1 “All progress is based upon a universal innate desire on the part of every organism to live beyond its income.” — Samuel Butler , English composer, novelist, author (1835- 1902). “The business of a moneylender … has no where nor at any time been a popular one. It is an oppression for a man to reclaim his own money: it is none to keep it from him” — Jeremy Bentham, British reformer, 1787
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1 All progress is based upon a universal innate desire on the part of every organism to live beyond its income. Samuel Butler, English composer, novelist,
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“All progress is based upon a universal innate
desire on the part of every organism to live beyond its income.”
— Samuel Butler , English composer, novelist, author (1835- 1902).
“The business of a moneylender … has no where nor at any time been a popular one. It is an oppression for a man to reclaim his own money: it is none to keep it from him”
— Jeremy Bentham, British reformer, 1787
Regulation and consumer finance
Gabriel Davel July 2010
Chatham House Conference
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Consumer credit market profile …
Millions of small transactions, affecting millions of consumers & thousands of credit providers. require explicit & specialised legislation maximise certainty to both consumers & credit providers ensure that there are no incentives for credit providers to engage in
predatory or reckless activities
General contract law or common law not sufficient given cost of litigation relative to transaction size control of credit provider over contract & over sales process … &
role of staff in providing advice to consumers
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How things go wrong …
Predatory & reckless providers gain most from weak regulation, often by new entrants with short term profit objectives misleading disclosure, “add-ons”, penalty fees, payment preferences,
using courts as “debt collectors” often involving agents & brokers & dubious contractual practices causing a “Race to the Bottom”
Permissive regulation & predatory practices negative for market development
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When things go wrong …Impact on credit providers
High risk + high level of uncertainty = high cost lending Undermine long term growth strategies, lower margin products,
investment in infrastructure, Undermine asset based lending, long term lending & housing in
particular … undermine creation of security for future business lending
Impact on households, debt stress, repossessions, degradation of whole areas & communities
Impact on consumption & level of economic activity (worse in mature markets)
Credit bureaus, regulated to improve credit information flow
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Experience in South Africasince introduction of National Credit Act in 2006
Affordability assessments: reduced approvals, having to consider obligations on all agreements … cushioned losses, recovering
Disclosure, lending practices & credit bureau information
Enforcement & action against lending scams of various kind
Research = cost of credit reduced, disclosure rules & regulation of credit life insurance, fees
Financial crisis caused credit contraction, pressure on incomes, debt stress … but market shielded from fall-out … significant recovery since mid-
2009Cost - furniture Finance
Gross Quarterly Credit Granted – 2007 to 2010
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Regulated consumer credit market curbed excessive credit extension, creating basis for lower but more sustainable credit growth, curbing social cost of reckless lending
Impact of financial crisis continues, driven by reductions in income as much as loss of employment. Contraction in domestic credit plays significant role. Process will continue, extreme caution required
Protection of households important priority, not just on protection of industry,o low income groups most vulnerableo household solvency & buying power critical to economic health
Concluding comments
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“By the balance of the commodities and the discommodities of usury, two things are to be reconciled. One, that the tooth of usury be grinded that it bite
not too much; The other, that there be left open a means to invite
monied men to the merchants, for the continuing and quickening of trade.”
Francis Bacon (1625)…
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Thank You
www.ncr.org.za
Background
information
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Consumer Credit Market in South Africa
Credit Providers 18 millionCredit Active Consumers
1,700Debt Counsellors
£99.5 bnconsumer credit
Registered Credit Providers = 4,120
Branches = 33.500
Structure of key interventions in
National Credit Act
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National Credit
Act
Marketing & sales
practices
Agreements& quotes
Reckless
lending rules
Enforcement &debt collection
Debt counselling
Regulate Credit BureausCreate National Credit
Register
Interest, fees& credit life insurance
Unlawful
agreements,
provisions
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Credit Marketing Practices
Intention
Provide information on credit cost at early stage of purchase cycle. While consumer is ‘shopping around’.
Improve comparability. Greater honesty in advertising
Consumer must agree, before an agreement can come into effect