Wednesday, 27 June 2007

Consultation on Credit Licensing 'Fitness' Conditions

The delayed consultation on the 'fitness' conditions for consumer credit licensees has today been issued by the OFT with a deadline for responses of 21st September 2007.

The consultation, which has been brought about as a result of changes to the licensing provisions contained in the Consumer Credit Act 2006, seeks to incorporate the concept of 'responsible lending' into the licensing framework for all consumer credit lenders. Although the consultation document references this fact, and provides some limited insight into the meaning of 'responsible lending' it goes onto promise that further guidance on this issue will be provided at a later stage - although no date is set for this, and it is unclear as to whether there will be a separate consultation on the matter.

The sections in the current consultation document on 'responsible lending' (paras 2.24 - 2.26 of the document) include the following:

"We consider irresponsible lending to include failing to make a proper and diligent assessment of the potential borrower's ability to repay a loan in full and to make all the periodic payments as they fall due.

The OFT would consider it irresponsible for lenders and intermediaries not to take reasonable care in making loans or advancing lines of credit in revolving credit card agreements. Reasonable care would include taking steps to find out and check the borrower's creditworthiness, and ability repay the debt and to meet the full terms of the agreement. For example, we would not consider offering new lines of credit to borrowers who are exhibiting typical signs of inability to repay existing debts (such as missed payments or always making only minimum repayments on a credit card account) to be responsible lending.

The OFT plans to produce guidance for the credit market to identify practices that we consider may be irresponsible lending. "

Debt on our Doorstep has today written to the OFT requesting clarification as to whether or not there will be a separate consultation on the concept of 'responsible lending' as a result.

We will be providing members with an opportunity to feed into the Debt on our Doorstep response to the consultation over the coming two months.

OFT Moves on Credit Card Pricing

The OFT has today announced a new programme of work with the credit card industry and consumer bodies to make the cost of credit cards easier for consumers to understand. This decision follows a super-complaint from Which? that highlighted that consumers are choosing credit cards without understanding all the issues that affect the cost of the card.
OFT research shows that the majority of card holders do not compare cards at all. This new work will explore the issues surrounding the cost of credit for credit cards including purchases, cash advances, introductory offers and payment allocation. This work is expected to take six months, and will involve close work with the credit card industry, consumer groups, other regulators, government bodies and other key stakeholders.
John Fingleton, OFT Chief Executive, said:'Credit card pricing has become increasingly complex, with many new dimensions such as interest free periods. While these new pricing dimensions give additional choice and value to consumers, they can make it harder for consumers to make informed decisions. This work will consider how pricing information might be improved so as to enable better product comparison by consumers, without stifling valuable competition and innovation that benefits consumers.'
Debt on our Doorstep has previously drawn attention to poor levels of transparency in the advertising of sub-prime credit cards, where initial 'concessionary' rates are advertised, only to be replaced by significantly higher rates in the event of a default.

Monday, 4 June 2007

South Africa: New Responsible Lending Law

South Africa: New Law attempts to balance responsible lending and borrowing

Article from Independent Online - South Africa 1st June 2007

The exploitation of consumers by unscrupulous money-lenders that have led many poor people into debt traps will become a criminal offence under the new National Credit Act, which comes into effect on June 1.

However, consumers have been warned by the National Credit Regulator and banks that dishonest disclosure of income and expenses could result in some of their new-found protection being forfeited under the new Act.

The National Credit Act 34 of 2005 replaces the Usury Act, the Integration of Usury Laws Act 1996 and the Credit Agreements Act 1980, which have regulated the granting of credit since 1968. The Act will make it difficult for credit grantors to give loans to over-indebted consumers.

Gabriel Davel, CEO of the National Credit Regulator, which has legislative powers under the Act similar to the Financial Services Board, said the legislation would, for the first time in history, regulate information held by credit bureaus and provide protection for consumers entering into credit agreements.

Consumers who lied would forfeit some of the protection
"The new Act is a consumer protection piece of legislation. It is there to ensure that consumers are treated fairly in credit contracts," Davel said.

Davel said that credit card debt had grown by 128 percent during the past two years and that the latest statistics obtained by his office showed household debt had risen to R750-billion.

Credit grantors, including banks, retailers, micro-lenders and pawnbrokers who have 100 or more loan agreements or loans of R500 000 or more on their books will be required by the Act to register with the regulator. About 4 200 credit grantors have registered.

Davel said the National Credit Register, which would list consumer debt and act as a database for credit grantors, would be ready in January 2008. Credit grantors must check credit bureaus and the register before granting credit, to ensure repayment affordability.

However, he warned that consumers who lied about existing debts when opening new accounts would forfeit some of the protection afforded by the legislation.

The Act makes provision for debt counsellors to assist over-indebted consumers who fall into the debt trap.

Credit Information Ombudsman Manie van Schalkwyk said consumers could approach debt counsellors and if it was found that the consumer was over-indebted credit grantors would not easily be able to obtain a judgement.

"The debt counsellor can make a recommendation to the court that there has been reckless lending, and if the credit grantor is found guilty the agreement could be suspended and a fine of up to R1 million can be imposed," Van Schalkwyk said.

Consumers who "go into counselling" will be prohibited from obtaining further loans until the debt is repaid.

Louis Malherbe, Nedbank's home loans business analyst for the new Act, cautioned consumers to be truthful about all their debts when applying for credit.

"A mortgage originator will ask what your expenses are, including all your retail accounts, and it is vital that the consumer tells us upfront, otherwise the reckless lending provision falls away," Malherbe said.

Under the new Act it will be illegal for credit grantors to issue credit cards to consumers who have not applied for them. Costs that have been standard practice for banks, such as early settlement or administration fees, will also be illegal.

Louis von Zeuner, Group Executive Director of the Absa Group, said bank staff had been working overtime to implement new computer systems in order to comply with the Act. This had cost the bank R100-million.

"Nedbank fully supports the Act, and a huge amount of work has gone into ensuring that we grant credit in a manner that upholds the principles of the National Credit Act," said Wessels.

Friday, 1 June 2007

UK Credit Options Conference Success

The UK credit options conference organised by Debt on our Doorstep and Citizens Advice Scotland earlier this week was a huge success with over 100 delegates on each of the two days debating the need for further work to ensure access to responsible financial services.

The conference, which featured the first public engagement of the new Scottish Executive's Minister for Communities and Sport, Stewart Maxwell, and which brought together local authorities, debt advice agenices, citizens advice bureaux, academics, banks, lenders, and politicians and policy-makers attracted considerable media attention. A full report of the conference, including a media report will now be pulled together in advance of the European Coalition for Responsible Credit conference in Brussels in September (see for further details).

Discussions at the conference for further action included the development of a sustainable Debt on our Doorstep network in Scotland, of which we hope to bring you more details in the next few weeks, and also preliminary but exciting talks to hold similar events in Belfast and Cardiff.

In the meantime, below is a list of media that featured the conference, demonstrating the impact of events like this not only on taking forwards the debate amongst practitioners, the industry, and policy-makers, but also how they help to raise public awareness of the problems facing UK consumers.

Herald / Society
Press & Journal (mentioned over 2 days)
Glasgow Evening Times
Sunday Mail
Sunday Mirror

BBC Scotland

BBC / Good Morning Scotland
Central FM
Forth FM
Clyde FM
Tay FM
Moray Firth Radio
Talk 107
West Sound

Parliament Today
Third Force News (main magazine of Scottish voluntary sector)
Community Care Magazine

Debt & Financial Inclusion in Leicester - 6th June

Leicester Money Advice Ltd, and the East Midlands Money Advice Partnership are holding a one day conference on debt and financial inclusion at Leicester City F.C on Wednesday 6th June.

The event will hear from speakers including Joanna Elson, Chief Executive of the Money Advice Trust and Mark Lyonette, ABCUL and a member of the Financial Inclusion Task Force. The conference will raise awareness of debt issues across the city and county and aims to develop an integrated partnership approach to tackle debt and financial inclusion problems.

To register for the event, which is free, contact Richard Rippin on 0116 242 1150 or by e-mail at