Credit Amnesty 2014: Record goes, debt stays

Johannesburg – It is important to note that credit amnesty will not free consumers of the obligation to pay their debt.

The debt must still be settled if they are to keep your credit record clean in the future.

The South African government has implemented a credit amnesty from April 1 2014. The amnesty will give all consumers a fresh start with a clean credit record. This is great news for the many South Africans struggling to secure a job or a loan for a car or home as a result of a poor credit record.

According to the Department of Trade & Industry, about half of South Africa’s 21 million credit active consumers are behind or struggling with their repayments. Government is giving them a clean slate as it standardises and tightens lending requirements with new laws.

This is a welcome development for consumers who can’t get a bond or loan, because they may have struggled to pay off a credit card three or four years ago.

The record goes, but the debt remains

The amnesty effectively instructs credit bureaus to remove adverse consumer credit information from their files. It forbids them from sharing this information with credit providers such as banks and retailers as well as employers and employment agencies.

Under the new amnesty:

– Credit bureaus have until May 31 2014 to remove from their files any adverse (or negative) information they keep on record about consumer debt payment history and steps debtors have taken against them;

– Very importantly, the debt remains payable until settled;

– Credit bureaus have until May 31 2014 to scrub credit records clean of words such “delinquent”, “defaulter”, “absconded” or “slow paying” if debts have been paid;

– Such terms, going forward, must be removed from credit profiles once debts defaulted on have been repaid;

– But bureaus can keep on record for five years factual and detailed information that reflects consumer debt repayment behavior.

Automatic Benefit

This credit amnesty is unlike the one implemented in 2007, where consumers needed to follow a certain process to benefit.
This time, it is up to the credit bureaus to clear credit records.

Another major difference is that the new credit amnesty comes with tighter regulations governing how credit providers assess affordability.

Educating consumers

In addition, government is being more proactive in educating consumers that the amnesty does not mean their debt will be written off.

New lending regulations

Even with a clean credit record, it may be more difficult to qualify for a loan with the new affordability assessments.
But this also means that there should be less reckless lending in South Africa, to the benefit of consumers and lenders alike.
These laws are meant to protect poorer consumers with low financial literacy from taking on debt they cannot afford to repay.

After the previous amnesty, almost 50% of the consumers, who obtained new credit, defaulted within a year.

The new credit regulations aim to prevent that from happening again.

– Fin24