Putting consumer issues on the agenda CREDIT Check your

Putting consumer issues on the agenda 5 CREDIT Check your credit limits – they may be too high The National Credit Act has clamped down on reckless lending, so you need to be more cautious on how high your credit limits are with each of the lenders you borrow from. This is because lenders must now consider all the credit allowed to you by other lenders (even if you haven’t borrowed to your limit) before deciding whether you will be able to pay back the new loan you want from them. NCR research manager Marlene Heymans advised individuals who need credit to ask for their existing credit limits to be lowered by banks and retailers. She said the limits, even if unused, were factored into the calculations that credit providers now had to make before they could grant more credit. “Lots of consumers now have to go back to retailers and banks to ask for their credit limits to be reduced, so that they can qualify for a new loan,” Heymans said. This may not be as easy as it sounds, warned Johannesburg attorney Stephen Logan. He said that consumers might struggle to break free of credit limits, especially where these limits were increased by lenders just before the National Credit Act came into force. Logan said consumers might find that credit providers don’t want to reduce the limits, as this will allow other creditors to make inroads into your borrowing ability. In the months leading up to June and the reckless-lending prohibition, credit bureaus had received about 116 million inquiries from credit providers about the credit standing of credit applicants. By September, after the new rules were introduced, that figure had dropped to 88,5 million inquiries. But by then, credit limits had been doubled for thousands of consumers – who are now “locked in” by the higher limits. “While the National Credit Act says credit providers must reduce credit limits, the first reaction when requested to do so will likely be a delaying tactic, such as a demand that the request be in writing,” Logan said. “Credit providers are not going to benefit by reducing limits,” he said. “Their credit volumes will decrease, and they will automatically make less money. Also, the risk will decrease with the credit limit, and so should the interest rate they are charging.” Logan advised consumers to insist on lower credit limits, as well as lower rates. More information National Credit Regulator www.ncr.org.za Consumers claim their right to free and fair credit information Over 50 000 consumers got free credit reports between July and September 2007 (everyone is entitled to a free credit report once a year) Since the National Credit Regulator began its work little more than a year ago, the huge scale of consumer indebtedness is becoming clearer. But the National Credit Act has also helped consumers to demand fair treatment by credit bureaus. This is shown by the growing number of disputed entries at credit bureaus, where consumers are now able to question who has blacklisted them and why. According to Marlene Heymans, manager for research and statistics at the National Credit Regulator (NCR), consumers had lodged more than 35,000 disputes at bureaus between June and September last year. About 85 percent of the credit reports resulting in disputes were provided free of charge. This shows that consumers are becoming more aware of their right to one free report a year from the bureaus. When a consumer challenges information on their credit record, the credit bureau is bound by law to immediately hold back that information from banks. The bureau then has 20 days to verify the information, and to supply the consumer with credible evidence in that time. If they can’t do so, they have to remove the disputed information from the record. “The consumer has the right to reasonable compensation from the person who lodged the wrong information,” Heymans said. Consumers lodged over 35 000 disputes over the information that credit bureaus held on them Consumers with credit: 17 million Credit accounts open: 51 million Consumers ‘in good standing’ with lenders or credit providers All paid up Missed a payment or two Consumers with bad credit record 10,6 million 7,9 million 2,7 million 6,4 million 6 Consumerfair March–April 2008 • Published by the National Consumer Forum LETTERS Letter to the editor Dear Editor, Re: Ethical Consumerism I would like to compliment you on your newspaper ConsumerFair which picked up in ABSA bank at the Waterfront in Cape Town this week. Please consider doing a follow-up on your article on Page 7 entitled ‘Don’t promote Junk Food’? I would like to suggest that an article encouraging consumers to make choices that enable farm animals to lead healthy lives that are worth living, would be well worth doing. For example, most people don’t know that laying hens in battery cages have a space allowance that is 75% less than an A4 sheet of paper – for life! Most people don’t know that breeding pigs are trapped in metal cages that prohibit them from moving forward or backward or turning around - for all of their four-year lives! Most people don’t know that by cutting down just a little bit on their meat consumption, they can save South Africa millions of litres of water. What we put down our throats is the most intimate connection we have with the environment and I believe it is every consumer’s right to know that there is a choice out there – between cruel food and kind food, between food that assists the environment and food that doesn’t. Cruel methods of food production are often excused on the grounds that the poor must be fed cheaply. However, it would be an insult to a poor person to suggest that he/she does not care about the suffering of animals. We all have the right to make informed choices. Websites that confirm what I say above, include: ■ the Food and Agriculture Organisation of the United Nations’ report entitled Livestock’s Long Shadow Environmental Issues and Options – www.virtualcentre.org/ en/library/key_pub/longshad/ A)701E00.pdf www.ciwf.org www.waterfootprint.org ■ www.animal-voice.org ■ ■ Sincerely, Louise van der Merwe Editor: Animal Voice Managing Trustee: The Humane Education Trust SA Representative: Compassion in World Farming www.animal-voice.org How does consumer behaviour contribute to inflation? Inflation is a complex process of sustained price increases which cannot be ascribed to a single cause. It can originate from both the demand side and the supply (or cost) side of the economy. On the demand side, prices can be pulled up by too fast an increase in consumption spending by households, as a result of a greater availability of consumer credit or the availability of cheaper credit as a result of declining interest rates. One of the major concerns of the South African Reserve Bank over the past two years has been the overly exuberant growth of household consumer demand. Such consumer behaviour has created large imbalances during the recent economic boom in our country, resulting in imports exceeding exports, growing indebtedness, and accelerating consumer price inflation. Most recently inflation has risen to around 9 per cent. The unsustainable part of this consumption expenditure by households has been driven by rapid credit extension growth. As result, household debt as a proportion of household income has risen to a record-high level. Since June 2006 monetary policy has been aimed at restoring greater macroeconomic stability by curbing these excess demand pressures through increases in interest rates. These have begun to have the desired impact on consumer behaviour. Growth in household consumption expenditure has moderated since the middle of 2007 The Reserve . Bank expects consumer price inflation to return to within the 3–6% target range by late 2008. This will be an important milestone towards achieving South Africa’s ultimate objective of sustainable real economic growth and job creation. If each household lives within its means and refrains from getting over indebted, this will go a long way towards realising sustainable growth with low inflation. ■ No credit is free – it must be repaid with interest. ■ Check that you can afford the repayment before incurring further debt. Putting consumer issues on the agenda 7 ABSA – FINANCIAL LITERACY FEATURE MANAGING MONEY Be sensible when using your credit card Many South Africans find a credit card invaluable both for short as well as longer term purchases, says Doug Walker, Managing Executive of Absa Card Division. It’s vital, when making the decision to apply for a credit card, that you develop a budget including all of your regular monthly expenses. This will show you what additional purchases are possible on your current income. Walker says saving should also be part of your monthly budget. Absa recommends that you save at least 10% of your monthly income. Carrying a credit card is much safer that carrying cash, as the Lost Card Protection facility covers you in the event of theft. It’s important, though, to use the card responsibly. That includes ensuring you are up to date with the payments on your credit card each month. If you do this, you pay no interest on the purchases you make with your credit card. Paying your full card debt creates the benefit of always having finance available when you need it. Debt is not necessarily a bad thing, provided it is used appropriately and managed responsibly. Your credit card could enable you to pay for major repairs to your home or to pay for a course of study. This is the sensible use of credit that will deliver a long term benefit, unlike buying an expensive item of clothing or paying for an extravagant night out. The Governor of the Reserve Bank, Tito Mboweni, has always cautioned South Africans for years on spending, to live a luxurious lifestyle. Responsible use of the credit available to you will ensure that you are free from worries about debt and that you are able to plan for important investments, such as education and to live a secure life after you retire. A credit card statement, if wisely used, can become an important budget management tool. Your statement shows you exactly what you are spending each month on food, entertainment clothing and transport. If you have a linked garage card, it will list your fuel purchases and help you to assess these. Access to credit is a privilege. It represents recognition by a major bank that you are an income earner who is likely to conduct his or her financial affairs in a responsible manner. Maintaining your record of credit worthiness will ensure that you are well positioned to apply for a home loan or car finance in the future. In situations like these, your positive credit record becomes a significant advantage Article by Absa Card Division Responsible use of the credit available to you will ensure that you are free from worries about debt and that you are able to plan for important investments, such as education and to live a secure life after you retire Sponsored by Absa Bank in the interests of financial literacy