New credit laws for South Africa are coming back
South Africa will press ahead with changes to its credit laws to facilitate lending to smaller firms, heeding a call by the top banking lobby group that had criticised the government’s withdrawal of the plans.
Earlier this month, Trade, Industry and Competition Minister Parks Tau withdrew the draft amendments to the National Credit Act, scuppering changes that banks had sought to make it easier for them to grant more loans to small businesses.
The draft changes were initially published by the department for public comment in August, but were unceremoniously withdrawn before the public comment period had been fully concluded.
The draft regulations included important changes to enable lenders to more easily assess small businesses for new loans.
The current regulations, which haven’t been changed since 2013, apply to consumers and include small business borrowers by default.
They must provide bank statements and payslips to pass an affordability test. It doesn’t matter how good a business plan they have and the future profits they may earn.
The proposed changes would have given credit bureaus access to a wider range of personal and financial information, including details from educational institutions, to get a more comprehensive view.
The proposed amendments sought to expand Regulation 18, which governs what credit information can be shared with registered credit bureaus.
If implemented, credit bureaus would have been able to collect information from state institutions, courts, insurers, fraud investigators, utilities, and debt collectors, as well as educational institutions.
This would have meant that outstanding student debt, criminal records, and even data from fraud investigations could appear on individuals’ credit reports.
The draft laws also included changes to how consumers are identified and how credit information is submitted.
Under the proposals, individuals and small businesses would need to be identified primarily by ID or passport numbers, while additional personal details such as addresses, contact information, employers, and places of work could also be recorded.
Regulation 19 would have required more complete submissions to credit bureaus, ensuring that credit providers had extensive information before granting loans.
Law firm ENSafrica noted that the amendments were aimed at improving the accuracy of credit records and strengthening risk management practices.
This would make it easier for banks to lend money to qualifying businesses.
Hitting reverse again
The Banking Association of South Africa wrote to Tau, saying the withdrawal botched the policy-making process and saw the minister cave in to political pressure, derailing efforts to close a R350 billion funding gap for small- and medium-sized businesses in the country.
The minister apparently withdrew the changes after receiving over 20,000 negative comments about the laws. However, business leaders pointed out that these comments came from unrelated parties, decrying changes that were not even part of the amendments.
The issues raised related to unfounded fears that students would be unfairly targeted by the laws through the inclusion of outstanding debt on their records.
However, the regulations as they currently stand already allow educational institutions, alongside any lender, insurer, debt collector, organ of state, etc, to submit information to credit bureaus—for example, if a student absconds while owing money.
These have been in the regulations since 2006.
Business Leadership South Africa chief executive Busi Mavuso pointed out that the proposed amendments to the regulations made no reference to this whatsoever and that the clause remains the status quo.
By buckling to unwarranted political pressure, Mavuso said that the withdrawal of the amendments unilaterally delayed a years-long process to the detriment of small businesses, and exhibited a completely irrational approach to forming policy.
“What the minister should have done is rationally consider the comments received during the consultation period. If he had found that the students had a point about the existing regulations, he could have considered some further amendments,” she said.
In response to the pushback from business, Tau acknowledged the damage that was done and said that he has instructed his officials to work at reintroducing the amendments.
BUSA said that Tau would meet with the business lobby groups to “go through what happened and how we can avoid that repeating”.
“He did send an official to meet with us and just reassure us that he understands the damage that was done and is working to have the amendments reintroduced,” the group said.
(With Bloomberg)
Loading ...