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ADVERSE INFORMATION : CREDIT BUREAUS

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Credit Bureau Ratings

On 25 February 2014 the Minister of Trade and Industry, Dr Rob Davies, published the Regulations relating to the removal of adverse consumer information from the credit bureau (“the Regulations”). The Minister derives his powers to make Regulations from Section 171 of the National Credit Act, No 34 of 2005 (“NCA”).

(See Also: The Removal of Adverse Credit Information and information relating to Paid Up Judgment Regulations )

In the Regulations, “adverse consumer credit information” (“ACCI”) is defined as:

  • any adverse classification of the consumer’s behaviour, including such classification as “delinquent”, “slow paying”, “default”, “absconded” or “not contactable”;
     
  • any adverse classification of enforcements action taken by credit provider, including such classification as “handed over”, “legal action” and “write-off”;
     
  • details and results of disputes lodged by the consumer, irrespective of the outcome thereof;
     
  • adverse consumer credit information contained in the payment profile represented by a mark, symbol, sign or in any other manner.

Paid up judgments” (“PUJ”) are defined to mean civil court debts, including default judgments, where the consumer has settled the capital amount under the judgment. Given that the definition of PUJ specifically refers to “the capital amount” it would seem that the Regulations deliberately exclude any other charges that may typically form part of a judgment debt, such as interest on the capital amount, legal costs and other costs that may have been incurred by the credit provider in enforcing payment. 

Responsibility of Credit Bureaus

The Regulations provide that a registered credit bureau shall remove the ACCI that was on their records as at the effective date (that date being 1 April 2014). The said information must be removed within two months from the effective date – in other words, by no later than 1 June 2014. In the event that the credit bureau requires an extension, it must submit a request for such an extension before 1 June 2014 and such an extension can only be for a maximum of 7 days.

PUJ must be removed on an ongoing basis and, after 1 June 2014, the PUJ information must be removed within seven days after receiving proof that the judgment has been paid up.

Within three days of removing the ACCI and PUJ, the credit bureau must inform all other credit bureaus of such removal. The credit bureaus thus notified must then remove the ACCI and PUJ within three days thereafter. In addition, the credit bureaus must ensure that from 1 April 2014 the ACCI and PUJ that ought to be removed in terms of the Regulations is not displayed and/or provided to credit providers or any other person.  

Responsibility of Credit Providers

A credit provider is required to submit to the credit bureaus all information relating to PUJ within seven days of receipt of payment from the consumer. Credit providers have up to seven days after 1 April 2014 to submit all the information relating to PUJ and they are prohibited from using ACCI and/or PUJ for any purpose, including credit scoring and assessment.

As observed above, the definition of PUJ appears to be limited to the capital amount and, presumably, as soon as the consumer has settled the capital amount, the credit provider would be obliged to submit the information to the credit bureaus. This will go against the common practice wherein the credit provider would insist on having the capital amount, interest and all other costs paid before they can issue a “paid up” letter.

Reporting and Monitoring

By 1 July 2014 (a month after the two months period following the effective date), the credit bureaus must submit an audit report to the National Credit Regulator, prepared by an independent auditor, covering the following issues:

  • confirming that all ACCI and PUJ has been removed;
     
  • in the event of a finding on non-compliance with the Regulations by the credit bureau, the report must contain recommendations, accompanied by timeframes, on measures to be implemented by the credit bureau in question in order to ensure compliance with the Regulations;
     
  • a plan to assist the credit bureau in question in preventing ACCI and PUJ from being listed again in future.

The National Credit Regulator is then required to submit a report to the Minister of Trade and Industry, within three months of receiving the report from the credit bureaus, and advise on the effectiveness and compliance with the Regulations. The Regulator is also required to monitor compliance on an ongoing basis.

Some observations and conclusion

While it remains to be seen what impact, if any, these Regulations will have in the credit market, from a consumer’s point of view, the Regulations must surely be welcome as they will make the process of clearing one’s name simpler and less costly. Whilst the Regulations do not provide for a rescission of judgment (something that would not have been possible as only a Court can do so) the end result will be that a paid up judgment, even if it has not been rescinded at Court, will no longer adversely affect the consumer with regards to obtaining credit in future. The current practice with regards to defaults is even more concerning where the consumer would have his/her name listed on the credit bureau for two years before his/her name can be removed – currently this applies whether the debt has been paid or not. The change in the status from, perhaps “handed over” to “paid up” was always cold comfort for a consumer who could still not obtain credit on the basis of that adverse listing.

From a credit provider’s point of view, the Regulations will have far more bigger impact. The relative ease with which the credit providers could establish a consumer’s creditworthiness (by simply obtaining information from the credit bureau) will now become more complicated. It is worth pointing out that in terms of the NCA the credit providers will still have to ensure that they do not extend credit to consumers recklessly. It is clear that the application forms and the questions asked from a consumer may need to be amended to take into account the provisions contained in the Regulations.

Furthermore, the fact that in terms of the Regulations the credit providers are now required to issue “paid up letters” as soon as the “capital amount” has been paid by the consumer will have an impact on the credit provider’s ability to recover the additional amount, like interest and legal costs incurred in the enforcement process.

Only time will tell whether the Regulations will have their intended results or if they will simply make it easier for consumers to be even more indebted.

 

Mzo Tshaka

Director: Schoeman Tshaka Attorneys

Mzo Tshaka Schoeman Tshaka Attorneys (Cape Town)

 

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