N_ Lala-Mohan

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					Enforcing Responsible Lending in the
          Financial Sector

            Presented by:
          Nicky Lala-Mohan
National Credit Act                                                  1

■ Purpose and Relevance

   ■ The NCA aims:
      ■ to reduce reckless credit behaviour – both by credit providers
        (lenders and retailers) and customers
      ■ to reduce the level of over-indebtedness in South Africa

   ■ The Purpose of the NCA:
      ■ improved accessibility of the credit market to previously
        disadvantaged customers
      ■ enhanced consumer rights and education
      ■ regulation of credit
      ■ consistent treatment of all consumers and credit providers
      ■ responsible borrowing and elimination of reckless lending
      ■ re-addressing the balance of power between consumer and
        credit providers
Rights in terms of NCA                                           2

■ You have the right to:

   ■ apply for credit (this does not mean that credit MUST be
   ■ protection against discrimination in respect of credit (race,
     gender, marital status, pregnancy, age, etc)
   ■ reasons for credit being refused
   ■ information in an official language
   ■ information in plain and understandable language
   ■ receive documents
   ■ protection of your credit right
   ■ the right to confidentiality
   ■ personal information
   ■ access to confidential information
Over-indebtedness and Reckless Credit                    3

  to guard against over-indebtedness of clients when
  they apply for credit

■ Prevention of over-indebtedness and granting of
  reckless credit is probably the most important pillar of
  the NCA and failure to ensure that you are not over-
  indebted has severe implication for the credit provider
Over-indebtedness and Reckless Credit                                   4

■ Over-indebtedness

   ■ You are over-indebted if most of the available information
     at the time when a determination is made by the credit
     provider, indicates that you are, or will be unable to pay /
     fulfil your obligations under all the credit agreements
     which you have made, taking into account:

       ■ your financial means
       ■ your prospects and obligations
       ■ the likelihood that you will be able to fulfil the obligations of
         all the credit agreements given your debt repayment history
Over-indebtedness and Reckless Credit                            5

■ Reckless Credit

   ■ A credit agreement is regarded as reckless if at the time it
     was made, or at the time of a limit increase, the credit
     provider did not do an assessment, irrespective of what
     the outcome of the assessment might have been and the
     court could declare it reckless at any time it is being

   ■ It will be reckless if the credit provider did the assessment
     and entered into an agreement, despite the fact that it
     showed that you did not really understand the risks, cost
     or obligations of the agreement, or despite the fact that
     the specific agreement will cause you to be over-indebted
Dispute Resolution in the NCA                        6

■ The NCA provides for alternative dispute resolution
  mechanisms in order to create various channels which
  may be used to resolve complaints and disputes

■ You may file a complaint with:
   ■   the NCR,
   ■   an ombud with jurisdiction,
   ■   Consumer Court, or
   ■   an alternative dispute resolution agent
Code of Banking Practice                                           7

■ Provision of Credit
   ■ All lending will be subject to an assessment of your ability
     to afford and willingness to repay. This assessment may
       ■ taking into account your income and expenses, including the
         dependability of your income;
       ■ how you handled your financial affairs in the past;
       ■ information obtained from credit risk management services
         and related services, and other appropriate parties, for
         example, employers, other lenders and landlords;
       ■ how you have conducted your previous and existing accounts
         with us;
       ■ information supplied by you, including verification of your
         identity and the purpose of the borrowing;
       ■ credit assessment techniques, for example, credit scoring;
       ■ your age in relation to the loan facility required;
       ■ any security or collateral provided;
       ■ your statement of assets and liabilities;
Code of Banking Practice                                        8

■ Mortgage Loans

   ■ when you apply for a mortgage loan, and on reasonable
     request, we will explain to you the operation and
     repayment of your loan, including all the charges and
     costs, the benefits of payment acceleration and the
     additional interest and costs payable should you account
     fall into arrears;
   ■ we will assist you to understand the wider responsibilities
     and rights that you will have as a property owner, and
     assist you with a detailed affordability assessment should
     you require it. This could include informing you about the
     repayments of your loan and additional costs that apply to
     homeownership, such as rates and taxes;
   ■ we will clearly explain what the potential impact of
     variable versus fixed interest rates will be so that you can
     make an informed decision in this regard;
Code of Banking Practice                                       9

■ Mortgage Loans (continued)

   ■ we will explain to you that you may risk the possibility of
     losing your property should you not keep up your loan
   ■ we will also explain the steps required by law should we
     have to act to repossess your property due to your failure
     to meet your repayments obligations or your failure to
     comply with any other terms and conditions of the
   ■ we will explain to you the need to be careful when signing
     building progress payment documents;
   ■ we will ensure that you are clearly informed of the
     different types of insurance, whether the bank requires
     insurance and what insurance cover is available;
Code of Banking Practice                                      10

■ Mortgage Loans (continued)

   ■ issues of home quality are the responsibility of the seller
     (or builder or developer) and yourself as buyer. Homes
     younger than 5 years may also have a National Home
     Builders Registration Council Limited Warranty. You must
     satisfy yourself to the best of your ability that you are
     buying a sound property and if necessary obtain
     assurance as to the structural quality of the property,
     compliance with local authority requirements and
     replacement costs of the buildings and improvements
     from the property experts
Code of Banking Practice                                         11

■ Mortgage Loans (continued)

   ■ Should you require it, we will provide you with:
      ■ the assessed security value of the property; and
      ■ the minimum replacement cost that we place on the buildings
        and improvements for insurance purposes.

   ■ When your mortgage bond has been repaid in full we will
     inform you how annual insurance premiums and other
     charges and administrative matters can be dealt with in
Ombuds Schemes                                            12

■ Ombudsman for Banking Services

   ■ Must refer matter to your bank first and obtain a
     reference number
   ■ Upon receipt of complaint by the Ombud, matter referred
     to Bank – Bank must respond within 10 days
   ■ Banks reply – Ombudsman does an assessment
   ■ If accepted by all parties, matter is settled
   ■ If not, a provisional recommendation is done
   ■ Thereafter, a final recommendation done - (law, code,
     international practice and equity)
   ■ Ombudsman then does a determination
      ■ Judgement – reference to decided cases
   ■ Appeal – Retired Judge – review matter
      ■ Full and final decision made

  All of this at no expense to the consumer
Credit Ombud                                             13

■ Deals with credit information and non-banking credit

■ Must refer matter to Credit Bureau or retailer first

■ Matter referred to Ombud – makes an assessment
  through facilitation

■ Mediation

■ Ruling – binding on all parties expect consumer

■ Consumer can go to Court or Consumer Tribunal

All of the above at no cost to the consumer
Debt Counsellors                                   14

■ Can check for over-indebtedness

■ Can check for reckless credit (recent case against

■ Consumer Tribunal
   ■ Ultimate decision-maker (apart from Courts)
Basel II                                                  15

■ Accurately allocates Capital to Risk

■ Introduces a new type of risk – Operational Risk
  (everything except Legal Risk and Settlement Risk)

■ General rule of lending - 10% = capital, 90% deposits

■ Risk profile differs
   ■ Home loans – 30% capital, 70% deposits (underlying
     security as value)
   ■ Bank to Bank lending – 20% capital, 80% deposit
   ■ Government lending – 0%
Loan to Value                                      16

■ Credit Scoring Systems allows for ranking

■ A good rating = 100% loan

■ Reality is that customers have to provide 10% - 15%

■ Affordable Market
   ■ 3 banks – 100% plus costs
   ■ Achieved by third party risks enhancer
      ■ HLG Company
      ■ Momentum, etc
Billion Rand Guarantee Fund                                17

   ■ targets gap housing market - property worth R250k –
     income of R9,000 per month
   ■ subsidy up to R3,500 income only
   ■ gap moves from R3,501 to R9,000

■ Guarantee on its own not bridging affordability gap

■ Other interventions required to reduce cost of housing
Thank You