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n

HAS THE ACT ADDED VALUE TO THE LIVES OF CONSUMERS?

Blue Financial Services, South African listed micro-financier, has praised the accomplishments of the National Credit Act (NCA) in South Africa in light of the global economic downturn.

Blue has always been a firm supporter of the Act in South Africa and believes that it has added value to the lives of all South African consumers as it places affordability as the primary requirement and golden rule of credit granting.

Wessel Smit, Director for Blue says, "The NCA is groundbreaking legislation because it places the credit environment in South Africa under one umbrella. Before the NCA was implemented consumers had limited protection and were able to obtain finance over and above what they could really afford. The Act introduced new rights for consumers and put measures in place that would allow consumers to make informed decisions before buying goods and services on credit."

Before the global economic meltdown kicked into gear last year, the NCA was targeted as the main culprit in the declining volume of credit transactions. Although there is some truth in the fact that the NCA contributed to the slowdown of credit transactions, we should not lose sight of the fact that reckless spending patterns in the US lead to the systematic failure of global economies. This resulted in one of the most disastrous global recessions the world has ever seen.

While the South African housing, vehicle and furniture industries receded in their performance after the implementation of the NCA, it would have been careless to allow lending practices of the past to continue unchecked. This type of credit lending practice would eventually have lead to the decay of the South African economy very similar to the crises the world witnessed with sub-prime lending.

Smit continues, "The fact that people from all walks of life, genders and income groups were overexposed to credit is an indication of a system where creditors gambled on their ability to collect outstanding debt. Ironically, affordability should always have been the primary business consideration when granting credit to the public."

The full impact of the NCA will become more apparent over the long-term as we wait for debt obligations acquired before the implementation of the legislation to be eliminated. However, the principles imposed by the NCA have already given the South African economy a two year head start in recovering from the global economic crises.

Smit concludes, "By eliminating some of the factors that initially lead to the downturn, the benefits of the NCA are already starting to show. Unfortunately, the reality of bad debt still exists in South Africa and we still have a lot of work ahead of us to eliminate this potentially damaging problem."

Blue is positive about the future impact the NCA will have on the economy and most importantly the people of the country. The micro financier will continue to execute the rules and regulations required by the NCA in all their lending practices in an attempt to promote responsible lending throughout the African continent.

*This article was first published by Blue Fanancial Services

NUMBER OF INDEBTED CONSUMERS SET TO ROCKET THIS HOLIDAY
December 24, 2009 - By Florence de Vries

THE NATIONAL Credit Regulator expects at least 150 000 consumers to be under debt review by Christmas, with 100 000 of them owing R20 billion overall, R12bn of which stems from outstanding mortgage payments.

With price increases, job losses and low growth in the retail sector overall, consumers' credit portfolios have taken a knock, resulting in a bleak Christmas outlook. "While there had not been a significant turnaround in consumer spending this year, nearly 1 million jobs had been lost during the year, resulting in a rise in bad debts," said Simon Trupp, a director at credit risk solutions firm PIC Solutions.



With a large amount of debt coming from outstanding mortgage payments, Nedbank lowered its 2009 earnings outlook in August after reporting a slide in first-half profit as bad debts climbed at its corporate and retail units. The group reported that consumer levels in debt counselling were on the rise.

"Bad debts are magnified in a low credit growth environment and will only be realised over time, so this trend is set to continue while the bad debts roll through," Trupp said. He said the retail sector might be especially hard hit over the Christmas period after a difficult year to date.
A recent report from Truworths shows that group retail sales rose 10 percent in the 18 weeks from June 29, but the company predicted trading would remain challenging for the remainder of the year.

Foschini showed an increase of 1.8 percent to R2.319 in diluted headline earnings a share for the six months to September, though there was no constant trading pattern in the first half of this year and consumer spending decreased during the first five weeks of the second half. The firm predicted no improvement until the last quarter of the financial year.

Wholesale retailer Massmart was equally uncertain of its earnings during the festive season, adding that it had sales growth of 0.9 percent for the 21 weeks to November 22. "Given the uncertainty, it is difficult to predict likely sales trends," said Massmart's financial director, Guy Hayward.

JSE-listed microlender and furniture retailer African Bank Investments Limited (Abil) posted an 11 percent fall in full-year profit recently, resulting in a fall of headline earnings per share to R2.25. Abil, which owns furniture retailer Ellerine, said it became apparent at the start of the second quarter that the domestic economy was weakening rapidly.

JD Group also reported a drop in its full-year diluted headline earnings. The group announced a fall per share from R2.983 to 44.2c in the year to August. The group said Incredible Connection and Hi-Fi Corporation delivered lower revenue of R3.98bn for the year, compared with R4.01bn last year.

According to Trupp, the annual performance of retailers is largely determined by Christmas trading in the second half of the year. Shanay Narsi, an equity analyst at BoE Private Clients, said the retail sector had surprised many of its critics. "There is no doubt that the consumer has been (and still is) under severe pressure, and that credit retailers have felt the brunt of this pain with poor sales growth and higher-than-expected bad debt costs, but what has been surprising is the extent to which product margins have been maintained or improved upon," he said.

DEBT & DOUBLE STANDARDS

When Pam Hatherell applied for a small bond with Standard Bank four years ago, it was granted on condition that she insured the home with the bank's insurance division. This she did, but she was shocked at the premium - R2 114 a month. When she queried it, she was told that it was because of the house's thatch roof. So she paid up, month after month. Finally, in May this year, she realised that the house had been overvalued by about R2-million - R3,5m, instead of R1,5m - and that was why her premium was so high.

After she reported this to the bank, a property valuator visited her home and the bank confirmed that she had been drastically overinsured and that from July 1 her premium would be cut by half - from R2 114 a month to R1 080. Hatherell asked for a refund of her premium overpayment for the past four years. On July 22, Standard Bank told her that she was due more than R46 000. Weeks later she got a refund, but it was only R23 000.

"I have been asking what is happening with the other half of the refund due to me, with no success," she told me. "On October 6 I was advised: 'Please note that the request for other 50 percent from Home Loan Office still under investigation.'" When she couldn't get any further information, she contacted me for help.

I took up the case with the bank. Two working days later spokesman Erik Larsen got back to me to say the remaining R23 000 would be in Hatherell's account by the end of last week. It was. "We would also like to apologise to Ms Hatherell for all the inconvenience that she has experienced," he said. I asked why she was so "inconvenienced".

Standard Bank Insurance agreed to pay half the refund - and did - and the Home Loans division was to pay the other half. But the latter wanted to investigate further, hence the delay. What should have happened, Larsen said, was that Hatherell got paid the full amount, leaving the divisions to figure out among themselves who paid what. "In short, we messed up and inconvenienced the customer, which should never have happened," he said. But what a good apology, save for that cop-out "inconvenienced".

When companies unfairly withhold money from their customers, they call it "inconveniencing" them, but they don't take too kindly to being similarly "inconvenienced" when a customer fails to pay them. Inconvenienced companies make intimidating phone calls to their debtors, send letters of demand and hand over to debt collectors. Inconvenienced debtors generally can't get beyond the call centre.

This article was originally published on page 6 of Daily News on October 19, 2009