Expert Opinion

Some thoughts on our consumer credit regulatory framework
By Lesiba Mashapa

The National Credit Act has introduced one of the most progressive consumer credit regulatory frameworks. It has established consumer protection standards that are comparable to generally accepted consumer protection principles in international law. This is supported by the positive reviews that it has received from many commentators locally and internationally.

It is generally accepted that this Act has contributed significantly to shielding South Africa from the impact of the 2008 global financial crisis. Its principles of responsible lending and borrowing are the hallmark of a sound consumer credit regulatory framework. They have established general parameters for credit risk assessment and management. What the global financial crisis has taught us is that without a properly formulated regulatory framework, financial institutions can collapse due to failures in corporate governance and risk management. The lessons of the US sub-prime mortgages are still fresh in our memory and should propel us to remain vigilant in supervising the market conduct practices of our credit providers.

Since the Act came into effect in 2007, it has become clear that we need to improve the way in which affordability assessments are conducted. While it cannot be assumed that reckless lending and borrowing are the sole causes of consumer over-indebtedness, their contribution to this problem cannot be ignored. These problems require a deep understanding of their causes and regulatory measures which address them in a holistic manner. In the end, the sustainability of our credit market should be judged by whether credit providers can recover what they lent and consumers can repay what they have borrowed.

We appreciate that other causes of consumer over-indebtedness arise from the macro-economic environment and cannot be addressed through the consumer credit regulatory framework.

It is also important that consumers who are over-indebted and eventually repay their debts are rehabilitated early for re-entry into the credit market. This calls for a new way of thinking on the credit bureau retention periods for judgements, adverse listings and debt review listings. In our current system, these listings have an impact on consumers beyond credit risk assessment. As consumers pay off their debts and demonstrate responsible debt repayment behaviour, the regulatory framework should be flexible to accommodate their early rehabilitation and participation in the credit market.

As we move forward towards achieving a sustainable credit market, the participation of the industry in refining some of the aspects of the regulatory framework is essential. The support of all our stakeholders will help us to make significant strides towards building a regulatory framework that is the envy of the world.

Till next time.

Lesiba Mashapa
Company Secretary