All African Credit Congress Update on the consumer credit market Indaba Hotel – Fourways, JHB May 2016 Ms. Louisa Hetisani Manager: Compliance

Topics Latest industry trends – “Stating the obvious” Affordability Assessment Regulations – “Policy in Practice” 2

3 The landscape Credit Providers = 4,590 Credit Bureaus million consumers Debt Counsellors = 1,781 Credit Bureaus = 14 PDAs = 3 PDAs ADRs

Latest trends in the credit market 4  Credit standing of consumers appears to be stable at 58.4%;  41% of consumers in good standing still a worrying...  Marginal declines in the % of adverse listings.

Latest trends … credit flow 5

Latest trends … credit applications 6

Latest trends … debtors book 7 The gross debtors book showed marginal q/q growth of 0.62% for the December 2015 quarter; The mortgage book accounted for 52.08% of the book; The total value of the book was R1.64 trillion.

Affordability Assessment Regulations – “Policy in Practice” 8 In 2012 the NCR commissioned a study into the growth in unsecured personal loans; The study identified “limited regulatory specifications or industry guidance…of affordability assessments”; The study recommended “high level principle based guidance to credit providers”; The 1st draft of the affordability guidelines was published for comments in June 2013; The final draft guidelines were completed with industry participation and limited impact assessments; The draft regulations were published for public comments by the dti in July 2014; The final regulations were published in March 2015 – effective 14 September 2015.

9 1. Existing financial means and prospects:  Credit provider must take practical steps to assess discretionary income to determine financial means and prospects.  Take practical steps to validate gross income.  Where the income shows material variance the average gross income for at least three (3) pay periods must be used.  The consumer must: disclose accurately to the credit provider all financial obligations; provide authentic documentation. Principles of the regulations

Principles of the regulations… continued 2. Existing financial obligations  Credit provider must calculate the consumer’s existing financial means, prospects and obligations as envisaged in Sec. 78 (3) and (81) (2) (a) (iii) of the Act.  The minimum living expense norms must be utilised when calculating the existing financial obligations.  In exceptional cases the credit provider may accept consumer declared minimum expenses that are lower than those set out in “Table 1”.  When conducting the affordability assessment the credit provider must: calculate the consumer’s discretionary income; take into account all monthly debt repayment obligations as reflected by a registered credit bureau. Consider maintenance obligations and other necessary expenses. 10

Principles of the regulations… continued 3. Debt Repayment history  Within seven (7) business days immediately prior to the initial approval of credit or increasing an existing limit;  Within fourteen (14) business days with regards to mortgages. 4. Double counting  The regulations allow for the substitution of existing credit agreement/s;  In such cases, the credit provider must record the new application as such;  Take practical steps to ensure that the new credit is used for the intended substitution purpose. 11

Principles of the regulations… continued 5. Credit cost multiple and the total cost of credit  The credit cost multiple and credit insurance must be disclosed in the pre-agreement statement and quotation;  The credit cost multiple for credit facilities must be based on one (1) year of full utilization;  The credit provider must ensure that the attention of the consumer is drawn to the credit cost multiple and the cost of credit is understood by the consumer;  The credit cost multiple is introduced for the total of credit which includes:  the principal debt;  interest;  initiation fee, if any;  service fee aggregated to the life of the loan; and  credit insurance. 12

Evidence from the field More than 150 onsite visits conducted since September 2015; Compliance visits mandated by Section 50 (2) (a) of the Act; The onsite visits covered all nine (9) provinces; The focus of the visits were on entities in CAT 5 – 7 with a few large entities also covered; The visits focused on overall compliance with a special focus on affordability assessments; The visits include amongst others:  Interviews with key personnel;  Inspection of premises and observation of processes;  Collection of sample agreements and other documents. 13

Evidence from the field… continued 1. “Existing financial means and prospects” Lending is done on the basis of trust –“I know this guy he has been my client for 5 years and I know where he stays” Pay slips, bank statements and other documented proof often missing or outdated; In the short-term space the loans have taken a “revolving nature”; 2. Existing financial obligations Loans often granted to consumers under debt review, administration or where financial distress is clearly evident from the credit bureau report; Expenses seem to be under declared with very little use of the “minimum expense norms table”. The contents of credit bureau reports are often ignored; Not unusual to observe 12 short term loans on a consumer profile for a one (1) year period; Usually from the same lender. 14

Evidence from the field… continued 3. Credit cost multiple and the total cost of credit Disclosure of the credit cost multiple is often absent; Poor disclosure relating to insurance; Charging VAT while not registered as a VAT vendor. 4. Other findings Overcharging on interest and fees; Payment processing fees passed on to the consumer despite Barko Financial Services (Pty) Ltd v National Credit Regulator judgment. 15 Access to creditConsumer protection NOT AN EASY TASK!

16 Thank You!