Adverse Credit Listings and Their Importance for a Healthy Economy

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When we speak of the National Credit Act, 34 of 2005 (the “Act”), we immediately think only of the obligations that are placed on credit providers and consumers in relation to the provision of credit products.  Indeed, a large part of the Act is concerned with the regulation of the relationship between credit providers and consumers. There are however some other very important functions and provisions that are worthy of attention, for example the provisions regarding the operations of, and dealings with, a registered credit bureau.

A credit bureau, registered in terms of the Act, performs an essential function in the lifecycle of credit-granting and related activities, and consequently in South Africa’s economy at large. Without being able to refer to the records of a credit bureau, entities would not necessarily be in a position to offer products suitably tailored to the credit profile of each individual, and could therefore opt to offer more conservative and risk averse products across the board. Consumers benefit from this tailored approach as credit will be granted to each consumer appropriately while ensuring that those who do not appear to be in a financial position to afford the relevant product are not further burdened with debt.  For this to play out in accordance with the spirit and purport of the Act it is vital that accurate and valid information appears on each consumer’s credit record, and this duty, as I explain below, ultimately rests on credit and certain service providers.

In terms of section 70(1) of the Act a registered credit bureau may hold information regarding a consumer’s credit history, financial history, education and identity (collectively defined as “consumer credit information”). This is provided that various requirements in the Act are met.

In this article I will be focussing on the listing of certain negative categories of consumer credit information on a credit record, namely (1) adverse classifications of enforcement action and (2) adverse classifications of consumer behaviour (which I will collectively refer to as “adverse listings”), and how to ensure that this valuable information is not absent from the credit decisioning process earlier than the retention period stipulated in the Act.

In terms of section 71A (4) of the Act –

  • adverse classification of consumer behaviouris defined as “classification relating to consumer behaviour and includes a classification such as ‘delinquent’, ‘default’, ‘slow paying’, ‘absconded’ or ‘not contactable’”; and
  • adverse classifications of enforcement actionis defined as “classification relating to enforcement action taken by the credit provider, including a classification such as ‘handed over for collection or recovery’, ‘legal action’ or ‘write-off’”.

Regulation 17 of the Act provides that any such adverse listing is to remain on a credit record for one year or until such time as the debt to which the adverse listing relates is paid up in terms of section 71A of the Act.

These adverse listings are very helpful in assessing a consumer’s propensity to pay. It is for this reason that entities submitting such information to a credit bureau should be fully aware of the requirements of the Act pertaining to their lawful submission and retention, to ensure that valid adverse listings are not removed from a credit record sooner than the aforesaid legislated retention period.  This is especially so in light of the rights available to consumers in terms of section 72(1) of the Act, to contact, inter alia,a credit bureau to challenge the accuracy of any information on that person’s credit record, and, if successful, to have that information removed from their credit record (“dispute process”).

Consumers may be able to get their adverse listings removed through the dispute process if the relevant source of the listing is not able to evidence that various legal requirements for submission of the listing have been met.  Accordingly, entities submitting adverse listings to a credit bureau should bear the following requirements in mind before submitting them –

  • information reported to a credit bureau must be accurate, up-to-date, relevant, complete, valid and not duplicated (Regulation 19(3)) – for example, entities should try to ensure that the consumer has not in any way disputed the amount that is the subject of the adverse listing, whether through litigation proceedings or otherwise;
  • at least twenty business days’ notice must have been given of the intention to submit such information to the credit bureau (Regulation 19(4)) – if sending a section 129 letter, it would be advisable to expressly stipulate the intention to list in that letter;
  • no information may be submitted in relation to a debt that has prescribed in terms of the Prescription Acts of 1969 and 1998 (Regulations 18 (5) and (6));
  • no negative consumer credit information may be submitted to a credit bureau unless the required minimum monthly or such other instalment payments have not been met for a minimum period of at least three (3) consecutive billing cycles (Regulation 18(7));
  • no adverse listing may be submitted if any arrears owing on an account are settled within the twenty business day notice period contemplated in Regulation 19(4) or if the consumer has disputed liability for the outstanding amounts, within the period contemplated under the dispute process.

Section 72(3)(c), read with Regulation 20(2), of the Act states that if a person has challenged the accuracy of information with a credit bureau, the credit bureau must take reasonable steps to seek credible evidence in support of the challenged information, and within twenty days after filing the challenge must –

  • provide a copy of any such credible evidence to the consumer who filed the challenge, or
  • remove the information, and all record of it, from its files, if it is unable to find credible evidence in support of the information.

In a guideline issued by the National Credit Regulator (the “Regulator”), the Regulator has expressed that It is the responsibility of the credit bureaus and bodies that submit information to them (usually credit providers and certain service providers) to provide evidence in support of the challenged information before the prescribed twenty business days have expired.

In this guideline the Regulator noted with concern that the requirements of Section 72 (3) are not being adhered to as credit providers often provide evidence to the credit bureaus after the prescribed twenty business days have lapsed, thus leading to the previously challenged and removed information being reloaded on to a consumer’s credit record (which defeats the object of the challenge process). The Regulator added that this practice is a contravention of Section 72 (3) of the Act and appealed to credit bureaus not to reload information that has been removed where the source of the information supplies the credible evidence to support the challenged information after twenty business days.

In light of the above guideline, if the credit or service provider fails to timeously provide the credit bureau with information supporting the validity of an adverse listing, the credit bureau is required to resolve the challenge in favour of the consumer, with the result that the applicable adverse listing is removed from the consumer’s credit record (whether valid or not). Failure to therefore attend to these requests from credit bureaus, as well as to the requirements for submission of adverse listings, could result in gaps in the information available to credit and service providers when lawfully assessing a consumer’s credit record.

 

Shaylyn McDonald

Shaylyn has an LLB (cum laude) from Wits and was admitted as an attorney in 2008 after having completed her articles at Werksmans where she rose to the level of senior associate. After joining Bell Dewar (now Fasken) she took up an in-house position where she rose to the level of general counsel. Shaylyn joined Caveat in 2018 and focuses on commercial work.