In the wake of the recent credit amnesty approved in South Africa, it seems that credit bureaus will be rendered powerless over their ability to assess a person’s credit history. This is a dangerous path since the primary purpose of a credit bureau is to provide credit givers with the credit history of potential clients.
The amnesty removes adverse credit information regarding consumers, especially those who have settled their debts. With the amnesty in effect, credit bureaus and the credit providers they serve are essentially flying blind. The inability to determine whether a potential credit applicant is a good or bad credit risk is a huge disadvantage that can have devastating repercussions on all stakeholders.
Credit grantors invariably have to look to the past to determine the future. If they cannot verify potential clients’ past behaviour regarding debts, they have little information on which to base their prediction for future behaviour on.
Bad for Credit Givers, Bad for Credit Seekers
The credit amnesty is not just bad news for credit bureaus and credit grantors, but for consumers as well. A similar amnesty was announced in 2007. Of the people who enjoyed a clean slate because of the amnesty, 74% are presently defaulting on credit payments. This is additional proof that credit bureaus desperately need dependable help to minimise risk. They need to make the most of analytical tools at their disposal and find other ways to overcompensate for the blow dealt by the amnesty.
Finding Solace in Analytics Technology
The main point of contention is that the lack of access to unfavourable credit history raises lending risk. With less data to work on, they really need to squeeze quality information out of whatever data they do have access to. Financial institutes in South Africa and across the world rely on intricate analytic tools and systems to make better decisions and mitigate lending risk.
It seems that this same analytical technology will come to the aid of these financial companies as they face the brunt of the controversial credit amnesty. Predictive models are especially useful in adding much-needed certainty to the risk scores of prospective credit consumers.
The good news is that the credit history of these consumers will not be completely eradicated. Credit bureaus will still need to maintain a record of the consumer’s monthly payments. However, banks and credit bureaus will need to use the most efficient and dependable analytical tools to capitalise on this opportunity to transform this data into valuable information.
Better Collections through Analytical Tools
By leveraging state-of-the-
By swiftly consolidating the most recent and secondary contact information, collection costs can be reduced greatly.
The prospects of successful collection can be better understood by placing data in geographic zones. Risk assessment for future debts is also made simpler.
With the right systems, collection calls can be prioritised, saving valuable time that would otherwise be wasted in pursuing incorrect numbers and other issues.
Collections can also be improved by tracking the indebted consumer, his next of kin, neighbours, etc. using historic address information.
These collection enhancements provided by well-thought-
Data Technology: the Sole Saviour of Credit Bureaus
The minister for Trade and Industry Rob Davies rebuffed concerns regarding the credit amnesty, stating that credit bureaus maintained “out-dated and misleading” data. He also stated that the existing process for removing the information was inefficient.
Even the availability of monthly payments records does not change the fact that credit grantors will no longer have the ability to view adverse credit listings. The remnants of consumer’s credit history have put banks and credit grantors in a difficult situation.
The National Credit Regulator (NCR) has a more lenient stance as it acknowledged the concerns of credit bureaus. The NCR further extends its concern by planning to work at the local level to educate consumers to undertake credit more sensibly.
Can credit bureaus cast off their inhibitions by depending on NCR’s acknowledgement and efforts? Not quite. They clearly cannot depend solely on comforting words and any endeavours to lessen the blow dealt by the credit amnesty.
There are a lot of troubling questions that have yet to be answered. For instance, will a credit grantor be entitled legal recourse against the state in case a debt granted after the amnesty goes bad?
In any case, the best option for credit bureaus and the lending institutes they serve is to fully capitalise on data analytics systems. This will enable them to efficiently evaluate the credit worthiness of the large and ever-expanding (especially after the credit amnesty) group of consumers seeking credit. If there ever was a time to overcompensate with data analytics, it’s now.