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National Credit Regulation: Enhancing Financial Stability for Consumers

Explore the comprehensive framework established by the National Credit Regulator in South Africa to safeguard consumer interests. From regulating credit bureaus to enforcing compliance, learn how these measures impact the credit market and debt counseling. Discover the regulatory changes, statistical insights, and the evolving landscape of consumer credit in the country. Get insights on housing loans, debt levels, and the role of debt counselors. Stay informed about the challenges, impacts, and innovations transforming the credit sector.

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National Credit Regulation: Enhancing Financial Stability for Consumers

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  1. “All progress is based upon a universal innate desire on the part of every organism to live beyond its income.” — Samuel Butler , English composer, novelist and satiric author (1835- 1902). “The business of a moneylender … has no where nor at any time been a popular one. It is an oppression for a man to reclaim his own money: it is none to keep it from him” — Bentham, British reformer, 1787

  2. National Credit Regulator Arello Conference Association of Real Estate License Law Officials Gabriel Davel May 2010

  3. Interest, fees & credit life insurance Reckless lending rules Marketing & sales practices National Credit Act Enforcement & debt collection Agreements & quotes Unlawful agreements, provisions Debt counselling Regulate Credit Bureaus Create National Credit Register

  4. Disclosure: standardized, comparable, early. Prescribed content & format. Enable price comparison. Negative option marketing prohibited, automatic increases in credit limits curbed. Reckless credit: Require affordability assessment. Define reckless credit, affects enforceability. Protect responsible lenders. Preferences & anti-competitive conduct prohibited, monitored. Interest rates & fees: Change basis of disclosure. Upper limits on interest & fees. Limit add-ons. Penalty interest + prepayment penalties removed. Debt collection fees regulated. Curb incentives for ‘debt farming’. Agents & brokers, standards + disclosure requirements,. Changes to market conduct …

  5. Credit providers, registered, compliance audits, monitoring Debt counselling to restructure income, rehabilitate consumers. Credit bureaus, registered, monitored … regulated. National Credit Regulator, to monitor & enforce. Compliance reviews by auditors; investigations; market practice reviews, compliance notices. penalties through Tribunal (“special court”). National Consumer Tribunal, decriminalised contravention, with ‘special court’ Institutional changes …

  6. First dramatic slowdown, then impact of financial crisis affordability + “readiness” Then a contraction Affordability cuts both ways, long & short term implications Curb consumption debt levels & reckless credit good for housing Unaffordable housing loans not justified + positive impact in long term! Credit bureau data Improved & expanded (joint mortgages) DEBT COUNSELLING Cushioned impact of crisis !! Greater focus on compliance = formalisation of bank / agent relationships = responsibilities Court’s scrutiny of applications for debt enforcement NCR: 420 investigation, 42 compliance notices, 14 cases @ Tribunal, 110 instructional letters Bridging Finance Housing scams Debt counselling compliance NCR: 600+ on-site visits to debt counsellors NCA impact on housing market? Impact on market ? Compliance ?

  7. Current state of the credit market Statutory Statistical Returns submitted by Credit Bureaus & Credit Providers (including banks)

  8. Consumer Credit Market in South Africa 18 million Credit Active Consumers Credit Providers R1.1 trillion consumer credit Credit Providers = 4,120 Branches = 33.500 1,700 Debt Counsellors

  9. Credit volumes Graph 1 • Disbursements recovering after massive contraction (R102bn  R50bn  R63bn) Graph 2 • Mortgage disbursements now R21bn per quarter, compared to R53bn/q before contraction • Contracted 67%, more than any other item (secured – 41%). Mortgages still 60% lower than peak • But recovering, 18% up over last quarter

  10. Housing price changes follows availability of credit … obviously = loose credit, beyond consumer repayment capacity will create bubbles … obviously Mortgage disbursements vs housing prices Mortgage disbursements House price index Consumer credit (balances) Changes in housing prices

  11. Consumer stress - arrears • % consumers with impaired records remain high, but starting to stabilise • Arrears levels improving

  12. Debt Counselling

  13. Reality check: the US Experience • 6 million mortgages delinquent or in foreclosure. 14 million with debt > property value. 100,000 foreclosures per month (2008). • Many programmes, limited success … “Hope Now”, “Mod in a Box”, “HAMP”, variations. Cram Down blocked. • Issues & challenges: Capitalisation without modification. Interest reductions, term extensions, write-downs. Subsidies. Required or voluntary. Temporary and permanent. Moral suasion & voluntary cooperation limited success; Increased repayments after modification; Temporary not converted; Perverse incentives to banks and to consumers. 40%+ re-default after loan modification - McCoy, White

  14. 1,700 debt counsellors 160,000 applications from inception; approx 100,000 ‘active’ 9 agreements per consumer Ave payment per consumer = R3,700 Debt counselling R165 million / month paid to creditors R1.7bn since inception

  15. Conflicting legal interpretations, attempts to block debt counselling Practical issues of implementation Certificates of Balance; Policies and mandates for credit provider staff; Payment arrangements; Cancellation of existing dr orders etc Trade-offs between mortgages, motor-vehicles & unsecured debt Debt counsellors Professionalism, systems, volume of work Courts Backlogs, court process, Formalisation of ‘voluntary arrangements’ … amendments to NCA to address interpretation issues Practical issues to resolve… per interim report of the Task Team

  16. Despite all the challenges … Despite all the challenges, the vast majority of consumers feel that debt counselling assisted them in dealing with the problem Survey by AIA

  17. Concluding comments • Impact of NCA: curbed excessive credit extension, creating basis for lower but more sustainable credit growth, curbing social cost of reckless lending • Debt counselling – reconcile claims of different credit providers, to create a sustainable repayment stream on non-performing consumer • While minimizing social cost, • BUT, significant implementation challenges • Impact of financial crisis continues, driven by reductions in income as much as loss of employment. Contraction in domestic credit had a significant negative impact, aggravating domestic position • Protection of households important priority, not just on protection of industry, • impact differently for different consumer groups • household solvency & buying power critical to economic health

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

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