New credit legislation brings women down

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New credit legislation brings women down to men's level.

New credit legislation brings women down to men's level.

The last section of the new National Credit Act came into law on June 1st this year and with it has come a considerable amount of additional paperwork and administration designed to qualify potential borrowers more effectively and equally.  Apart from the reported drop in loans - particularly vehicle finance and bonds - that this has precipitated* , the new legislation has also ensured that all loans are absolutely assessed off the same basis.

On paper, that might appear to be all fair and good; but, as in other areas of finance such as vehicle insurance, not all borrowers are equal, even if they may appear so on paper. Women, for instance, have historically paid lower premiums for car insurance and were also considered a better risk for loans as well. In addition, delinquents (really bad payers, one up from defaulters) have been granted amnesty under the new act and will now be scored off a theoretically clean slate, which will place them far higher up the credit approval rating scale than before the act came into being.

This levelling of the credit playing fields has its downside. The new legislation does not discriminate on the grounds of gender or any other physical signifier. As ever, the critical factor is credit record but previously a woman's credit record, when good, counted more because women in general default less. Now everyone appears to be assessed off the same basis - and by no means is everyone the same credit risk.

This is all according to credit assessment experts PIC Solutions, who manage credit customers on behalf of all the major South African banks and many major retailers - custom that translates into an expert overview of the credit market in South Africa. Stephen Leonard, MD of PIC Solutions, comments: "The National Credit Act is not all bad - it will certainly assist companies to make smarter decisions on credit risks. But it is far from perfect either: yet again, it appears that Government has seen fit to introduce legislation without properly consulting the relevant industry. Hence the slowdown in credit approvals and the general frustration in the credit industry as a whole."

Leonard believes we are only beginning to see the effects of legislation that has not been properly thought through: "Crunch times are coming, defaulting credit will rise so collection systems will need to be strengthened and improved to ensure that defaulting is kept to a minimum and loans are approved timeously. What might help the SA credit industry is for it to follow the example of the UK industry, where more than 80% of credit business is outsourced."

Clearly some further training and support for all role-players is required - something PIC Solutions' well-regarded Credit Academy is well-placed to deliver. That way the new rules of the credit game can be tailored to suit the new playing field - whatever the lender, whatever the loan, whatever the gender.