SA credit amnesty announced: what are the consumers’ responsibility

SA credit amnesty announced: what are the consumers’ responsibility

The recent announcement from Cabinet on the approval of a credit information amnesty has been a controversial topic in the South African financial arena. Although many financial institutions objected to the amnesty due to its negative effect on their capability to evaluate risk, as well as it sending the wrong message to an already over-indebted public, it appears that the amnesty will go ahead regardless of the surrounding controversy.

In short, the amnesty appears to approve the removal of paid-up adverse and judgment information from the credit bureaus as a once-off and thereafter ongoing process. There will be another month for public consultation, following which there will be clarity on whether the amnesty will further apply to adverse and or judgement information for which debt is still outstanding.

Michelle Dickens, founder and managing director of registered credit bureau, TPN, warns: “Consumers take heed; the amnesty applies to deleting adverse and judgement information on the credit bureau. What the amnesty does not mean is that the obligation to settle any unpaid debt falls away. On the contrary, you will still be held 100% liable for any monies still owed.”

It is widely agreed that consumer spending drives the economy; credit healthy, credit active consumers should be encouraged. The question is then raised as to what steps consumers can take to ensure their own credit health and protection. Dickens has the following advice for credit users: “There’s a difference between healthy credit and avoidable or expensive credit. For example, taking out a loan for an appreciating asset, such as a house, enables the consumer to buy now, pay off at lower interest rates and enjoy the benefit of the value of the property increasing over time. In contrast, taking out a R100 000 loan for an oversees holiday would be considered as avoidable credit.”

Dickens advises that one does need to have some form of credit in order to have a discernible credit profile. “Consider if you approach a credit provider and they can see no credit history (good or bad) on your profile; it makes the job of assessing how likely you are to repay the loan a lot more challenging and might even result in the rejection of your application. Consumers can build a healthy credit profile by responsibly paying off credit – late or missed payments will only impair the consumer’s personal credit profile, potentially making them an unattractive candidate for credit lenders,” warns Dickens. “Debit and checking accounts are also unlikely to have any impact on your credit profile.”

It is also vital for consumers to understand the terms of their credit: “Different types of credit carry different sets of responsibilities. Lending is conducted in the form of secured, unsecured, short-term and incidental credit. Each category has a maximum prescribed interest rate, as set out by the National Credit Act. And these rates can differ vastly – from around 8.5% up to 60% per year – so it is important that you’re aware of the rate applicable to your lending option before signing a credit agreement. Different lenders will charge different interest rates, depending on individual cases, up to the maximum.”

According to Dickens, consumer credit health in South Africa has been deteriorating steadily, and the country’s consumers have developed a worryingly irresponsible credit culture. As the number of impaired accounts rises, Dickens urges consumers to be aware of the consequences of impaired credit health and take steps to rectify the situation.

Dickens suggests that the all-too-common ‘instant gratification’ mentality among South African credit consumers could be largely to blame for the high levels of indebtedness, and advises consumers to take a more informed, restrained approach to credit consumption. “It is wise to only take out credit when you’re 100% sure you can handle the payments, with any and all monetary eventualities that may arise taken into account,” she says, “We’re experiencing the best possible interest rates at the moment, and they will only rise in the coming years. Make sure you have gotten to grips with responsible credit behaviour now to avoid serious problems later.”

Indeed, debt can be a debilitating situation for many people, not only financially, but mentally and emotionally as well. “The power that money problems can hold over a person should not be underestimated,” says Dickens. “People who are drowning in debt often experience social stigma, as well as prolonged and damaging emotions such as panic, fear, anger, depression, denial and stress. You could even go so far to say as it ruins lives – imagine losing your family home due to a judgement against you, or having to spend your kids’ education funds on repaying creditors. Rather avoid this potentially devastating situation and take practical steps to get your personal finances into a stable position. It may seem daunting, but with discipline and planning, it is possible to get out of financial debt and regain a healthy credit profile,” Dickens concludes.

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