection.

Jan Augustyn, NCR manager for investigations and prosecutions, said: “We issued them with a compliance notice early in January this year and did another investigation, but they didn't even show up at the default judgment against them.”

Shielded from the fallout

Fred Steffers, managing director of the Consumer Profile Bureau, South Africa's most comprehensive source of credit information said as the USA enters its worst financial crisis since the Great Depression of the early 1900's, South African banks and other credit providers remain relatively unscathed, thanks largely to the strict regulations that govern credit extension in this country through the National Credit Act and other legislation.

“While hundreds of billions of dollars are being pumped into economies by their governments to prevent financial meltdown, the well-regulated South African banking and micro finance sector has been shielded from direct fallout from the global credit crisis.

He said the fact that sellers of goods and services were held liable for the amount of credit that they granted to a borrower helped to keep the indebtedness of borrowers who use micro lending companies to within reasonable limits.

Cancelling debt

“There was always the fear that if a borrower can prove to a debt councillor that a loan was granted “recklessly”, the debt councillor can set the wheels in motion to have it cancelled,” Steffers said.

“Although there is an increasing number of South Africans who are in arrears with their credit repayment, it is not an alarming situation and is consistent with the economic downturn,” Steffers said.

One of the significant outcomes of the National Credit Act is that debt judgements have dropped to an average of 20,000 a month, from more than 60,000 a few years ago.

“NCR regulations have made it much more difficult for providers to resolve difficulties with their clients in court, significantly cutting the number of debt judgements. The onus is on the credit providers to renegotiate terms with consumers, as there is a real risk that the original loans might be deemed as reckless lending by the courts,” Steffers said.

Consumers with impaired records increased from 6.45 million (or 37.65% of consumers) last December to 6.59 million (or 38.44%) in March. This had risen to about 39% in June.

Of the total 17.14 million active credit consumers, the percentage in good standing had decreased to about 61% in June (down from 61.56% in March and from 63.35% for the quarter ending last December.

108.88 million inquiries were made against consumer credit records compared with 101.54 million for the quarter to last December.