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The National Credit Regulator (NCR) is honing in on clothing retailers to check their compliance with the National Credit Act.

September 21, 2007 By SAMANTHA ENSLIN-PAYNE Durban – The National Credit Regulator (NCR) is honing in on clothing retailers to check their compliance with the National Credit Act. Gabriel Davel, chief executive of the NCR, said yesterday: “There are a couple of retailers we have issues with. We are doing a conduct review at four retailers.” He declined to name them but said the NCR would examine the retailers’ upfront disclosure to consumers who applied for store cards. The act stipulates that when applying for credit, a consumer must be told of the prevailing interest rate, fees, insurance and any other costs associated with the credit so they can make an informed decision. In the case of a store card, which could have repayment options of six, 12 or 24 months, a customer should be told what the worst case scenario would be in terms of the total monthly repayment if the full limit on the card was used. The credit market in South Africa is worth more than R700 billion a year and involves 14 million consumers and 4 000 credit providers. Speaking about the lending climate, Davel said: “We have seen far too many large listed companies ignoring the act. “They think we will not take them on. Our mandate is to enforce the law.” Failure to comply with the act could result in a fine of up to 10 percent of a company’s annual turnover. Retailers selling white goods, furniture or motor vehicles are obliged to disclose the total cost, inclusive of all add-ons, of a product in its adverts. “Some retailers … do not like people knowing the credit cost in advance,” Davel said. He cited one motor vehicle company that did not want to include credit life insurance in the advertised cost of its product because this substantially pushed up the price. “We are currently in a fight. It is going to get ugly soon,” said Davel. Edgars Consolidated Stores (Edcon) financial services executive Ian Wood said: “Generally we are compliant. This has involved a lot of staff training.” He said credit applications and credit granted had declined because there was uncertainty about the new system. There had been a big push to advance credit before the act. “We opened a lot of accounts between 2003 and 2005 but started to tighten up when interest rates began to rise,” said Woods. As a result, Edcon’s bad debts have declined. Other retailers have had a rise in bad debts. In a presentation on its results for the year to June, Woolworths said the tougher collections environment resulted in net bad debt and related provision charges increasing from 5.5 percent of the gross book to 6.9 percent. The act aims to change the behaviour of credit providers and consumers, as household debt has reached worrying proportions. “We cannot afford to have a blow-up of the middle class in a few years’ time,” said Davel. It is estimated that about 300 000 people are overindebted, while more than 700 000 are debt stressed. Credit extension by banks to households rose to R680.7 billion last September from R289.8 billion in January 2002. Home loans rose to R444.8 billion from R174.6 billion. Other types of loans also jumped, with overdrafts rising 32 percent, credit cards increasing 188 percent, leases up 289 percent and instalment sales up 138 percent. “If this had been allowed to continue we would have had a major problem. No other country in the world has had such growth in credit, except maybe China,” said Davel. But the impact of the act and higher interest rates might be starting to have an effect. Woods said many customers were paying off more than their monthly repayments as they became more credit conscious and might be trying to settle debt more quickly.