THE proposed credit information amnesty would undoubtedly be popular among borrowers who defaulted and are struggling to clear their records, but there is a real danger that if the matter is not handled carefully, it could undo the sterling work of the National Credit Regulator in recent years.
The regulator was credited with helping South Africa avoid the worst effects of the global recession that followed the financial crisis of 2007, by ensuring that lenders did not allow borrowers to take on excessive debt. Now it wants to give a new opportunity to those adversely affected by the global economic downturn to gain access to affordable finance, by compelling credit bureaus to expunge the credit histories of a range of black-listed borrowers.
The upside, according to the regulator, is that consumer demand will be stimulated and economic growth boosted. The Department of Trade and Industry apparently concurs. But the Marikana massacre illustrates the potential dangers. The regulator conducted raids in the area, which revealed that reckless lending practices were rife, a factor that probably contributed to the poverty underlying the unrest.
That is what needs to be addressed: it is hard to see how expunging people’s credit records is going to help matters. It simply points to cheap politicking, and could well make matters worse. There is no substitute for proper regulation, which was clearly lacking in Marikana.
Certainly, taking a hard line against unsecured lending institutions without just cause is likely to be counterproductive. As Business Day columnist Stuart Theobald noted on Monday, there is a "growing hostility" towards the regulator in the industry after it recommended a R308m fine for African Bank on the basis that it granted R15m worth of loans that did not meet its own affordability criteria. Yet no one has disputed the bank’s position that this was the result of fraudulent collusion between some of its staff and clients at a particular branch, which it duly reported to the regulator.
Again, there is a whiff of cheap politicking. Just as there is a danger that the proposed amnesty will stimulate unhealthy credit consumption by suppressing information lenders need to assess default risk, so punishing banks unnecessarily could have the opposite of the intended effect.