Bosses baulk at the debt-collector role

31 August 2014 - 02:31 By Staff Reporter
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APC Vey cartoon in an old issue of The New Yorker has two crusty businessmen sitting around a desk looking a little put out. "These new regulations will fundamentally change the way we get around them," one says to the other.

APC Vey cartoon in an old issue of The New Yorker has two crusty businessmen sitting around a desk looking a little put out. "These new regulations will fundamentally change the way we get around them," one says to the other.

Reserve Bank governor Gill Marcus must have a sense that this is the sort of attitude that she and other government regulators are having to deal with right now as they try to figure out what sort of regulations could be put in place and not "got around". She is dealing with an industry of repeat offenders -people who are so exercised by the enormous short-term profits that can be made that they are happy to push the system to the brink.

Marcus might be about to get help from an unlikely source - other business people. Increasing numbers of business people who employ the millions of consumers who have been slapped with garnishee orders are talking about challenging the orders in court. Industry sources say that well over 50% of the estimated three million garnishee orders that have been issued are irregular.

Successful challenges would threaten the whole unsecured lending market, much like the government's decision in 2000 to prevent microlenders from accessing Persal, its employee payment system, precipitated the collapse of microlenders Unifer and Saambou.

Marcus is thought to have played a key role in the decision to put Saambou into administration in February 2002. This, just months after Absa had to bail out Unifer. At the time, Marcus was deputy governor of the Reserve Bank and Tito Mboweni governor. KPMG, which was tasked with investigating the reasons behind Saambou's collapse, produced a 600-page report. Then Advocate John Myburgh was set to work to draw up detailed corporate governance guidelines for banks.

In 2007, the National Credit Act was implemented.

And here we are, years later, looking at something that reminds us all of Saambou. Ironically, when Saambou was carved up, its micro-lending business was sold to African Bank, which went on to dominate the renamed unsecured lending market. Also ironic was that a week after the announcement of Saambou's collapse, Capitec was listed on the JSE.

Access to Persal had meant that microloans to government employees, who accounted for the bulk of the industry's R14-billion loan book at the time, were in effect guaranteed. This guarantee enabled lenders to make huge and easy profits on expensive loans. Employers are now arguing that the garnishee system provides the same sort of security for so-called unsecured loans.

The implementation of the National Credit Act in 2007 did achieve the important objective of providing access to credit for low-income consumers who do not have assets. According to National Credit Regulator data, by the end of March there were R179-billion in unsecured loans outstanding. This borrowing provided a great consumption-backed boost to economic growth for a few years and helped to "justify" huge remuneration packages for executives in the retail sector. But as borrowers struggled to pay the mounting cost of ever-growing numbers of loans, including all sorts of add-ons, more and more money went to repayment and not consumption.

Now it is evident that the National Credit Act-backed lending splurge has resulted in a massive redistribution of wealth from poor borrowers to wealthy debt providers. Also apparent is that the act has failed to ensure sustainable lending practices. In part, this is because of flaws in the implementation and monitoring of the act. And in part it's because borrowers have failed to realise the crippling impact of cumulative loans that are increasingly used to fund day-to-day expenses.

But now the employers are fed up and believe the unfettered access to garnishee orders places an unacceptable burden on them. They have had enough of being debt collectors for unknown and frequently reckless lenders and say the system disrupts the work environment, knocks productivity and fuels increased wage demands, all of which dampen economic growth. Many employers are considering applying to court to review the orders.

And so, as Marcus and government leaders consider how regulations can be adapted to restrain regulation-averse lenders, they may have an unlikely ally on their side.

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