Two months into the new credit dispensation under the National Credit Act and some disturbing cracks are beginning to show. As the Financial Mail’s July 6th feature articles* on the NCA showed, most affected sectors have seen a slow-down in the granting of credit but rising interest rates, problems with eNatis and, for domestic property, the traditional winter slowdown have also been factors in declining sales. However, it is also clear that the implementation of the Act within credit-granting institutions has been less than smooth. More training, such as that recently offered by credit experts PIC Solutions’ Credit Academy, is clearly needed. And now there is the unpalatable whiff of potential racism in the air. M&G online** reports the head of the National Credit Regulator, Gabriel Davel, as suspecting racism in refusals of credit and has pledged to audit recently rejected loans against existing credit bureau scores.The Act itself is clear in this regard. Chapter 4 on Consumer Credit Policy outlaws discrimination in respect of credit (Section 61) and refers directly to the Constitution’s Bill of Rights’ Equality Clause. Further than that, as this may be a factor in applicants understanding both their rights and responsibilities under the new Act, the NCA requires that credit providers offer information in not only an official language that the consumer reads and understands but also plain and jargon-free language as well. It’s clearly a moot point whether all credit providers are complying with the latter clauses (Sections 63 & 64), let alone giving declined applicants the real `dominant’ reason for credit being refused (Section 62).
If Davel is as good as his word, credit providers’ legal departments would do well to become familiar with these and other aspects of the Act quite quickly. And it is clear that some are more aware of their obligations than others. Stephen Leonard, MD of PIC Solutions, concurs: “It is inconceivable that marginalisation or discrimination was the intention of the Act: close reading of Chapter 4 makes that very clear. But unscrupulous or just plain naive lenders may be hiding behind other reasons to discriminate on a number of grounds. The only grounds admissible are those of the customer’s credit history and risk and whether they are able to afford the credit applied for: it’s that simple.”
Thus it is that the affordability calculation, which is now somewhat more complex than the banks’ previous rule-of-thumb bond assessment criterion of 30% of gross household income, must be understood and applied across the board as fairly and as transparently as possible. And it appears there is a demand for training that clarifies the calculation process. Already oversubscribed at its last seminar on that topic in Johannesburg two weeks ago, PIC Solutions’ Credit Academy has responded by offering another three workshops on the affordability calculation over the next three months – one of which will be in Cape Town.
Leonard concludes: “The problem is that there are no set formulae or specific criteria for a detailed affordability calculation – and there obviously should be. The workshops intend to find a way to standardise the process, moving from an affordability framework to a detailed common methodology. We believe such a protocol would be a good step forward in the fair and proper implementation of the Act. Without it, the delays, frustrations and confusion will only continue.”
In the meantime, the colour and credibility of your credit – and how your fitness for it is calculated – appears to be up for debate. Let’s hope that PIC and Gabriel Davel are not the only people committed to clearing up the confusion, drawing the necessary lines and making the National Credit Act do what it set out to do - allow access to credit for all who can afford it, off a level playing field, devoid of any discrimination whatsoever.
*Various articles – Financial Mail, July 6th 2007.
**”Colour-coded lending?’ by Maya Fisher-French on M&G online, July 29th 2007.
