NATIONAL CREDIT REGULATOR

1. NATIONAL CREDIT REGULATOR Presentation to the Portfolio Committee on Trade & Industry African Bank Crisis Nomsa Motshegare Chief Executive Officer

2. The structure of financial regulation in South Africa Prudential regulation • Safety & soundness of financial system & banks • Financial stability of banks • Threats of systemic risk to the financial system & banks • No market conduct practices • South African Reserve Bank Consumer credit Regulation • Market conduct practices of banks • Consumer protection • No financial stability of banks • No safety & soundness of financial system • National Credit Regulator

3. Trends in credit growth over time

4. Concept of reckless lending Lack of affordability assessment • Income disclosed not verified • Expenses not verified • Credit bureau reports not obtained Affordability assessment done, but • Consumer does not understand rights, obligations & cost of credit • Credit granted & over-indebted consumer Remedies available • Court can set aside or suspend contract • Prohibited conduct (not reckless lending) declared by National Consumer Tribunal & administrative fine • Compliance notice by National Credit Regulator • Removal of credit bureau listings, rescission of judgments

5. Africa Bank reckless lending investigation The African Bank reckless lending investigation • Complaints received from consumers & investigation initiated by the NCR; • 669 reckless loans; • 651 loans by KZN Dundee branch; • 48 loans by 25 other branches (Mabopane, Germiston, Rustenburg, Umtata, Cape Town, Durban, Thohoyandou, Gugulethu, Orlando, Pretoria, Upington, Carletonville, Klerksdorp, Mafikeng, Johannesburg, Idutywa, Randfontein, Witbank (Arras Street), Witbank (Klipfontein), Carletonville, Umtata, Nqutu, Polokwane, Tsolo and Tzaneen); • South African Reserve Bank formally notified of the findings from the investigation in 2012.

6. Africa Bank reckless lending investigation The African Bank reckless lending investigation • African Bank explained that loan origination system manipulated by agents in collaboration consumers; • NCR did not accept the explanation & requested African Bank to enter into a consent order to be confirmed by Tribunal; • Consent order proposed a fine of R300 million and corrective measures to assist the affected consumers (writing off of loans, rescission of judgments, clearing of credit bureau listings); • African Bank declined to enter into consent & NCR decided to refer them to the Tribunal; • NCR notified the South African Reserve Bank in 2012.

7. Africa Bank reckless lending investigation The African Bank reckless lending investigation • African Bank approached the NCR to negotiate a settlement of the matter; • Settlement reached with African Bank agreeing to pay a fine of R20 million & effect corrective measures; • NCR considered factors in section 151 of the National Credit Act when agreeing to the settlement.

8. NCR Study on Affordability assessment weaknesses Study identified the following weaknesses: • Lack of verification of income disclosed by consumers; • Under-disclosure of living expenses by consumers in credit applications; • No credit bureau reports; • Delay in granting credit after obtaining consumer credit reports; • Lending to the maximum of the consumer’s available disposable income; • Not all loans recorded at credit bureaus (voluntary system of credit reporting system). Affordability assessment regulations

9. Enforcement Action Raids in Marikana, N/W Province: • 2012:16 credit providers raided: reckless lending, retention of bank cards, pin codes, id books,excessive fees & int; • Arrests made, criminal cases opened & referrals to the Tribunal; • 2014: Above + 15 credit providers in Rustenburg area raided • 2014 raids: 50% that were raided in 2012 not operating due to strikes + cancellation of registration by the Tribunal; • Absence of retention of bank cards, pins & Id docs; • Files for Rustenburg raids being assessed; • Similar raids conducted in W/Cape, Limpopo, Gauteng, Mpumalanga, KZN Provinces in past 2 years.

10. Enforcement Action - 2014 • 13 compliance notices issued : includes those issued for unlawful adverts; • 8 referrals to the Tribunal • Arrests made, criminal cases opened & referrals to the Tribunal;

11. Going Forward To work with the World Bank to develop an “early warning system” in the credit market for non-bank entities; Monthly statistical reports to be submitted to the NCR: to detect unforeseen market events; National Credit Amendment Act, 19 2014: NCR to refer cases to the Tribunal for reckless lending; credit life to be capped; Affordability assessment audits to be conducted across different types of credit providers; NCR to work with credit providers to assist in complying with affordability assessment regulations. Continuously enhance co-ordination between the NCR and Registrar on Banks.

12. Thank You! www.ncr.org.za