LITERATURE REVIEW ON THE IMPACT OF THE …

1 Page 1 of 147 LITERATURE REVIEW ON THE IMPACT OF THE national CREDIT ACT (NCA) HAS HAD ON south africa S CREDIT MARKET FINAL REPORT JUNE 2012 Page 2 of 147 Table of contents List of tables .. 8 List of figures .. 9 Acronyms .. 10 1 EXECUTIVE SUMMARY .. 12 Introduction .. 12 Emerging themes .. 12 Legal and compliance .. 13 Institutional IMPACT .. 14 Credit usage, supply and demand .. 15 Effects of programmes and 17 Regulatory institutions and/or other bodies perspective analysis .. 17 Consumer protection.

2 18 Comparative analysis .. 19 2 OUR APPROACH .. 23 Introduction .. 23 LITERATURE and document REVIEW protocol .. 23 3 LEGAL AND COMPLIANCE ASPECTS .. 24 Intensions of the NCA .. 24 Supreme Court of Appeal of south africa 662/2009, 500/2010 .. 24 Further rulings on Section 129 .. 25 Debt counselling process closing the loopholes in the NCA .. 26 Interaction between debt relief measures in the NCA and aspects of Insolvency Law . 28 Rights of surety under the NCA Desert Star Trading v No 11 Flamboyant Edleen (98/10) 29 Reckless credit concept .. 30 Reckless lending findings .. 31 Standard Bank of south africa Ltd v Kelly and another (23427/2010) [2011].. 31 Reckless lending rulings by the Banking Ombud .. 31 The legal system overall.

3 32 4 INSTITUTIONAL IMPACT .. 33 Credit providers .. 33 Cost of compliance .. 33 Reduction in revenue .. 33 Risk reduction .. 34 Page 3 of 147 NDMA national Debt Mediation Association .. 34 Credit bureaus .. 35 Data privacy legislation impacting credit bureaus .. 36 Debt counsellors .. 38 The Debt Counsellors Association of south africa (DCASA) .. 39 Employers .. 40 Payment Distribution Agencies .. 41 Codes of conduct .. 41 Credit industry code of conduct to combat over-indebtedness .. 42 The debt counsellor s code of conduct .. 42 The Payment Distribution Association s code of conduct .. 43 Cost of credit .. 43 Fees and cost of debt counselling.

4 43 Debt counsellor IMPACT .. 44 Payment distribution agencies .. 45 Consumer IMPACT .. 45 Credit providers .. 45 Alternate dispute resolution .. 45 Juristics: consumers within the NCA .. 46 Debt collection .. 47 5 THE CREDIT MARKET CREDIT USAGE, SUPPLY AND DEMAND .. 48 Introduction .. 48 Size of the credit market as it currently stands .. 48 IMPACT of the NCA on access .. 51 Mortgages .. 56 Unsecured lending .. 58 Developmental credit .. 59 Cost of credit to the consumer .. 59 6 EFFECTS OF PROGRAMMES AND INITIATIVES .. 63 Introduction .. 63 Main findings .. 63 The stumbling blocks in the debt counselling process .. 66 IMPACT of educational workshops and programmes .. 67 Consumer awareness .. 67 The NGOs and consumers desk.

5 67 Alternate means of creating awareness .. 67 Page 4 of 147 Possible considerations .. 68 7 REGULATORY INSTITUTIONS AND/OR OTHER BODIES PERSPECTIVE ANALYSIS .. 69 Introduction .. 69 south African Reserve Bank .. 69 Credit Providers Association .. 69 Micro Finance south africa .. 70 Banking Association of south 71 The new code of banking practice .. 72 Banking Association south africa and the Micro Finance Council perspectives on pricing 72 The Financial Services Board .. 74 The Banking Ombud .. 77 Credit Ombud .. 78 Competition commission .. 78 Twin peaks model new proposed regulatory framework? .. 79 Twin peaks model international 80 Need for the Twin peak model for south africa .

6 80 IMPACT of the Twin peaks model in south africa .. 81 Implications .. 83 8 CONSUMER PROTECTION .. 84 Introduction .. 84 Background to consumer 84 The CPA .. 85 Interaction between the CPA and the NCA .. 86 Consumer behaviour .. 86 Consumer vulnerability .. 87 9 UNINTENDED CONSEQUENCES .. 88 Unsecured lending .. 88 Consumer behaviour .. 88 Inability to restructure loans .. 88 Mortgage lending .. 89 Compliance 89 10 COMPARATIVE 90 Introduction .. 90 Significance of consumer protection frameworks .. 90 Main findings of the Financial access survey .. 91 Page 5 of 147 Legal framework .. 91 Existing legislation.

7 91 Fair treatment provisions .. 92 Disclosure requirements .. 93 Institutional structure .. 96 Dispute resolution mechanisms .. 99 Key insights .. 101 Global interests in south africa s NCA .. 102 Namibia .. 102 Botswana .. 103 11 CONCLUSIONS .. 104 Implementation of the NCA .. 104 Access to credit and to the remedies of the NCA .. 105 Reckless credit .. 106 Shopping around for the best deal not that easy .. 107 Cost of credit versus access of credit .. 107 Consumer behaviour .. 109 12 ANNEXURE 1: CREDIT MARKET IN INDIA .. 110 Introduction .. 110 Contextualisation .. 110 Credit risk .. 110 Regulatory framework in south africa : The main tenets of the NCA .. 110 Rules around credit granting .. 111 Rules around capping of interest.

8 111 Rules around management of debt .. 111 Rules around development component .. 111 Credit market in 112 Significance of credit market .. 112 Institutional structure of the Indian credit market .. 114 Policy developments in the credit market in India .. 115 Rules around credit granting (prevention of reckless lending to consumers) .. 117 Rules relating to priority sectors, microfinance and credit cards in rural areas .. 118 IMPACT of the policy relating to the priority sector, micro finance and credit cards in rural areas .. 120 Emergence of household credit .. 123 Development component .. 124 Page 6 of 147 India s financial inclusion/literacy architecture.

9 124 India s approach to financial inclusion .. 125 Structured, planned approach .. 125 Bank led model .. 125 Minimum bouquet of products and services .. 125 Combination of branch and business correspondence .. 125 Financial literacy .. 126 Multi agency central bank led approach .. 126 national financial literacy strategy .. 126 Consumer protection .. 127 Pricing of products and services to protect the customer .. 127 Steps taken by RBI in promoting financial literacy .. 128 Banking Ombudsman quick and cheap forum of grievance 128 13 ANNEXURE 2: DIFFERENT COUNTRIES REGULATORY REGIMES .. 130 Introduction .. 130 Objectives .. 130 south africa .. 131 Rules around credit granting .. 131 Rules around capping of interest or fees to be charged.

10 131 Rules around the management of debt relief .. 131 Development component .. 131 Regulators .. 132 Laws and regulations .. 132 Consumer protection laws/regulations .. 132 Nigeria .. 132 Rules around credit granting .. 132 Rules around capping of interest .. 133 Rules around management of debt relief .. 133 Development component .. 133 Regulators .. 133 Laws and regulations .. 133 Consumer Protection Laws/Regulations .. 134 GHANA .. 134 Rules around credit granting .. 134 Rules around capping of interest .. 134 Rules around management of debt .. 135 Page 7 of 147 Development component .. 135 Regulators .. 135 Laws and regulations.