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What does the Credit Amnesty Act mean to you?

On 24 February 2014 the Department of Trade and Industry in South Africa announced the Removal of Adverse Consumer Information and Information Relating to Paid Up Judgements regulations.

This new “credit amnesty act” came into effect in South Africa on 1 April 2014. This act allows for credit information amnesty and should not be confused with an amnesty of all debt, as some consumers might have thought.

Debt won’t simply be wiped away (unfortunately for many!) – what the act means is that a record of bad debt will be removed from credit bureau records, and you will still be liable for any debt you have.

The intention of the Act is to allow people with a record of bad debt to “have the record cleared” so that they can again enter the economy and stimulate spending.

You can read the statement from the Credit Bureau Association here.

Credit bureaus have to remove the following information held as at 1 April 2014 from their records:

  • “Delinquent”, “defaulting” and “slow paying” information
  • Records of debt collection enforcement such as “written off” or “handed over for collection”
  • Negative debt information in the payment file of the consumer

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What this means to you:

The credit amnesty act means that negative credit records that show how you managed (or mismanaged) your debt prior to 1 April 2014 will be removed.

Credit bureaus will also be required to remove any judgements against you from the record if you have settled your debt in full, on an ongoing basis. In the past you had to ask the court to remove this record – now the record of the judgement will be automatically removed upon settlement.

This does not necessarily mean that it will be easier to get loans and credit, as many lenders will now be forced to introduce credit vetting controls of their own.

In the past some customers applying for a loan would have been declined immediately as a result of the information on record at the credit bureaux, whereas now the lender will apply credit risk evaluations of its own.

It is also important that you are familiar with your own credit profile: you can get one free report annually from any credit bureau.

You must also ensure you have a good credit score by paying debts on time and closing accounts you do not need or cannot afford.

You can read some useful FAQs on the Experian website (link to a PDF)

More information is available from the National Credit Regulator.

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What does this mean for the South African property market?

The possibility exists that financial institutions will act more cautiously when approving home loans, since the detailed historical information from credit bureaus will no longer exist. The Act represents unknown risk and if lenders are more cautious and need to implement their own credit control systems, this could result in the property market slowing down since higher costs will mean fewer people can enter the property market. Many areas of the financial industry have been opposed to the act for this reason.

This is ironically the opposite effect intended by the Act – and at this time it is uncertain as to what the long-term effects of the Act will be.

What consumers need to remember is the importance of good financial management, saving up a good deposit for buying a home and ensuring bad debt is kept in check by paying bills on time and keeping debt manageable.