The credit information amnesty, officially named Removal of Adverse Consumer Credit Information and Information relating to Paid up Judgements, is upon us as of 1 June 2014.
The amnesty means that certain delinquent tenants will be listed as ‘average’ tenants going forward. In the same vein, completely neutral profiles, which contain neither positive nor negative credit information, will also automatically be categorised as ‘average'.
This legislation was put forward in order to assist with the rehabilitation of consumers who currently have negative credit information stored against their names. The intention of the removal of adverse information is essentially to allow benefiting consumers to re-enter the job or rental market with a clean slate.
However, Michelle Dickens, managing director of TPN credit bureau, says there are some deeply worrying aspects to the amnesty. "I fully stand behind the sentiment of rehabilitating consumers in terms of their credit behaviour. But with this method, there is in fact no actual rehabilitation taking place, just the granting of an amnesty. Which begs the question, what then incentivises consumers to pay back their debt?”
Dickens says the amnesty does not absolve consumers from their responsibility to pay back that debt - it simply removes the negative information from their credit profiles. She says those consumers who have demonstrated habitual credit delinquency and are already burdened with debt will now potentially be re-entering the market and incurring even more debt. This type of reckless lending could be detrimental to our economy as a whole, and severely affect individuals, she says.
Dickens notes that the term consumer applies to any natural person, as well as juristic entities that fall under the R 1 million annual turnover mark. Which means that it's not only individuals, but small businesses as well that will be affected by this legislation, she explains.
Dickens highlights the gaping holes in the recently published legislation, particularly with how it is applied to the rental industry. She says this amnesty will apply to tenants as well, regardless of the fact that tenant payment statistics are at the best they've ever been.
Dickens reassures property owners and landlords that there are, however, still ways to gauge the classification of tenants thanks to payment profile information, which will be unaffected by this amnesty. “TPN is still able to list our rental payment profile information - where TPN's collected data reflects a tenant's payment behaviours. This information is shown in an easily accessible graph form, which clearly reflects, over a chosen period of time, a factual account of how the consumer or tenant pays their account – for example, paid on time, paid partially, paid late, or did not pay at all.”
She says the payment profile data, however, will be enough to deduce if the tenant will pay their rent on time.
It is important to note that there is a significant group of consumers that will not benefit from the amnesty, in fact, it will most likely have a negative impact on their risk status. “The amnesty means that certain delinquent tenants will be listed as ‘average’ tenants going forward. In the same vein, completely neutral profiles, which contain neither positive nor negative credit information, will also automatically be categorised as ‘average’,” Dickens explains.
She says the issue is that there is no way to ascertain whether their average status is a result of actually having no history, or that this person benefited from the amnesty. In this area of doubt it will then be assumed that the consumer benefited from the amnesty and will be viewed with a certain expectation of risk, even if that hasn’t been earned, says Dickens.
She says one positive they’ve seen resulting from the announcement of the legislation is that they’ve received record amounts of data from their members. “We've been warning our members for some time now of the importance of loading their data, urging them to be part of the solution to the problems posed by the credit amnesty by contributing their data. This is especially important concerning neutral tenants – we need to reward quality tenants for good payment behaviour to help move their profiles into the positive arena. It's unfair for them to have no data and be seen as a risk.”
With the current over supply of tenants, and lack of stock, many landlords are choosing to take the low risk route and hold off on placing a tenant until they are presented with a positive profile. If you do choose to place ‘average’ tenants, make sure to watch them carefully, she warns.
Typically, she says tenants turn delinquent within three months of occupation. If you see any sign of this happening, make sure you act quickly, she says. She advises that before you sign an ‘average’ status tenant, it’s vital that you make additional enquiries - including checking the records of spouses and other adults living with them, and take measures such as raising deposits, obtaining surety, and ensuring all their relevant personal documentation is collected.
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