Presentation to the Portfolio Committee on Trade & Industry

African Bank Crisis

Nomsa Motshegare

Chief Executive Officer

NATIONAL CREDIT REGULATOR

The structure of financial regulation in South Africa

Prudential regulation

Safety & soundness of financial system & banks

Financial stability of banks

Threats of systemic risk to the financial system & banks

No market conduct practices

South African Reserve Bank

Consumer credit Regulation

Market conduct practices of banks

Consumer protection

No financial stability of banks

No safety & soundness of financial system

National Credit Regulator

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Trends in credit growth over time

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Concept of reckless lending

Lack of affordability assessment

Income disclosed not verified

Expenses not verified

Credit bureau reports not obtained

Affordability assessment done, but

Consumer does not understand rights, obligations & cost of credit

Credit granted & over-indebted consumer

Remedies available

Court can set aside or suspend contract

Prohibited conduct (not reckless lending) declared by National Consumer Tribunal & administrative fine

Compliance notice by National Credit Regulator

Removal of credit bureau listings, rescission of judgments

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Africa Bank reckless lending investigation

The African Bank reckless lending investigation

Complaints received from consumers & investigation initiated by the NCR;

669 reckless loans; 651 loans by KZN Dundee branch; 48 loans by 25 other branches (Mabopane, Germiston, Rustenburg,

Umtata, Cape Town, Durban, Thohoyandou, Gugulethu, Orlando, Pretoria, Upington, Carletonville, Klerksdorp, Mafikeng, Johannesburg, Idutywa, Randfontein, Witbank (Arras Street), Witbank (Klipfontein), Carletonville, Umtata, Nqutu, Polokwane, Tsolo and Tzaneen);

South African Reserve Bank formally notified of the findings from the investigation in 2012.

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Africa Bank reckless lending investigation

The African Bank reckless lending investigation

African Bank explained that loan origination system manipulated by agents in collaboration consumers;

NCR did not accept the explanation & requested African Bank to enter into a consent order to be confirmed by Tribunal;

Consent order proposed a fine of R300 million and corrective measures to assist the affected consumers (writing off of loans, rescission of judgments, clearing of credit bureau listings);

African Bank declined to enter into consent & NCR decided to refer them to the Tribunal;

NCR notified the South African Reserve Bank in 2012.

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Africa Bank reckless lending investigation

The African Bank reckless lending investigation

African Bank approached the NCR to negotiate a settlement of the matter;

Settlement reached with African Bank agreeing to pay a fine of R20 million & effect corrective measures;

NCR considered factors in section 151 of the National Credit Act when agreeing to the settlement.

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NCR Study on Affordability assessment weaknesses

Study identified the following weaknesses:

Lack of verification of income disclosed by consumers;

Under-disclosure of living expenses by consumers in credit applications;

No credit bureau reports; Delay in granting credit after

obtaining consumer credit reports; Lending to the maximum of the

consumer’s available disposable income;

Not all loans recorded at credit bureaus (voluntary system of credit reporting system).

Affordability assessment regulations

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Enforcement Action

Raids in Marikana, N/W Province:

2012:16 credit providers raided: reckless lending, retention of bank cards, pin codes, id books,excessive fees & int;

Arrests made, criminal cases opened & referrals to the Tribunal;

2014: Above + 15 credit providers in Rustenburg area raided

2014 raids: 50% that were raided in 2012 not operating due to strikes + cancellation of registration by the Tribunal;

Absence of retention of bank cards, pins & Id docs;

Files for Rustenburg raids being assessed;

Similar raids conducted in W/Cape, Limpopo, Gauteng, Mpumalanga, KZN Provinces in past 2 years.

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Enforcement Action - 2014

13 compliance notices issued : includes those issued for unlawful adverts;

8 referrals to the Tribunal

Arrests made, criminal cases opened & referrals to the Tribunal;

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Going Forward

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To work with the World Bank to develop an “early warning system” in the credit market for non-bank entities;

Monthly statistical reports to be submitted to the NCR: to detect unforeseen market events;

National Credit Amendment Act, 19 2014: NCR to refer cases to the Tribunal for reckless lending; credit life to be capped;

Affordability assessment audits to be conducted across different types of credit providers;

NCR to work with credit providers to assist in complying with affordability assessment regulations.

Continuously enhance co-ordination between the NCR and Registrar on Banks.

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Thank You!

www.ncr.org.za