UN Guidelines for
Consumer Protection
“… to address imbalances in economic terms,
educational levels, and bargaining power
“… create market conditions to provide consumers
with greater choice at lower prices.
“… adequate information to make informed choices
… individual wishes and needs
“… protected from contractual abuses as one-sided
standard contracts, exclusion of essential rights
in contracts, and unconscionable conditions of
credit by sellers.
National Credit Act



1
To promote a fair and non-discriminatory
marketplace for access to consumer credit
To promote responsible credit granting and use
and for that purpose to prohibit reckless credit
granting;
To provide for debt re-organisation in cases of
over-indebtedness
Financial crisis, impact of
the NCA and role of debt
counselling
March 2010
National Credit Act
Impact since implementation?

Improved disclosure, contracts

Change credit provider
behaviour

Legal action, repossession

Credit bureau conduct & records

Enforcement
(Rudco; housing scams; Counsellors
etc)
 Impact on cost, debt counselling
…
Interest
& fees
Agreements
& quotes
3
National
Credit
Act
Credit Bureaus
National Credit
Register
Enforcement &
debt collection
National Credit Regulator
Departments of
Finance, Housing &
Social Development
Department of
Trade & Industry
Board of
Directors
Executive Office
CEO, COO
Registrations
Credit Bureau
Regulation
4
Complaints
&
Call Centre
Statistics
& Research
100 staff members
R70 million pa budget
Investigations
&
Prosecutions
Consumer
awareness
& education
Debt Counselling
monitoring &support
Consumer Credit Market
in South Africa
Credit
Providers
Credit
Bureaus
18 million
Credit Consumers
R1.1 trillion
consumer credit
Credit Providers = 4,120
Branches = 33.500
1,571
Debt Counsellors
5
Credit Provider Statistics
Overview of consumer credit market
Approximately R1.1trillion consumer credit, provided to
17 million consumers & consisting of 36m accounts
Registration
4120 credit providers with 33,500 branches
11 credit bureaus, managed 22 audits, 16,8 m
data removals
Outstanding balances
Un-Secured,
4.18%
Short Term ,
0.06%
Facilities, 12.01%
Secured(Other),
19.78%
Mortgages,
63.97%
Mortgages biggest category, “other secured” next
biggest (m/vehicles & furniture)
Banks 90% of total, non-bank vehicle 3%, retailers 3%
Banks
Gross loans outstanding
Banks
90%
Motor dealers
3%
Retailers
3%
6
approx R1.1 trillion
(exclude micro-lenders & other small providers)
Accounts
19 m
286,000
15,8 m
90%
Statistical overview of the consumer
credit market in South Africa
Statistics from Credit Bureaus
& Credit Providers
(including banks)
Dramatic decline in gross credit granted
Quarterly disbursements by type - 2009-Q1
R51.7bn credit granted in 2009Q1 to
3.9m agreements
(R102bn in 2007Q4)
15
Billions
47% of credit in Gauteng, WC =15%
& KZN =13 %
20
10
5
0
Mortgages
Ongoing decline in quarterly credit
granted (loan book remains flat)
Un-Secured
Short Term
Credit Facilities
Trend in disbursements over year
90
Most significant declines in
mortgages & motor vehicles
80
70
Billions
Middle / low income products
performing better
Other Credit
Agreements
60
50
-16%
40
- 8%
30
20
- 22%
10
0
2008Q2
8
2008Q3
2008Q4
2009Q1
Analysis of decline by type
- mortgages & other
Mortgage disbursements consistently
down
Number of accounts - Mortgages
90 000
80 000
70 000
For Q4’08, 52,000 mortgages granted, at
60 000
50 000
R27bn; For Q1’09, down to 36,000
19%
40 000
30 000
21%
20 000
mortgages at R19bn
30%
10 000
0
2008Q2
Decline in other products less significant
45
40
35
30
25
20
15
10
5
0
R 100 000 000 000
R 10 000 000 000
9
Non-bank vehicle
financiers
Retailers
Other credit
providers
2008-Q2
R 71 441 412 503
R 7 590 792 297
R 3 248 491 011
R 3 342 576 539
2008-Q3
R 62 380 941 745
R 3 920 472 859
R 3 296 974 148
R 2 729 071 722
2008-Q4
R 54 954 750 229
R 3 825 018 702
R 4 570 058 406
R 2 725 428 406
2009-Q1
R 43 033 877 946
R 3 529 893 440
R 3 174 245 605
R 2 046 117 784
2008-Q3
2008-Q4
2009-Q1
2009Q1
-21%
-19%
31%
2008Q2
Banks
2008-Q2
2008Q4
Gross disbursements per quarter - Mortgages, Rbn
Credit granted by industry type
R 1 000 000 000
2008Q3
2008Q3
2008Q4
2009Q1
Applications, rejection rates
Disbursement by segment
Q2/Q1 Q3/Q2 Q4/Q3
Bank
-5%
-13% -11%
Non-bank Vehicle Finance-2%
-48%
-2%
Other
1%
-17% -13%
Retail
-10%
-3%
53%
 Consumer demand for credit
fairly static
 Gradual increase in banks’
rejection rates, (41% in 2008Q1 to
45% in 2008Q4);
Applications received vs Applications rejected
 Greater increase in Big 4 banks’
rejection rates (50% - 58% - 53% in
qtrs to 2009Q1)
3 000 000
2 500 000
2 000 000
1 500 000
1 000 000
500 000
-
 Significant contraction in
demand for credit
2008Q1
2008Q2
2008Q3
Applications received
10
Banks
Non Banks financiers
other
Retailers
41%
57%
46%
43%
Rejected/Received
2008Q2
42%
60%
46%
48%
2009Q1
Applications rejected
Decline in demand
for credit!
Rejection rates
2008Q1
2008Q4
2008Q3
44%
52%
47%
44%
2008Q4
45%
51%
35%
43%
Credit Bureau Statistics
& impaired records




18 million credit active consumers.
For nearly 2 million people, credit records deteriorated over last 2 years
Banks, retailers, doctors, dentists, municipalities … all affected
Ongoing increase in consumers with impaired records, from 36% in June 2007 to 44% in
September 2009
 Nearly 50 000 people/month being added to the “impaired" category
11
Impact of financial crisis
on consumers
Special research projects
Distribution of credit across different
income groups
Lowest gross exposure in Gr1, but more
significant relative to income. Gr 2 & Gr 3
greatest levels of debt stress. Gr 4 also
significant, but greater ability to adjust.
With time, short & medium term debt levels reducing
automatically
Reduction in income as much a risk as job loss
Protection of housing greatest priority
13
Mortgage & vehicles greater threats given payment
term & loss in asset value if repossessed
Debt profile & vulnerability of different
groups
Group 1 = informal sector, domestic
workers, social grant recipients &
agricultural sector
o
o
o
Low credit exposure, mainly furniture &
unsecured. BUT – more significant
relative to income!
Position may be improving if new credit
limited
Often unaware of protective measures,
e.g. UIF, insurance or counselling
Group 2 = Entry level workers in public &
private sector, earning R1.8k to
R6.1k/m
o
o
14
Significant exposure, both unsecured (< 3
years), vehicles & mortgages
Short term credit exposure ‘selfcorrecting’ over time, but mortgages &
vehicles require assistance
Group 3 = middle income, R6k to
R17k/m
o
o
High level of exposure to all products &
high debt stress
Most vulnerable, to debt stress & loss of
house if affected by either job loss or
reduced income
Group 4 = high income, R17k/m +
o
o
high credit exposure, mainly mortgages,
vehicles & credit facilities. Also 2nd
properties. Income reduction biggest
threat.
Greater ability to resolve own problems.
But often resorts to DC assistance /
protection.
Policy response - consumers
Income
Risk of job
losses
Debt stress
Potential
debt fall-out
Policy response ?
Gr 1 - low
0 to R1,800
Moderate
Low to
moderate
Low, getting
better
Gr 2 R1,800 – R6,100
High
Moderate to
high
Moderate/
high, debt
improving
Awareness & education
on protective measures &
behaviour change
Gr 3 –
R6,000 – R17,000
Moderate to
high
High
High
Gr 4 –
R17,000 +
Low, but risk of
income loss
High, but
have options
Moderate
Low income groups least aware of protective
measure, whether counselling, UIF or others.
Awareness programme important – also on ‘selfprotection strategies’
15
Access to support & debt
counselling
Protection of primary
residence
Debt counselling huge role in resolving cases of
reduced income –legal problems major obstacle
Debt counselling little value in case of job loss, no
income to service debt … some form of personal
bankruptcy, while protecting housing?
Debt
Counselling
Debt Counselling
 A new profession was born in 2007
 The aim is to assist the over indebted
consumer
 For some role players in the credit
market this was an unwanted baby
DEBT COUNSELLING ASSOCIATION
OF SOUTH AFRICA
17
Importance & role of debt counselling
 Role of debt counselling, in the context of the lack of
appropriate personal insolvency mechanisms in SA.
o
o
Not have appropriate “personal insolvency mechanisms”. US, UK & EU have range of
different mechanisms for personal insolvency. The mechanisms in SA are outdated and
ineffective.
As result, when debt stress occurs there is no effective mechanisms to resolve the issues, or
for creating a “settlement” in which the obligations of the consumer and the demands of
different credit providers are reconciled.
 Negative social impact of debt stress
o
o
o
18
No mechanism to resolve a personal financial crisis and enable an individual to get another
chance.
Household income is permanently reduced through debt payments. Household needs not
met and social welfare receipts are diverted to debt servicing.
School fees not being paid, arrears on municipal service payments and a multitude of
related areas.
Causes of debt stress & implications in the
current environment
 Borrowers
o
o
Reckless & aspirational borrowing,
External factors – loss of income / relationships breaking up / death and sickness
 Credit providers & consequences of hard selling
o
o
o
Hard selling by credit providers contribute to over-indebtedness.
Call centre agents & misleading disclosure = consumers taking on credit which they cannot afford.
Resist implementation of debt counselling
 Job losses + reduced income = debt stress
o
o
o
o
Debt counsellors confronted with huge demand.
Additional impact of the financial crisis. Job losses + significant reductions in income. Reduced overtime;
sales commissions; year-end bonuses etc.
Even people who were not over-indebted are affected.
Staff of credit providers also under pressure (sales targets, collection targets, clients …).
Challenge is to recognise these realities, and to find
mechanisms to reconcile the conflicting claims.
Engagement between debt counsellors and credit providers
critical.
19
Debt Counselling
current position
Applications
Consumer Applications
100000
80000
60000
40000
20000
R 180
Amount (R's)
R 160
Monthly Distributions
Monthly
Payments
42,000 consumers
R 140
R 120
R 100
R 80
R 60
R 40
R 20
R0
May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan08 08 08 08 08 08 08 08 09 09 09 09 09 09 09 09 09 09 09 09 10
Month
20
Jan-10
Dec-09
Oct-09
Nov-09
Sep-09
Jul-09
Aug-09
Jun-09
Apr-09
May-09
Mar-09
Jan-09
Feb-09
Dec-08
Oct-08
Nov-08
Sep-08
Jul-08
Month
Millions
42,000 consumers making
payment = R150 million pm
Aug-08
0
Jun-08
Number of Applications
120000
Apr-08
140,000 applications for
counselling, growing at 9,000
pm (Feb 154 000)
140000
May-08
1,571 debt counsellors
registered, and 5 independent
payment distributors

160000
Backlogs, reasons & risk to debt counselling
 Interpretation of NCA & Magistrates Court procedures exploited by
industry to prevent magistrates court hearings from taking place
o Credit providers exploited every area of uncertainty to oppose hearings. NDMA
not implemented. Delays in providing documents, cause overruns on time limits.
Opposing application of certain section of Act, eg 90(2)(n) and 103(5). Irregular
terminations & repossessions.
o But, major improvement recently, with banks taking a more constructive approach
o And, 1000’s of consumers have already benefited both from debt counselling and
from internal restructuring by banks
 NCR’s Application for Declaratory Order, 21 August.
o clarified number of issues; certain issues not addressed; some complications
 Still problems. Require amendments to NCA & Regulations.
21
Consumers
Case studies
Consumer
Net.
Income
Distributable
Amount
Contractual
Instalments
Credit
agreements
Total
exposure
Reason for overindebtedness
A
Auditor
R13 539
R7 000
R21 153
16
R300 407
Excessive family
spending
B
Medical doctor
R18 503
R11 357
R63 423
10
R1.4m
Business collapsed
C
Ex-employee of
bank
R59 000
R43 000
R87 568
19
R6.1 m
Irresponsible
lending
D
Property Trader
R36 315
R19 225
R200 000
15
R22.3 m
Business collapsed
E
Nurse
R5 155
R5 845
10
R80 000
Irresponsible
lending
F
Clerk, spouse
unemployed
R5 512
R500
R4 500
10
R46 000
Irresponsible
lending
G
(Taxi owner)
R25 000
R17 000
R42 000
15
R1.6m
Living beyond his
means
22
Nil
Challenges in resolving cases
1. Certificates of balance, timelines, administration process
2. Reckless credit
3. Reconcile claims of different creditors
4. Interest, term extension & capital write-off … consent
5. Repayment arrangements
23
PAYMENTS
Payments Per Product
Type of Product
 Home Loans = 30% of payments
Other
4%
 Vehicle & Asset Finance = 25%
12%
Personal Loan All
Legal
5%
Furniture
 Banks = 74% of payments
.
1%
Store Card
3%
Overdraft All
3%
2%
Cheque All
25%
VAF All
30%
Home Loan All
15%
Credit Card All
0
5000000 1E+07
1.5E+07
2E+07
Amount (R's)
24
2.5E+07
3E+07
3.5E+07
4E+07
Problems: Debt counsellor behaviour
 Majority of debt counsellors working very hard, under great
pressure. But also a number of “bad apples” …
o
o
o
o
Taking clients fees, doing no work
Refusing to use PDAs, misappropriating client repayments
Restructuring proposals unprofessional and meaningless
Confrontational with credit providers, running to courts when consensual
solutions possible
o Time-lines not met; Bad administration (e.g. account numbers);
o Delegate counselling to unregistered employees
 Biggest risk: debt counselling becoming a payment holiday
o Creditors must terminate & enforce if not comply with process, no payments
made
25
Problems: Credit providers
 Certificates of Balance: not provided or late & inaccurate
 Unrealistic payment expectations. Unsecured creditors
unreasonable. Competitions between products. Can’t find
‘settlements’.
 Not cancel old debit orders. New restructured debit orders thus
‘rejected’
 Preventing hearings in magistrates courts from taking place
 Practices of collection departments & outsourced legal
representation. Not adjusting account details.
26
Problems: Payment distribution
 Payment distribution by counsellors not acceptable.
o Debt counsellors neither trained nor equipped to do payment
distribution. Conflicts of interest and huge threat to integrity
of process
o Compliance with Reserve Bank rules
 Many problems created by information supplied by debt
counsellors. And bank system problems.
 Volumes and administrative complexity a challenge, but the
system works.
27
NCR implemented a range of interventions
to support debt counselling …



28
Training & support: Accredited specialised
training institutions & provided initial material.
Implemented before effective date of Act.
Also arranged follow up courses & workshops,
to support debt counsellors & improve
expertise.
NCR capacity: NCR appointed special call
centre agents & complaints officers
specialising in debt counselling – to deal with
problems, intervene when things go wrong,
protect homes from repossession wherever
possible.
Payment distribution: NCR accredited
specialised payment distribution agencies. To
separate debt counselling from payment
distribution. To limit risk of fraud & theft of
consumer payments.

Audits & inspections: Performing ongoing
audits & inspections on debt counsellors,
PDAs and credit providers (including banks)
o
University of Pretoria review to identify
problems
o
Audits on PDA’s
o
552 on-site visits + 65 investigations
 NCR Task Team to investigate
problems
o
Banks
o
Debt counsellors
o
Payment arrangements
Challenges: Magistrates Court process
 Delays = risk to the banking sector + incentive for
consumers to use it as a payment holiday …
 Differences between requirements of different courts
= increase cost, complexity & confusion
29
Latest developments
Despite these challenges, debt counselling already made a
significant contribution in creating a mechanism to ‘mediate’
between consumers and multiple creditors,
& limiting losses through repossession of houses & cars
BUT: cannot allow consumers to abuse process for
payment holiday!!
30
Concluding comments
 Impact of NCA: curbed excessive credit extension, creating basis for lower but
more sustainable credit growth, curbing social cost of reckless lending
 Debt counselling – reconcile claims of different credit providers, to create a
sustainable repayment stream on non-performing consumer
o While minimizing social cost,
o BUT, significant implementation challenges
 Fall-out from financial crisis still increasing, driven by reductions in income as
much as loss of employment. Contraction in domestic credit a significant negative
impact, aggravating domestic position
 In policy response, important to focus not just on protection of industry, but also on
protection of households,
o noting that crisis impacts differently on different consumer groups
o the longer the downturn lasts, the more households with high debt burdens run out of
options
31
Thank You !
32
www.ncr.org.za