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How did the previous amnesty effect the market?

With the approval of the upcoming credit amnesty many creditors are talking about how this will affect their business. They are concerned that because they will not be able to see if a consumer had a bad record in the past (but has settled their debt and paid off their past bad debt) they might give consumers money and expose themselves to extra risk of non payment.

What happened last time? Back in 2006 there was a credit amnesty that was granted to around 600 000 consumers. In that amnesty these consumers had their names removed from the credit bureaus. It is interesting to consider what then happened with these consumers. Did it help them? Did they access credit again? How did they manage the debts?

The Parliamentary Monitoring Committee have made some stats available:

Of the 600 000 people removed from the bureaus around 360 000 decided to access credit again.

Of those consumers (360 000) 270 000 quickly got themselves into trouble. This represents about half of those who ‘benefited’ from the amnesty. These consumers ended up with payments 3 months or more behind. True almost half of all credit users have this same situation today but it shows a worrying trend.

160 000 of those consumers ended up with a judgment against them from one of their creditors trying to get their money back.

It seems then that these particular consumers did get into a bit more trouble than the rest of the credit active consumers (by about 15%).

New Credit Amnesty

The new credit amnesty aims, primarily ,to focus on the ongoing removal of negative information of bureau records as long as the debt has been settled. Credit providers say they might have to push up the cost of credit to cover their risks but in such a competitive market it is probably not going to be a good move. Consumers will simply go elsewhere to find a better deal.

Credit providers have to conduct an effective and meaningful evaluation of a persons ability to repay debt before they grant credit. This means more than seeing if they ever had a court judgment against them. It means analysing the persons daily situation and available funds.