Credit chickens coming home to roost

2008 is going to be a busy year for the credit regulator.Geoff Candy14 Jan 2008 11:26

The cumulative four percentage point increase in interest rates since June 2006, seems hefty when one considers that South Africans, as a nation, owe R834bn to a variety of credit providers.

And, 2008 could well be the year when the credit extension chickens come home to roost.
According to Gabriel Davel, the National Credit Regulator, there will definitely be some fall out from the recent interest rate hikes as there is no doubt that people have overextended themselves.

"But," he adds, "It will not be like the crisis we saw during the early parts of the decade with Saambou and Unifer, people are much more cautious now."
Davel says most of the debt South Africans have accumulated is in the form of home loans and vehicle finance arrangements and these will generally be ok; rather it is in the area of credit cards and store cards that the big fallout will occur.

"There will probably be a number of retailers that will burn their fingers.
And, part of the role the National Credit Regulator plans to play in the coming year is to ensure that the amount of credit offered by retailers decreases.
"There is still too much hard selling in the market and that is one of our priorities for 2008," he says.

One of the other focus areas for 2008 and is the establishment of the debt counseling structures.
Since the Act came into effect in June 2007, 173 debt counselors have been approved and certified, while a further 70 have been approved and are awaiting certification.
Since June, 2 876 cases have been put under debt counseling, while 140 have been rejected - the primary reason being that the clients are not actually overindebted.

What has surprised the NCR is the sort of people that are applying for debt counseling. "There are a large number of people whose debts are R1m and up and who are now in a desperate position. Typically they are people already with a mortgage that have bought two cars, two credit cards and 5 or 6 high value store accounts."

According to Davel, there are surprisingly few people from the low income group that have so far applied for debt counseling, but this could also be because so far the debt counseling roll out has been primarily in urban areas.

Davel says, the current number of people under debt counseling is tiny compared to the 16m person credit market, but he adds that this number will continue to rise in 2008.Asked what to expect in 2008, Davel says, "On the first day of January, we had 200 calls and more than 80% needed debt counseling, it's going to be a busy year."