The consumer credit conundrum
Enhancing the relationship between
regulators, consumers and lenders
There are several key areas of consideration that need
to be addressed to create a more responsible and
sustainable credit environment for both lenders and
consumers.
The global financial crisis, caused in part by an asset price
bubble, has meant that the rapidly growing unsecured
lending sector has come under scrutiny. Most experienced
unsecured lenders in the country have robust risk and
governance frameworks and regulators have been proactive
in developing strong credit regulations, such as the National
Credit Act, which contributed in sheltering South Africa
from experiencing the full might of the global financial crisis.
Yet there still remains a tension point – concerns regarding
consumer indebtedness amongst more vulnerable consumer
segments may need further exploring in the sector.
Mgcinisihlalo Jordan
Partner I Financial Services Deloitte
[email protected]
We contend that unless key interventions are introduced,
significant losses by credit lenders could occur. This is in
part due to our view that the rise in unsecured lending is
supply-side driven, in that the sector has been identified as
one of the few growth areas by both existing and emerging
unsecured lenders.
With the rapid growth in the sector, preventative
measures against future stress in the system may need to
be considered in the event growth rates continue at an
accelerated pace. The opportunity presents itself to further
strengthen the current legislative framework and provide
more guidance to both lenders and consumers.
Enhancing existing Consumer Regulation
The National Credit Regulator has noted that additional
regulation will not reduce the current levels of debt stress
in the market. However the National Credit Act (NCA) does
have some limitations that may need further consideration.
Rather than promulgating additional regulation, the
solution may lie in the better utilisation and issuing of
guidance notes in respect of existing consumer protection
regulations and compliance standards such as the Consumer
Protection Act (CPA) and Treating Customers Fairly (TCF) in
protecting the consumer. When reviewing current consumer
regulation, regulators should consider focusing on creating
more guidance to lenders in terms of where the threshold
between indebted and capable-to-repay consumers is.
More holistic customer understanding and
segmentation
A more comprehensive and overarching understanding
of customers will increasingly become needed not only
for better understanding customers, but maintaining
competitive advantage. Lenders need to truly know
their customers and this requires an understanding
of customers’ total credit records.