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Letter to stakeholders continued
Investors must be cognisant that
any reform process brings with it
a degree of uncertainty and
possible instability as the
national debate progresses.
It is also vital that the review
process covers all related laws
impacting on the credit industry
and that those new measures be
subjected to stringent regulatory
impact assessments.
The past few years have seen
a trend of increasing
fragmentation in the regulatory
process in respect of consumer
protection and ongoing
legislative enhancement by
proliferation of ad hoc
regulations with resultant
increased compliance costs.
It is hopeful that the review
process will arrest and wherever
possible reverse some of these
trends in the credit law review
process.
Future access to, and the cost
of credit, for the estimated
16 million credit-active South
African consumers – as well as
those still without access – will
be affected by the outcome of
the review process of the Usury
Act, Credit Agreements Act, and
the 1999 Exemption Notice
under the Usury Act.
In view of the market trends
outlined above, what is required,
ABIL believes, is the creation
of a non-discriminatory and
competitive unified credit
market. To achieve this, the
group subscribes to the
following cornerstones for a new
dispensation:
– The abolition of price controls.
Price controls ration credit,
distort the allocation of credit
in the economy, increase
perceived risk for investors
and funders and as a result
ultimately drive up the cost
of credit and reduce access;
African Bank Investments Limited 6
– The establishment of a single,
substantially simplified
consumer protection
framework for the total credit
market. This will eliminate the
present fragmentation and
confusion and should aim to
significantly reduce the
present increasingly onerous
cost of compliance whilst
improving effective recourse
for consumers;
– The standardisation of pricing
and contractual disclosures,
eliminating prevalent abuses
in the market and increased
reliance on such transparency
as the main regulatory
mechanism to enable
informed consumer choice;
– Legislation to establish a
central repository of credit
information to inform new
credit extension and to
regulate the protection of
consumer and creditor rights
in the system;
– Relying on the market rather
than prescriptive and
potentially distortive
regulations and rules to punish
reckless lending and
borrowing;
– Enabling and enhancing
competition within the
industry and therefore
increased choice for
consumers.
As an active participant in this
process, ABIL is appreciative
of the spirit of cooperation
displayed by government and
the credit industry during this
review.
Section 74 of the Magistrates
Court Act
The prevalent abuse of
weaknesses in this legislation
by some unscrupulous debt
administrators has caused
hundreds of thousands of
individuals to be caught under
debt administration in perpetuity,
with the debt administrators as
the main beneficiaries in the
process.
The Law Reform Commission has
commenced a review of section
74 of the Magistrates Court Act
during the course of the year.
The banking industry, through
the Banking Council, has made a
submission to the Law Review
Commission. ABIL’s input to this
submission has been substantial.
The Law Review Commission’s
response to the submission is
still in progress. However, an
opportunity exists for interim
changes to section 74 to address
loopholes in current legislation
that are being abused by
unscrupulous administrators to
the detriment of clients and
creditors alike.
We believe that government
will use the opportunity to
implement such interim changes
as soon as is practically possible,
rather than wait for a protracted
process of writing a new law.
2. Further momentum in
integrating sustainability
throughout the group
ABIL acknowledges that to sustain
growth, competitive advantage and
product innovation is not enough.
Social and environmental factors
have become important criteria in
determining company success.
It has therefore substantially
increased the focus on the group’s
sustainability strategy. Its objective
is to develop an integrated
sustainability management
framework that will strengthen
stakeholder engagement, assess
and manage risk (including social
and environmental risk), and
enhance synergies and partnerships
to facilitate opportunity creation.
Projects resulting from the
sustainability review are already in
progress. The focus for 2004 is to