NCR experience in financial education

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NATIONAL CONFERENCE ON FINANCIAL EDUCATION

• NCR experience in financial education
• Debt stress needs priorities
• November 2008

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CONTENTS

• The Act 1
• NCR 2
• Over-indebtedness Debt Counselling 3
• Conclusion 4

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National Credit Actwhat is its purpose ?

• NCA addresses the following issues
• Access to consumer credit
• Improve disclosure
• Prohibit unfair contractual practices
• Regulate interest and fees
• Promote responsible credit granting, reckless
  lending rules debt counselling
• Regulate credit bureaux credit information
• Enforcement redress

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National Credit Act became effective 1 June 2006
Reckless lending
Interest fees
Marketing practices disclosure
National Credit Act
Enforcement debt collection
Agreements quotes
Debt counsellors
Unlawful agreements, provisions
Credit Bureaus National Credit Register
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Overview registration. Inspections, compliance

• Approximately R 1.1 trillion of credit, provided
  to 17 million consumers
• Registration 3 479 credit providers with 30 060
  branches, with another 91 entities still
  temporary registered
• 11 credit bureaus, managed 22 audits, 16,8 m data
  removals
• Investigations x 268, 21 Compliance Notices 6
  cases to the tribunal
• R 16.8m paid back to consumers through NCR
  intervention

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How we do consumer education
NCR
Education and Communication Division
Function Communicate and Educate Section
16(1)(a) NCA

• Direct communication/awareness
• Media
• Call Center
• OBs
• Workshops

• Indirect communication/education
• Relationship and Capacity building workshops with
  NGOs, Trade Unions, Employers, Consumer
  Directorates and community leaders, EAPS,Media

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Consumer Awareness Education

• Awareness education
• Workshops aimed at industry community,
  employers,
• (859 workshops, 78.812 people participated)
• Print media radio talk shows broad coverage,
  simple messages, retention
• Radio 536
• Television 110
• Newspaper 1820
• AVE 95 640 358.90
• Booklets brochures (all official languages)
• Website for sophisticated consumers

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NCR publications
in all official languages, available on
www.ncr.org.za
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Reckless lending over-indebtedness

• Affordability assessments
• reasonable steps to assess ability to meet
  obligations under agreement, based on consumers
  existing financial means, prospects and
  obligations per information available to lender
  at the time of approving the loan
• If reckless,
• Court may suspend enforcement credit provider
  must indicate to court that credit was not
  granted recklessly Court can refer a consumer
  to a debt counselor
• but consumers must disclose details of all
  debts
• Debt counseling
• Develop debt repayment plan, either consented by
  providers or approved by courts provide
  on-going support to consumer
• In duplum rule
• limit interest fees after default to 100 of
  outstanding amount at point of default limit
  debt farming
• Register of Credit Agreements regulation of
  credit bureaus
• To provide complete accurate picture of
  payment profile indebtedness improve ability
  of credit providers to assess clients manage
  risk

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Debt Counselling philosophy, implications,
challenges

• Philosophy a mechanism to advise assist
  debt-stressed individuals, mediate between rights
  of credit providers and protection of consumers
• Manner in which it is structured
• ?? Conditions of registration regulate debt
  counsellor behaviour
• ?? Fees limited through guidelines fund for low
  income applicants
• ?? Role of PDA specialised capacity for payment
  distribution
• ?? Voluntary debt counselling also an important
  role, but it is a pity that the industry is so
  slow in getting it implemented
• ?? Magistrates Court plays critical role in
  overseeing the restructuring, ensuring that it is
  fair to both consumers and credit providers
• Challenges posed by current debt stress

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Level of indebtedness vs. Debt Stress

• Although total debt levels and debt to income
  levels are at a historic high, debt servicing
  levels are not yet at unprecedented levels.
• Debt stress is fairly high as result of the
  interest rate increases, but not at critical
  levels
• The stress levels may well progressively increase
  over the next 12 to 18 months, even without
  further interest rate increases,
• Yet there are also mitigating factors, as
  consumers adjust to the external environment

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Credit bureau data? not indicating dramatic
deterioration
Position in June worse, but not dramatically
continuing trend of moderate deterioration Will
further deteriorate, in environment of high
interest high cost of living BUT, with time,
large section of consumers are adjusting,
improving personal position
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Debt counselling statistics

• Registered 578 debt counsellors, arranged
  training, provided guidelines,
• Payment Distribution Agencies in place, already
  distributed nearly 6.33 million to credit
  providers
• 35,000 applications for debt review
• The extreme stress group appears
• to be a relatively small minority,
• except for the lowest income groups
• where the impact of the cost of
• living increases are felt more
• generally.

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What Leads to Over-Indebtedness

• Indulgence lifestyle
• Ignorance of financial products
• Lack of proper planning
• Social pressures peer, family
• Change in circumstances
• Reckless lending
• Economic upswing increasing interest rates

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FURTHER WORK ON DEBT STRESS

• The NCR initiated a number of different projects
  through which to
• assess the levels of debt stress amongst
  consumers at different
• income levels, and to track this over time.
• Includes a detailed analysis of the returns
  received from banks
• others (and statistics received from credit
  bureaus).
• Also includes macro-economic analysis by
  Econometrix, gathering
• of institution-specific debt stress numbers and
  overall credit growth
• numbers (Feasibility Consulting, Dr. Penny
  Hawkins).

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What does the above mean for South Africa?

• Integration of financial education into the
  school curriculum
• Inclusion of financial education at college and
  university level to prepare students for the real
  world.
• Collaborative efforts between government and
  financial sector to step up awareness and
  education amongst general public.
• Invest in creating educated circle of media as a
  conduit to support the above efforts.
• Coordinated and joint programmes amongst
  stakeholders with responsibility to do financial
  education maximum impact.
• Consistent monitoring and evaluation including
  addressing shortfalls identified.

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CONCLUSION

• NCR already had significant impact in the
  short time since its establishment, with
  significant progress in all areas despite the
  huge challenge posed by the current levels of
  debt stress
• The huge level of support from civil society,
  trade unions and consumer groups has made a
  noticeable impact in creating awareness and
  building consensus

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Thank You !
www.ncr.org.za