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“All progress is based upon a universal innate desire on the part of every organism to live beyond its income.”

“All progress is based upon a universal innate desire on the part of every organism to live beyond its income.” — Samuel Butler , English composer, novelist and satiric author (1835- 1902).

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“All progress is based upon a universal innate desire on the part of every organism to live beyond its income.”

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  1. “All progress is based upon a universal innate desire on the part of every organism to live beyond its income.” — Samuel Butler , English composer, novelist and satiric author (1835- 1902). “The business of a moneylender … has no where nor at any time been a popular one. It is an oppression for a man to reclaim his own money: it is none to keep it from him” — Bentham, British reformer, 1787

  2. National Credit Regulator Arello Conference Association of Real Estate License Law Officials Gabriel Davel May 2010

  3. Interest, fees & credit life insurance Reckless lending rules Marketing & sales practices National Credit Act Enforcement & debt collection Agreements & quotes Unlawful agreements, provisions Debt counselling Regulate Credit Bureaus Create National Credit Register

  4. Disclosure: standardized, comparable, early. Prescribed content & format. Enable price comparison. Negative option marketing prohibited, automatic increases in credit limits curbed. Reckless credit: Require affordability assessment. Define reckless credit, affects enforceability. Protect responsible lenders. Preferences & anti-competitive conduct prohibited, monitored. Interest rates & fees: Change basis of disclosure. Upper limits on interest & fees. Limit add-ons. Penalty interest + prepayment penalties removed. Debt collection fees regulated. Curb incentives for ‘debt farming’. Agents & brokers, standards + disclosure requirements,. Changes to market conduct …

  5. Credit providers, registered, compliance audits, monitoring Debt counselling to restructure income, rehabilitate consumers. Credit bureaus, registered, monitored … regulated. National Credit Regulator, to monitor & enforce. Compliance reviews by auditors; investigations; market practice reviews, compliance notices. penalties through Tribunal (“special court”). National Consumer Tribunal, decriminalised contravention, with ‘special court’ Institutional changes …

  6. First dramatic slowdown, then impact of financial crisis affordability + “readiness” Then a contraction Affordability cuts both ways, long & short term implications Curb consumption debt levels & reckless credit good for housing Unaffordable housing loans not justified + positive impact in long term! Credit bureau data Improved & expanded (joint mortgages) DEBT COUNSELLING Cushioned impact of crisis !! Greater focus on compliance = formalisation of bank / agent relationships = responsibilities Court’s scrutiny of applications for debt enforcement NCR: 420 investigation, 42 compliance notices, 14 cases @ Tribunal, 110 instructional letters Bridging Finance Housing scams Debt counselling compliance NCR: 600+ on-site visits to debt counsellors NCA impact on housing market? Impact on market ? Compliance ?

  7. Current state of the credit market Statutory Statistical Returns submitted by Credit Bureaus & Credit Providers (including banks)

  8. Consumer Credit Market in South Africa 18 million Credit Active Consumers Credit Providers R1.1 trillion consumer credit Credit Providers = 4,120 Branches = 33.500 1,700 Debt Counsellors

  9. Credit volumes Graph 1 • Disbursements recovering after massive contraction (R102bn  R50bn  R63bn) Graph 2 • Mortgage disbursements now R21bn per quarter, compared to R53bn/q before contraction • Contracted 67%, more than any other item (secured – 41%). Mortgages still 60% lower than peak • But recovering, 18% up over last quarter

  10. Housing price changes follows availability of credit … obviously = loose credit, beyond consumer repayment capacity will create bubbles … obviously Mortgage disbursements vs housing prices Mortgage disbursements House price index Consumer credit (balances) Changes in housing prices

  11. Consumer stress - arrears • % consumers with impaired records remain high, but starting to stabilise • Arrears levels improving

  12. Debt Counselling

  13. Reality check: the US Experience • 6 million mortgages delinquent or in foreclosure. 14 million with debt > property value. 100,000 foreclosures per month (2008). • Many programmes, limited success … “Hope Now”, “Mod in a Box”, “HAMP”, variations. Cram Down blocked. • Issues & challenges: Capitalisation without modification. Interest reductions, term extensions, write-downs. Subsidies. Required or voluntary. Temporary and permanent. Moral suasion & voluntary cooperation limited success; Increased repayments after modification; Temporary not converted; Perverse incentives to banks and to consumers. 40%+ re-default after loan modification - McCoy, White

  14. 1,700 debt counsellors 160,000 applications from inception; approx 100,000 ‘active’ 9 agreements per consumer Ave payment per consumer = R3,700 Debt counselling R165 million / month paid to creditors R1.7bn since inception

  15. Conflicting legal interpretations, attempts to block debt counselling Practical issues of implementation Certificates of Balance; Policies and mandates for credit provider staff; Payment arrangements; Cancellation of existing dr orders etc Trade-offs between mortgages, motor-vehicles & unsecured debt Debt counsellors Professionalism, systems, volume of work Courts Backlogs, court process, Formalisation of ‘voluntary arrangements’ … amendments to NCA to address interpretation issues Practical issues to resolve… per interim report of the Task Team

  16. Despite all the challenges … Despite all the challenges, the vast majority of consumers feel that debt counselling assisted them in dealing with the problem Survey by AIA

  17. Concluding comments • Impact of NCA: curbed excessive credit extension, creating basis for lower but more sustainable credit growth, curbing social cost of reckless lending • Debt counselling – reconcile claims of different credit providers, to create a sustainable repayment stream on non-performing consumer • While minimizing social cost, • BUT, significant implementation challenges • Impact of financial crisis continues, driven by reductions in income as much as loss of employment. Contraction in domestic credit had a significant negative impact, aggravating domestic position • Protection of households important priority, not just on protection of industry, • impact differently for different consumer groups • household solvency & buying power critical to economic health

  18. Thank You ! www.ncr.org.za

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