(All opinions expressed in the Expert Opinion section are those of the writer and do not necessarily reflect the opinion of the Credit Ombud.)
The impact of the removal of consumer credit information and the current regulatory changes on the credit bureaus
On 1 April 2014 the removal of adverse credit information as well as the removal of information relating to paid up judgments became effective. This meant that all credit bureaus were required to remove all adverse information related to consumer behaviour (delinquent, default, etc.), all adverse information related to enforcement action (handed over, written off, etc.) as well as all paid up judgments where the capital amount had been settled by the consumer. The consumer’s payment profile also had to be updated accordingly.
According to a presentation made to parliament, the primary goals of this consumer credit information removal were to: reduce credit impairment by addressing its causes; remove barriers to credit by assisting consumers who could afford less credit; assist consumers impacted by economic recession; reduce overpricing and barriers to employment; and embark on restorative justice by redressing the failure of credit providers to consider broader economic impacts.
In practical terms the government intended to secure the re-entry of millions of consumers back into the credit market by removing ‘blacklisted’ consumers who had paid their debts but who were still prevented access to credit, housing and employment (Government Source). According to the dti it would also compel credit providers to conduct proper affordability assessments. Research conducted by a leading credit research company indicated that as many of 40% of all consumers believed that their debt obligations would be removed by 1 April (ScoreSharp). This is supported by feedback from the credit bureaus that experienced large volumes of consumers phoning into their contact centres expecting their debt to have being ‘paid off’ by government and their obligations to have been cleared. Although consumers generally seemed to be more informed, the impact was less understood than with the previous amnesty. Overall the numbers of calls to the various credit bureaus have increased exponentially as consumers still continue to request their credit reports and verify that their information was removed. This is a positive indication, as consumers seem to be taking a greater interest in their own credit profile.
Numbers presented by ScoreSharp show that approximately 4,1 million consumers benefited from the removal and that approximately 7,5 million consumer records were affected. They further report that the re-population rate of the data is rapid as a control sample shows that 20% of the volume of deleted data is replaced within 3 months.
Based on this, one can conclude that the intended goals were broadly achieved but it is also clear that this is certainly not the last regulatory intervention. With the National Credit Act Amendments being implemented together with numerous other regulations governing the listing and sharing of consumer credit information, credit providers and credit bureaus are all forced to relook their business processes to ensure compliance.
Going forward the Credit Bureau Association, together with the respective credit bureaus, will continue to focus on data quality through initiatives such as Project Evolution, which is a joint industry initiative that will bring CPA and NLR data together and provide a dynamic reporting environment with the introduction of a 48-hour update process by credit providers to credit bureaus. This will include information related to new loans or credit facilities granted as well as loans and facilities paid up. It will make a significant impact on affordability assessments and will aid credit providers to ensure compliance with the latest National Credit Act amendments and draft Regulations. This is also a world first with South Africa pioneering the way. Legislative compliance will remain a key focus and the credit bureaus will continue to prioritise developments that support this.
[Acknowledgement: With thanks to the Compuscan, Consumer Profile Bureau, Experian, TransUnion and XDS, as well as to ScoreSharp, for statistics and information provided]