New Laws To Protect Consumers
There is currently a net of tighter regulation and legislation closing around those who are taking advantage of vulnerable consumers. Now, while more regulation and more laws are not always the best way to attack a situation (as you can get swamped in laws that prevent a healthy economy) it definitely does assist where gross abuses have been become the industry norm.
The credit industry is one of those industries where consumers can get badly burnt if the companies they are dealing with are unscrupulous. thus it is one of the most legislated industries. Speak to anyone in the banking sector and they will tell you about the plethora of Acts and legislation which impact on them every day. Sometimes credit providers struggle to keep up with all the new laws or struggle to adjust their computer systems fast enough (like the recent issue with getting their computers to do affordability assessments correctly which lead to the DTI delaying the implementation of new requirements).
Recently government has been making a lot of moves to try protect consumers (who often have a low level of financial literacy) from abuse in a variety of areas. They have found that where there are already existing laws, these need to be bolstered by further regulation to provide iron clad clarity on what the law means. This we are in for a swath of new regulations and amendments to various Acts which will . Here are a few of the areas where parliament are focusing and recently received feedback at a Trade & Industry Portfolio Committee meeting:
When a credit provider does not make an effort to collect a debt for 3 years (they don’t go to court and get a judgment or make a payment plan with the consumer) this debt will most times ‘die’ or prescribe. This means that the credit provider cannot latter wake up and decide they want the money. They also cannot sell that debt to someone else for them to go and collect. The sale of debt to attorneys is an age old practice and these attorneys or collections firms will often try their luck and try to get consumers to pay for really old debts. This was despite the law (the Prescription Act) which says this cannot happen. Well in the old wording of the Act it said consumers did not have to pay. This has now changed for the better. In the old wording of the Act it was possible to get people to pay money toward an old debt. Doing so didn’t make the debt alive again or make it so the person had to pay but if you were persuasive you could get people to give you some funds. Often this was done with threats (which couldn’t actually be acted on). This lead to a big change when the National Credit Act (NCA) came into effect and was amended. It is now illegal to try collect a prescribed debt. It is also illegal to sell a prescribed debt to someone else for them to try collect on. At present the Justice Department (working with the DTI) is preparing an amendment to the Prescription Act wording so that it will be clear in that Act that the collection and sale of prescribed debt is banned. In the past 3 years the number of matters being referred to the National Consumer Tribunal in regard to reckless credit (and other matters) has quadrupled. This also relates to their taking on more responsibilities (particularly in regard to reckless credit) when the NCA was amended. Recently the NCT have been making a huge effort to catch up with it’s workload while dealing with being drastically understaffed for the workload they are empowered to do. In fact, Parliament has been giving the NCR a hard time about matters they referred to the NCT since no big rulings and fines have been forthcoming recently. When pressured about it the NCR sort of threw the NCT under the bus and blamed their backlog. The NCT have set up special motion courts across the country to assist Debt Counsellors get their cases up to date and have had great success doing so.
EAO’s (“Garnishee Orders”)
Garnishee orders became a swear word after Marikana and the violence that erupted there between cops and unhappy mine workers. Many of the workers on the mines had committed all their income and in some cases more than they earned to debt. When they didn’t repay that debt, credit providers went to court and got EAO’s or Garnishee orders against their salaries. This left many working all month and taking no funds home or able to send to their family elsewhere in the country. In the media coverage that followed it soon became obvious that little or no consideration was been given to how much was deducted from peoples salaries when EAOs were granted. In fact it became clear that most courts were just rubber stamping whatever Garnishee order came their way. It also became evident that some courts granted a lot of orders for people working on the other side of the country [ see below]. Now a draft Courts of Laws Amendment bill had been approved by cabinet, which will ask that magistrates (not clerks of the court) check to see if a proper affordability assessment was done before credit was granted (in any case where a credit provider wants an EAO). The court will also check to see how much the consumer can actually afford and not just grant whatever amount is asked for. This does seem to indicate that governments idea is to make EAOs harder to get but not to throw them out entirely as some had feared/hoped. At present courts across the country have placed a real stranglehold on EAO granting in the wave of negative public opinion about so called “Garnishee Orders“. Statistics show that judgments regarding debt have recently fallen by about 11.2% in recent months and there has been a 13% decrease in the number of summonses being issued.
The other issue of courts across the country hearing matters where consumers are unable to go and defend themselves or later go have the order amended is also being tackled. Acting deputy director-general for Trade and Industry MacDonald Netshitenzhe. says that this abuse where creditors have been getting consumers to unwittingly give consent for their credit agreements to fall under a jurisdiction far from where they lived is going to be changed and there is once again draft legislation in this regard.
Credit Life Insurance
Another area which has received a lot of media attention and subsequent regulator attention has been the area of credit life insurance. This is insurance that consumers are required to take in case of their death. in such a case while they can no longer pay for their credit the insurance will cover the outstanding debt. Such credit life policies are offered mostly in-house by credit providers who quickly realised this was a cash cow they could milk with high premiums. In some cases research has shown that a credit provider might make 1/3rd of all their income through insurance offerings on credit products they offer. These policies often have many benefits such as paying your installment for a number of months if you lose your job etc. It has been shown though that consumers seldom know about or use the benefits offered by these policies despite the incredibly high premiums. According to Department of Trade and Industry director for credit law and policy Siphamandla Kumkani some credit providers have even charged as much as 50 for every R1000 of credit. This is way too high when companies such as ONE|SURE are able to charge 1/10th of the price and offer similar or better benefits (to consumers under debt review). Now new regulations are to be submitted to Finance Minister Pravin Gordhan which will limit how much people can charge for this type of insurance. This could now be somewhere between R2 and R4.50 per R1 000 of credit. This may seem like a very unfair reduction (and there is push back on this issue , of course) however it is a direct result of overcharging and abuses in this field that have lead to the lash back by government. It looks like creditors are going to have to look elsewhere for their profits.
These new laws and regulations will come into effect over the next while and will once again change the playing field for credit providers who continue to struggle to keep up and still remain profitable. That said, these institutions have the means to try keep up as opposed to many troubled consumers. It is hoped that these new laws will reduce the rampant abuses by unscrupulous creditors some against consumers with limited financial savvy.