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Hot Industry Issue

Credit Bureaus Inaccurate Reporting Could Lead to Legal Battles

Credit Bureaus store and report on consumers credit usage. They provider records which help other credit providers (and Debt Counsellors) make educated decisions relating to granting credit to consumers. The advent of Debt Review and debt restructuring has posed some challenges to the various Credit Bureaus over the last decade.

At first in 2007, the credit bureaus were not happy that Debt Counsellors were faxing them documents saying that consumers had applied for debt review as was required by the, then new, National Credit Act. Debt Counsellors, however, were obliged by the National Credit Act (NCA) to inform all credit bureaus of the consumers applying for debt review.

A Debt Review is when a Debt Counsellor checks out a consumers income, expenses and monthly debt obligations to see if they can handle all necessary costs and still service their debt as per their original debt contracts. If a consumer cannot then the Debt Counsellor can apply to either the NAtional Consumer Tribunal or Courts to have the consumer declared over-indebted. This allows for the restructuring of the consumer’s debt obligations by the court (or NCT).

The NCR Help

The NCR then decided to get involved and offer a solution namely their online www.ncrdebthelp system – which is a database that Debt Counsellors updated with info on consumers applying for debt review. The system generated Excel spreadsheets with consumer information that was then sent on to the various credit bureaus. The bureaus then had to manually capture the information in regard to each consumer. As you can imagine the system has many challenges and often consumer information slipped through the cracks (and some Debt Counsellors even found themselves registered as under debt review by mistake). Over time the errors reduced as the systems at the various bureaus were adjusted to automatically pull some of the info across onto their systems.

There are 13 Credit Bureaus in South Africa

 

The various credit providers, once notified, place a status on their reports showing that the consumer has applied for debt review. There is little more information provided but this listing alone helps credit providers avoid the risk of offering a consumer credit recklessly (without having to do to much more in the way of a consumer affordability assessment). If a credit provider were to give an over-indebted consumer credit it could be reckless and they would face huge fines. It would also make the consumer’s situation much worse since they could not afford to repay the credit anyway.

“If a credit provider were to give an over-indebted consumer credit it could be reckless and they would face huge fines”

The National Credit Act also allows a Debt Counsellor to send out a clearance certificate which instructs the credit bureaus to remove information on debts which have been paid up as a consumer pays off debt through debt review. Just as the Debt Counsellor would initiate the process of a listing about debt review on the credit bureaus, so too they would then end that listing. The Credit Bureau would then be able to reliably offer their service to their clients of showing the latest info on the consumer’s credit and debt situation.

We Don’t Trust You

It seems however that credit providers, the NCR and credit bureaus do not feel that Debt Counsellors can be trusted when it comes to removing the debt review status on their records. Even though Debt Counsellor update the NCR’s debt help system when a consumer leaves debt review many bureaus demand additional info or refuse to remove the listing.

Do Credit Bureaus demand proof of a consumer opening a credit account before they will list it?

When Debt Counsellors now send info to the credit bureau that a debt is paid up the credit bureaus now demand proof from credit providers that this is so. They say they have been instructed by the NCR to do so. The supposition is that the NCR were pressured to make this requirement based on pressure from Credit Providers who felt that Debt Counsellors might simply tell credit bureaus to remove info that should still be there. (Of course, if a Debt Counsellor did so then the credit provider could lodge a query with the bureau much like a consumer can over any listing). Due to the fact that credit providers calculate a consumers account under debt review differently from how the debt restructuring court order instructs them to do so balance differences may make credit providers want to ensure that a Debt Counsellor does not simply instruct the credit bureau to remove a listing simply because the consumer has paid their debt as per the court order*.

Time For Court?

Though the wording of the National Credit Act is clear on this matter more and more consumers and their Debt Counsellors are running into challenges in this regard at the credit bureaus. The credit bureaus feel they have to follow the instructions of the NCR or get into trouble and are at the same time facing more and more complaints from Debt Counsellors and consumers. Some Debt Counsellors feel that the matter needs to be escalated to court to resolve the issues involved and gain clarity since much of the issue seems to revolve around industry guidelines and not the provisions of the NCA. Some consumers feel that their constitutional right to access credit might be trampled on if this issue continues and feel that they may need to insist on their rights.

 

 

*It is a rather complex issue that relates to a number of technical matters which we may delve into at a later stage as this issue continues to get more and more exposure.