Tthe so-called "credit amnesty", which will remove about two million people from credit blacklist databases, will result in further indebtedness for at least half of them unless there is proper education about the new regulations, credit providers warn.
According to the National Credit Regulator, the purpose of the amnesty would be to provide a new credit opportunity, reduce the cost of credit repair and help consumers to pay less for their credit.
Following the failure of the 2006-2007 amnesty, the department of trade and industry and the regulator are expected to submit a report to Parliament's trade and industry portfolio committee next month on how best to implement it. The report will form part of public hearings.
The amnesty is a foregone conclusion; how it is to be implemented is what must be considered. At a meeting last month, the committee chairperson Dumisani Gumede told the committee that it would have to "approve a suitable amnesty project".
A sneak preview of some of the findings was presented to the committee in February. Among those put forward is the need for an appropriate credit literacy programme and standardised affordability assessment guidelines for all credit providers.
Trevor Bailey, the chairperson of the regulator's board, told Parliament in February that the research had shown that a credit amnesty for those with debt less than R10 000 would benefit 86% of those earning up to R15 000 a month.
Warning
But Mark Seymour, chairperson of the Credit Providers' Association, warned that removing blacklisted creditors from databases would make credit providers more cautious when lending money, particularly to lower-income groups, because, without complete records, they would find it difficult to assess credit worthiness.
He said the increased risk might also be passed on to other consumers in the form of more expensive credit. He added that there was already a "natural" amnesty in place — regulation 17 of the National Credit Act, which stipulates the length of time a credit bureau may hold and publish credit information.
"A recent review of the largest bureau in South Africa revealed that, on average, 2.2-million inquiries, 40 000 judgments and 199 000 default notations are removed each month as a result of the retention limitations. This is the 'natural' amnesty we refer to," he said.
The government is unlikely to be convinced by this, according to the department of trade and industry's presentation to Parliament. Research conducted for the regulator and the department shows that, although information is removed from databases, it is still being used illegally by some credit providers and legislation is needed to curb this.
The view of credit providers interviewed is that banks are less likely to be affected by a credit amnesty than smaller credit providers because they have access to larger databases.
Research conducted by the association on 600 000 people given a credit amnesty in 2007 found that 64% of those who benefited from the amnesty then entered into new credit agreements and 74% of those ended up with "bad or adverse accounts".
Questions
Michelle Dickens, managing director of the Tenant Profile Network, said she understood that many people had been affected by the recession and that those blacklisted found it difficult to get jobs and to access cheap credit. But she questioned whether an amnesty that would still require individuals to pay back their outstanding debts would assist them.
"The question to be asked is whether the 2006 amnesty resulted in credit being granted to consumers who were already financially stressed but whose situation did not reflect on their credit history, putting [more] strain on their monthly repayments," she said.
Over-indebtedness is considered an important contributing factor to the unrest at Marikana, which led to more than 40 deaths, and elsewhere. The 2006 amnesty allowed a once-off removal of some information but it was not effective because the acceptance rate of credit applications grew by only 3.2%. Seymour said the success of the amnesty would depend on widespread consumer education.
As part of a review of the present credit environment, the department is also proposing amendments to the Act that include the automatic removal of paid-up judgments and defaults, the introduction of adverse listing rules, criminalising the collection and listing of prescribed debts, and limiting access of employment agencies to credit records.