Credit Cop To The Rescue - Mail & Guardian 150806 by monkey6


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									Credit Cop To The Rescue
August 15, 2006 By Jocelyn Newmarch Government didn’t need to look very far to appoint a new chief executive for the National Credit Regulator (NCR). As head of the former Microfinance Regulatory Council, now the NCR, Gabriel Davel (right) has been regulating credit providers since 2000, and is a chartered accountant who chose to specialise in financial regulation and development finance. Davel now has the toughest job ahead of him: bringing the country’s credit industry to heel. When Davel pokes his head round the door and suggests we go through to his office, my first thought is that he must be a history teacher. He has the same slightly distracted air, the jersey, the gentle face and grey curls. But any impression of vagueness disappears the moment the interview begins. Davel does intensity the way Einstein must have explained his formula for relativity, talking a million miles an hour in quiet, Afrikaans-accented English. He has to talk fast: he has a lot to do and not too much time in which to do it. The regulator is newly set up and needs to ensure the industry will be ready for the new National Credit Act, which will bring major change. All credit providers should have registered with the regulator before June 1 and a consumer tribunal will be established next month. Also from next month, consumers will be entitled to a free personal report from the credit bureaux, and will need to be warned before a negative listing is placed. From June 1 next year, reckless lending will be prohibited, as will automatic increases in credit limits, and consumers will be able to use debt counsellors and ask for debts to be restructured. The Act says that the cost of credit must be clearly indicated and credit agreements must be easy to understand. If a credit application is turned down, reasons must be given. Davel’s team is in charge of
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implementing and enforcing all of the above. South Africa’s credit laws have been patchy, outdated and ineffective until now, he says, and the new Act is designed to provide one integrated set of laws. His team needs to regulate, implement and enforce the Act, but the challenge, he says, is in the balance. The NCR can’t be too draconian or it will stop the flow of credit information, which is a necessary part of the industry. Consumer protection and support is the first and most important focus of the legislation. “In traditional Anglo-Saxon societies, if you had a debt, which you had agreed to pay back, you had to do so, even if your situation changed,” Davel explains. The new legislation takes a different approach, recognising that in some cases the debt will need to be suspended or even written off. It also provides for debt restructuring and counselling. “People don’t realise just how outdated the legislation was,” he says, explaining that the usury Act, which the credit Act will replace, was based on British legislation from 1945. Enforcement, he says, will be a major issue for the regulator. The average credit transaction is for about R2 000 or R3 000, according to Davel, and so if the credit provider is in the wrong, it is usually too expensive for consumers to take legal action. There’s also an imbalance of power, because the credit provider has recourse to teams of lawyers. This will change: in the future, consumers will be able to lay a complaint with the NCR, which will then take the matter further, if necessary, to the courts, on behalf of the consumers. South Africa’s savings rate is just 13% of gross domestic product and some 65 000 credit judgements are issued each month. Household debt as a percentage of income is nearly 70%. While providers have been lending without checking consumer affordability, and the ability to repay, consumers themselves are also to blame. “A reckless lender and a reckless borrower go together,” says Davel So it stands to reason that most consumer complaints about the credit bureaux don’t concern incorrect information, but that they are prevented from getting another loan. Over-indebted consumers don’t want to get out of debt. Instead, they ask for more credit. And far too many people are in too much debt. Davel says his worst case is someone who owed more than 5,6
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times his monthly income. Credit bureaux will now be regulated for the first time in this country and Davel admits that this will be a challenge as they are used to being their own bosses. The credit Act The Act represents a new approach towards debt, with the concept of debt counselling and debt restructuring. Previous laws only provided for debt administrators, many of whom were unscrupulous. Counsellors will be able to recommend that reckless debts -- where the credit provider did not assess the consumer’s ability to afford repayments -- be set aside, and the interest charged on a debt in default will be capped. National Credit Regulator CE Gabriel Davel says he knows of one consumer who would take 118 years to get out of debt, because of the interest fees and charges that accrue when you default. “In a case like that, you have no option but to restructure,” he says.

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