Expert Opinion

Credit Providers Association’s view on Blacklisting Amnesty

Recently, the Portfolio Committee for Social and Economic Development made a proposal for a blanket amnesty for so-called ‘blacklisted’ consumers.

In considering the merits of this proposal, many issues require review, as follows:

  1. The question of what value accurate and comprehensive credit data holds for credit providers and consumers alike needs to be considered.Thinking back to the period around the turn of our democracy in South Africa, low-income consumers were considered high-risk in terms of credit extension, and few had any financial service options available to them. This is evident in that little credit was extended to this market at the time, and certainly credit offers from the formal financial sector were almost non-existent.Over time, as credit data became available on low-income consumers, formal credit providers could finally start segmenting the low-income consumer market base in terms of criteria that support credit extension; for example, identifying consumers, distinguishing between the profiles of consumers, and determining which of those individual consumers have the propensity to pay, and which do not.
  2. Without the accumulation of accurate and comprehensive credit data for low-income consumers, the broader credit industry may still have viewed this market base as being high–risk, and the scenario of limited credit extension would have likely continued. In the evolution of credit extension to the lower-income groups, those with the propensity to pay now have access to formal credit at a lower cost, and also a broader range of credit products, including housing finance. The increased access to formal credit also affords consumers more protection under the auspices of the National Credit Act, and other regulation with which formal financial service providers are obliged to comply.Although the implementation of the National Credit Act (NCA) was a crucial catalyst in this process, it probably would not have had the same impact, had accurate credit data, with both positive and negative credit information, been available.

A total amnesty on ‘blacklisted’ consumers would therefore, in the opinion of the CPA, negatively impact the following areas:

  • It would inhibit the progress made in extending access to credit, and therefore limit access to broader credit products to low-income consumers, irrespective of their risk profile.
  • The inability to distinguish positive and negative credit performance of consumers would result in consumers who honour their payments being prejudiced at the cost of poor-paying consumers.
  • The ability to determine the full credit exposure and perform proper affordability assessments would be hindered,  and this would negatively impact credit providers’ abilities to extend and manage credit.
  • Smaller credit providers would not necessarily be able to survive, as their business models require them to service high-risk consumers, and if their ability to properly assess these consumers were constrained, their entire business model is likely to collapse.
  • The risk of smaller credit providers’ businesses being unprofitable and potentially being unable to survive will place more jobs at risk.
  • More consumers would be dependent on informal credit providers, and would lose the protection that comes from dealing with regulated credit providers.

Recent research conducted has indicated that the probability of poor loan performance is 2.5 times higher on a consumer that was previously granted amnesty, in relation to those who have not received amnesty.

’Blacklisting’ provision to all credit bureaux is created from various sources. These can vary between credit bureaux, and it is at times a challenge to ensure that submissions to bureaux are accurate and in accordance with  legislative and regulatory requirements. It should be noted that a number of ‘blacklisted’ consumers are presently prejudiced by incorrect listings or, in certain instances, listings   which consumers are not aware of. The remedy to these scenarios is intervention and regulation enforcement by the National Credit Regulator, as well as educating consumers in being proficient in managing their own credit profiles and obligations.

As part of the process going forward, the Dti will be conducting further research on the impact of an amnesty process, supported by the NCR. Industry consultations will form a crucial part of this process. The CPA will continue to engage with the various industry Associations to further inform and discuss this matter.

Feedback on the process initiated by the portfolio committee is expected in February 2013.