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And then there was the National Credit Act,

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Surely, corporate profits more important than household wealth ... 'Business & employee financial wellness in SA: Time for collective action' Sub-prime fiasco ... – PowerPoint PPT presentation

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Title: And then there was the National Credit Act,


1
Business employee financial wellness in SA
Time for collective action
  • And then there was the National Credit Act,
  • Warnings of unintended consequences,
  • And wildly blamed for disallowing credit grantors
    to push more credit down over-indebted consumers
    throats,
  • Surely, corporate profits more important than
    household wealth ?
  • 14 November 2008
  • Gabriel Davel

2
Sub-prime fiasco
  • What happened in the sub-prime fiasco?
  • What must we learn?
  • What does this mean for the future?

3
Sub-prime fiascoProblems re loan origination
NCA ?Comprehensive, uniform
coverage ?S163 principal responsible ?S103
S104 ?Reckless lending sections ?Debt
counselling incentive to reschedule
  • Problems in sub-prime loan origination-
  • misleading disclosure abusive practices
  • Brokers incentivised to maximise origination and
    minimise cost able to pass risk of default on
    to others given access to unlimited funding
    through securitisation
  • Teaser rates attractive draw-card, with 2 year
    lag before reality sets in
  • Reduced documentation loans means affordability
    disregarded
  • and then the housing prices declined

4
Not the market or low income consumers that
failed - increased access to finance cannot be
based on lowering of standards
Unacceptable that access to finance, used as
excuse for misleading abusive practices in the
credit industry
  • Complex disclosure which we know that the
    consumer cannot understand
  • Interest fee structures, which transfer risk to
    consumers that they cannot plan or manage
  • Access to courts for credit providers, to collect
    through order of the courts, for reckless loans
    which they knew could not be repaid
  • Incentives for originators to act in short term
    profit maximising manner, without having to face
    risk of default

Outcome never to benefit of consumers, Only
benefit lenders with lowest standards Prevent
normal market from developing
5
But, this only part of a much bigger mess
6
  • Serious implications for the credit market in SA
  • and for consumers in SA
  • over next months years

7
  • So, how is the SA consumer credit market faring,
    in these time of stress grinding of the
    international teeth

8
Level of indebtedness vs Debt Stress
  • Although total debt levels and debt to income
    levels are at a historic high, debt servicing
    levels are not yet at unprecedented levels.
  • Debt stress is fairly high as result of the
    interest rate increases, but not at critical
    levels
  • The stress levels are increasing in certain
    sub-categories, and may well further deteriorate
    over the next 12 to 18 months, even without
    further interest rate increases and we also
    have to work through the historical backlog
  • Yet there are also mitigating factors, as
    consumers adjust to the external environment

9
Credit bureau data? not indicating dramatic
deterioration
  • Position in June worse, but not dramatically
    continuing trend of moderate deterioration
  • Will further deteriorate, in environment of high
    interest high cost of living
  • BUT, with time, large section of consumers are
    adjusting, improving personal position

10
Debt counselling statistics
  • Registered 540 debt counsellors, arranged
    training, provided guidelines,
  • Payment Distribution Agencies in place, already
    distributed nearly R40 million to credit
    providers
  • 30,000 applications for debt review
  • The extreme stress group appears to be a
    minority, except for (a) the lowest income groups
    where the impact of the cost of living increases
    are felt more generally and where economic
    conditions could cause severe hardship, and (b)
    higher income consumers who over-reached
    themselves

11
The key is in housing prices
  • Press reports in respect of housing prices are
    generally alarmist and exaggerates the position.
    We appear to be experiencing a correction in
    prices, after many years of exceptional growth,
    rather than a crash.
  • In most cases there may still be a considerable
    positive difference between nominal prices and
    original purchase price (recent purchases the
    only exception, and luxury homes most negatively
    affected).

12
ABSA House Price Indices, Sept 2008? nominal
house prices OK? following many years of
exceptional growth
13
Changes in nominal housing prices
  • Increase in nominal housing prices in nearly all
    areas, between Q2 2008 and Q2 2007 (FNB
    Residential Property Barometer)
  • Highest increases in township areas, no decline
    in any area (note volumes very low)
  • 85 of sellers get asking price
  • Increasing numbers of people selling down

FNB Residential Property Barometer
14
BUT, we are holding up surprisingly well, and
there may even be signs that things could be
improving
15
  • And then there was the National Credit Act,
  • Warnings of unintended consequences
  • And wildly blamed for not allowing credit
    grantors to push more credit down over-indebted
    consumers throats,
  • Surely, corporate profits more important than
    household wealth ?

16
The Act
Interest fees
Reckless lending
Marketing sales practices
National Credit Act
Enforcement debt collection
Agreements quotes
Unlawful agreements, provisions
Debt counsellors
Credit Bureaus National Credit Register
17
NCRs regulatory functions registration.
Inspections, compliance
  • Approximately R1.1trillion of credit, provided to
    17 million consumers
  • Registration
  • 3232 credit providers with 29811 branches, with
    301 entities still temporary registered
  • 11 credit bureaus, managed 22 audits, 16,8 m data
    removals
  • Investigations x 253,
  • 20 Compliance Notices 5 cases to the tribunal
  • R16,8m paid back to consumers through NCR
    intervention

18
States of over-indebtedness its consequence
  • Parties notified
  • Consumer
  • ? no further credit
  • Credit provider
  • reckless if further credit
  • ? no legal action
  • unless consumer defaults

Rejection Voluntary re-arrangement ? consent
order Arrangement by court order
  • Not over-indebted
  • Debt stressed
  • Over-indebted

19
Debt counsellingVoluntary debt re-arrangement
also possible, and acceptable
  • By Law
  • compulsory
  • oversight of court
  • discretion of court
  • further credit prohibited
  • reckless verdict
  • By agreement
  • between creditors their client, voluntary
  • potentially facilitated or referred by debt
    counsellor
  • Can be of huge benefit to consumer

20
Debt counsellorsRegistration conditions,
support, monitoring
  • Debt counsellor conditions of registration
  • To act in best interest of consumer etc
  • Inform consumer of consequences, fees etc
  • Personal attributes and behaviour
  • Communication skills, integrity, professionalism,
    empathy
  • Support to debt counsellors
  • Debt Counselling Software available, 6 month free
    (DCM)
  • Systems training ad hoc support
  • Bursary for training
  • Resource manual
  • Specialist support and call center for debt
    counsellors
  • Role of the NCR, in respect of Debt Counsellors
  • Monitoring
  • By NCR, through returns, inspections, audits
  • Vision a profession trusted by the general
    public !
  • Almost 2000 persons
  • trained
  • 1056 applications
  • 662 approved

21
Payment Distribution, a critical component
  • Debt counsellors prohibited from payment
    distribution (per conditions)
  • Agreements with specialist payment distributors
  • Application, pre-approval audit, service level
    agreement
  • Strict monitoring
  • Reports to providers, counsellors, consumers
    NCR
  • Costs of payment distribution borne by credit
    providers, with effect from 01 September 2008

22
Fee Guidelines
  • For consumers earning above R2 500 and households
    earning above R3 500 guidelines proposed by
    DCASA and endorsed by NCR
  • R50 application fee
  • R300 rejection fee
  • ltR3000 upon submission of a proposal to credit
  • providers
  • 5 (limited to R300) after care services for 24
    months
  • 3 (limited to R300) after care services from
    month 25, until all debts have been paid up

For low income consumers Only R50 application fee
monthly service fees payable by consumer rest
covered by NCR
23
  • Problems, challenges

24
Problems concerns - Credit Providers
  • Credit provider participation, attitude, problems
  • And debt collection attitudes
  • Credit providers not responding to debt
    restructuring proposals received from DCs
    hindering the entire process
  • Expectations unrealistic, self-serving (no
    instalment period, excessive term extension,
    unrealistic interest reduction), branch staff not
    informed, obstructive
  • some level of bad faith, playing games ?
  • NDMA voluntary credit provider association
  • Critically important role to play,
  • But extremely ineffective
  • a lost opportunity, with dire consequences ?

25
Problems concerns Debt counsellors majority
very good, but some terrible
  • Unprofessional behaviour
  • Not return calls to consumers or credit
    providers Not adhering to prescribed
    procedures Not informing consumers of
    implications of application for debt counselling
  • Excessive, abusive, fees charged to vulnerable
    consumers
  • fees not disclosed to consumers fees
    demanded upfront, before services delivered
    threatening to black list consumers for non
    payment of fees
  • Accepting cases, then not doing anything, or stop
    doing anything, not complying with prescribed
    procedures
  • Sloppy or no verification of information -
    R24(3) Notifications not done, web site not
    updated Accepting payments distribution
    function in contravention with conditions
  • PTP threatening discipline, sustainability,
    credibility potential to kill debt counselling
  • NCR interventions
  • Support training
  • Monitoring site visits
  • Follow-up, complaints resolution, problem solving
  • Investigations prosecutions, enforcement
    action

26
Problems concerns Legal system
  • Nearly 5,000 cases per month, more than 30,000 in
    aggregate
  • Yet, less than 1,000 have been processed through
    magistrate courts
  • Threatening the collapse of debt counselling
  • Lack of clarity on rules procedures
    Obstructuve bank behaviour
  • law not being applied when we need it most
  • NCR interventions
  • Various submissions to Justice DTI to issue
    regulations
  • Application for a declaratory order
  • Further investigations into banks
  • ? Implication SA is one of the only countries
    that implemented appropriate legislation at an
    early stage, yet cases not going through courts
    in current environment this is inexcusable

27
  • So, what can still be done, by the various
    institutions, public private ?

28
NGO interventions already playing large role
  • Advice Centers (e.g. Black Sash, You and Your
    Money)
  • Operate at community level
  • Provide free service to communities
  • Work closely with NCR, Provincial Consumer
    Directorates and university legal aid
    institutions
  • Have financial literacy programmes for
    communities
  • Free debt counselling service
  • University legal aid institutions
  • Provide legal aid to communities - rescission of
    administration orders, illegitimate garnishee
    orders
  • Provide free debt counselling to consumers who
    pass the means test

29
Government, business, municipalities ?
  • Government
  • Was proactive SA better prepared than most!
  • Now Support implementation of NCA
  • Employee Assistance Programme to include
    financial wellness
  • Business
  • Lending institutions cut out the obstructionist
    approach
  • Others support financial literacy programmes
    arrange for debt counselling for employees also
    support the client communities
  • Municipalities
  • Debt counselling and general advice for employees
    communities whom they serve arrangements with
    counsellors, NGOs and others
  • Debt write-off programmes

30
Conclusions
  • There are challenges, but our approach can
    achieve something that could set international
    example
  • We can address the challenges, with integrity,
    professionalism co-operation !

31
Thank You !
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