An awesome read, very educational: Credit Amnesty So the long awaited credit amnesty has finally been approved by Cabinet after much debate and heated discussions. But before consumers can start donning their running shoes to get to the nearest credit provider, it must be understood that there is a vast difference between what was tabled and what was approved. The most important requirement for your default or judgment debt to be removed is that it must be paid up. Say the word “Amnesty” and there is usually a rush for application papers and submissions to the relevant authorities. The general meaning of amnesty is “An official pardon for people who have been convicted of political offences”. The question would then be; what is a credit amnesty? Simply put, it is being presented as an opportunity to assist consumers that previously had impaired credit records to be able to access credit on reasonable terms. This will be done via a blanket removal of adverse credit information from consumer credit profiles once the debt has been paid up. Now, more than ever, is the ideal time for you to assess your credit status at credithealth.co.za As can be expected, consumers will be extremely excited about the amnesty as it will affect 1, 6 million consumers who have paid their debts but have been prevented from accessing credit or obtaining jobs due to the adverse information listed on their credit reports by the credit bureaus. The banking industry are concerned with this development as it would mean that information would be limited in terms of being able to assess consumer risk profiles. This would inevitably result in a higher cost of credit for South African consumers as interest rates are hiked to counter the increase in risk exposure. So it seems that the credit amnesty is a double edged sword for the consumer. Let’s look at the results of the last credit amnesty that affected 600 000 consumers. According to the Parliamentary Monitoring Group, 64% of affected consumers had taken up further credit. Of that number, 74% ended up having bad accounts (defined as accounts three or more months in arrears) whilst 44% had judgments and adverse records, with 19% having judgments taken against them in the last five years. It would appear that a credit amnesty perpetuates a cycle of bad credit behaviour amongst consumers and some find themselves in a situation that is a lot worse than prior to the amnesty being implemented. So, is a credit amnesty in the best interests of the consumer? Trade and Industry Minister Rob Davies stated that the removal of adverse credit information would simply mean that credit providers would have to conduct proper affordability assessments on all their prospective clients (source Fin24). To this end, the National Credit Regulator has released affordability assessment guidelines and adverse listing rules which credit providers are to comply with before granting a consumer credit. This won’t stop the Banking Association of South Africa from raising objections to the credit amnesty once the notice of the Cabinet decision is published in the Government Gazette. As per the banks the repercussions of the credit amnesty would be that all consumers, whether they had defaults and judgments or not, would be painted with the same brush when applying for credit with banks. As banks would perceive their credit risk to be higher, all consumers may be subjected to higher interest rates when borrowing from banks. This would be due to banks not being able to differentiate between consumers that received amnesty and those that genuinely managed their credit well. The converse argument is that banks should stop depending on credit histories as their primary risk assessment tool and also spend more or equal time on the consumer’s ability to afford the credit that they are applying for. Thus the affordability analysis should be given more attention. So that’s the credit amnesty in a nutshell. What are your thoughts and how does it affect you? Visit credithealth.co.za to find out after purchasing your comprehensive credit report. Remember that we report on your information from all the major bureaus so you will be able to dispute any incorrect information as well as identify any information that is negatively affecting your credit score. We would also love to hear your views on the credit amnesty. You can comment on our Facebook page or send us a tweet. Our social media links can be found below. We also don’t mind responding to any of your queries on the amnesty. You can drop us an email on [email protected] We look forward to hearing from you! Yours in credit wellbeing, The Credit Health Team
Posted on: Wed, 25 Sep 2013 14:28:17 +0000
Trending Topics
Recently Viewed Topics
© 2015