More than two million consumers who had their bad credit information wiped clean through government regulation have tarnished their credit records yet again and have done so in less than a year.
This is according to Compuscan data on consumers’ credit behaviour in the fourth quarter of 2014. Compuscan is one of South Africa’s leading credit bureaus, and data from it and others is submitted to the National Credit Regulator to form a detail synopsis on consumers’ credit behaviour known as the Credit Bureau Monitor.
On April 1 last year, the department of trade and industry’s regulations, allowing for a credit information amnesty, came into effect and required credit bureaus to remove certain types of poor credit information from consumers’ records. Although the information was removed from the view of credit checkers, consumers were still liable to pay their debts.
Before the information was removed, there were three million consumers whose worst position was an “adverse-enforcement status code”, Compuscan said in a press release.
This code means some action has been taken because of nonpayment and includes accounts that have been handed over, where assets have been repossessed, accounts written off or facilities or credit cards revoked.
“Since the removal of adverse consumer credit information in April 2014, there has been a steep increase in the number of consumers with an account that has reached adverse-enforcement status,” said Compuscan director, Frank Lenisa.
“This is indicative of consumers not managing their expenditure wisely and struggling to stay on top of the escalating cost of living.”
The number of consumers whose worst position was adverse-enforcement status, increased from zero at the end of the first quarter of 2014, when the information amnesty took effect, to 2.01-million by the end of the year.
“This means that a large percentage of individuals who had adverse listings, which were removed by the regulations, have an adverse again and points to the need to improve repayment behaviour rather than removing credit information,” Compuscan said.
This last credit information amnesty followed to address the failures of an amnesty implemented in 2006. In 2012, Mail & Guardian reported that a sample of 6 000 consumers who benefitted from the 2007 amnesty was taken. “Of these, 64% had taken up more credit and 74% of those ended up having bad accounts, 44% had judgments and adverse records, and 19% had judgments against them in the past five years. The default figure for the credit they had entered into amounted to R33-billion, and R14-billion of judgments were recorded.”
Jacobus Eksteen, data scientist at Compuscan, said the removal of adverse information could have made it more difficult for credit providers to determine risk, and this could also have contributed to the high number of “adverses”.
“Some people with adverses would have been accepted post-removal, where they would previously have been declined,” Eksteen said.
It was possible nonpayments could have been aggravated by consumer confusion over amnesty. According to a report from IT-online on March 2, the Credit Ombud has seen a 50% rise in complaints and enquiries relating to the new credit amnesty regulations.
Increase in paid-up default status
However, adverse-enforcement codes only make up 4.5% of all updated accounts at the bureau and most consumers appear to manage their credit obligations well; 76.5% of the accounts monitored by Compuscan are listed under the category of zero months in arrears or closed. The true number of “adverses” could be lower if one considered that, of the 65-million accounts on Compuscan’s database, only about 20-million are active.
“Furthermore, on a positive note, the data shows an 81% increase in accounts that have a paid-up default status in the fourth quarter of 2014, compared to the previous quarter, indicating that some consumers are making efforts to better manage their debt,” Compuscan said.
Eksteen said it is worrying to see increases on “adverses” on home and vehicle loans. These increases were 43% for mortgages in quarter, 36% for vehicle and credit cards and more than 53% for stores cards. “It is growing from a lower base (0%), but at the end of the day the number is still a lot,” said Eksteen. “It shows people are under pressure and the amnesty is very superficial.”