Developing Credit Bureaus in South Africa, the importance of Consumer Education

1. Developing Credit Bureaus in South Africa, the importance of Consumer Education Presented by: Advocate Ashina Singh

2. CONTEXT Developing countries are faced with specific challenges which include, but are not limited to: • Eradication of poverty, • The need for developing countries to be placed, individually and collectively on a path of sustainable growth and development, and • The need to eliminate the marginalization of developing countries in the globalization process. Sustainable credit markets require well functioning credit information systems. Credit information systems can only be well functioning when the environment in which they exist is conducive to their operations.

3. ROLEPLAYERS IN THE CREDIT INFORMATION SYSTEM The effectiveness of a credit information system is impacted by: • Government; • Credit providers; • Credit bureaux; AND • Consumers or data subjects. There is a need for all the constituencies and stakeholders referred to above to work together.

4. THE SOUTH AFRICAN CREDIT REPORTING ENVIRONMENT South Africa in particular has a sophisticated and evolved credit market supported by a sophisticated and evolved credit information system with the following characteristics: • competing private credit bureaux; • extensive voluntary sharing of positive and negative information among banks, retailers, telecommunications providers, and certain government departments within a closed user group of lenders; c) sophisticated scoring and decisioning models and systems are used; and d) data is retained for as long as it has predictive power.

5. THE SOUTH AFRICAN EXPERIENCE – CONSUMER EDUCATION Notwithstanding the fact that South Africa has a sound credit information system many South African consumers have a negative perception of the credit information industry and credit bureaux. This negative perception includes the perception that credit bureaux “blacklist” black people thereby denying them access to credit. Consumer organisations, the Congress of South African Trade Unions, and the South African Communist Party, have place great pressure on government to: • Regulate the industry; and • As a once off exercise to removeall information from credit bureaux.

6. THE SOUTH AFRICAN EXPERIENCE – CONSUMER EDUCATION CONTINUED… Government has responded by: • Regulating the entire range of credit bureaux operations; • Providing for the imposition of strict criminal penalties for contraventions in certain circumstances; and • Agreeing to a once off removal of certain categories of data from the credit bureaux; Impact of the law and data removal exercise on the credit risk management system

7. 2 VIEWS ON CONSUMER EDUCATION • Inadequate consumer and public education programs has resulted in government interventions • The nature of the business of a credit bureau will always make it unpopular with people whether there is education or not. Possible within the South African context- credit information system evolved rapidly, and consumers were in a sense “left behind” Irrespective consumers should be seen as an important stakeholder within the credit information industry

8. CONSUMER EDUCATION IMPERATIVES • Identify target markets and population segments to be educated and trained; • Coordinate initiatives on consumer education and training; • Design and develop appropriate educational and training material; • Launch educational and training programs; The broader credit industry and government should be jointly responsible

9. CONCLUSION In addressing all aspects that impact a credit information system, including consumer education, a well functioning and sustainable credit information system is ensured.