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Article by Private Property | Anna-Marie Smith 12 Nov 2013

Credit Amnesty Gets Personal

Although not yet gazetted, government’s approval of a credit amnesty is due before yearend. Once the proposed bill, which was initiated by the Department of Trade and Industry (DTI) and the National Credit Regulator (NCR) is implemented, defaulting consumers will be relieved of blemished credit records only, but not for actual outstanding debt itself.


Credit records which relate to outstanding debts below R10 000 as far back as 2006, as well as any adverse historic information which relates to paid up debts where repeated judgments occurred, will become subjected to wavering procedures by credit rating agencies.


Reason for concern is misperceptions about the practical function of credit amnesty which has created the false impression that outstanding debt will also be lifted. Although property owners and landlords are at greater risk of not collecting large outstanding rentals compared the average clothing purchase on credit, moneys owed for rentals due will not be wavered. On the contrary, says Michelle Dickens of TPN Credit Bureau. “Outstanding rental payments to landlords are protected, because once implemented, the amnesty will only remove credit records on outstanding debt, and not outstanding debt such as rental payments or amounts due on credit cards, etc.” 


This has understandably been the cause for many ruffled feathers. Banks have united in tabling fierce objections to the bill, while the real estate industry is facing increased challenging trading conditions. Although the amnesty will be catering for defaulting on amounts below R10 000, related tarnished credit records of both the rich and the poor will become less available to banks, landlords and property owners.  The biggest reason for concern says industry specialists, is that defaulting credit behaviour is often repeated, and in many cases becomes habitual.


As a result, most mortgage lenders and banks are sending out warning signals of increased vigilance when advancing credit. This may also be cause for increases in bank charges related to credit financing, which are partly due to time consuming practices required to exercise sufficient risk control measures prior to lending. Banks will continue to assess credit worthiness of home loan applicants via multiple bureaux facilities such as credit rating agencies including TPN, Transunion and Experian.


However, while expunged defaulting records during the past seven years for amounts below R10000, may point to poor credit behaviour and complications for banks, this represents low levels of debt compared to bond applications scrutinised through heightened levels of risk assessment. If anything, bond applications are said to take longer in future which in some cases may cause buyers to forego purchasing opportunities.


Contaminated credit records have long been a headache for job hunting consumers. Unemployment, which is one of the biggest causes for poor credit histories, is a major reason for the introduction of this new measure. Job applicants, who were previously haunted by records of consumer indebtedness, are set to benefit from a cleaner slate.


Labour unions are promoting the amnesty while government has stated its case by saying  the purpose of the bill is: “To address the issue of access to credit to those South Africans that can afford credit. These are consumers who may have paid their debts in full and are in a position to afford credit but whose access is currently impeded by negative credit information on their record."

 

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