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Credit Act winning the battle but demand for credit still high

14 March 2008 PIC Solutions

With the hikes in interest rates and increases in prices for retail goods, new applicants may find themselves financially unfit to qualify for credit. Cadets to the world of credit are being thoroughly screened for credit-worthiness now that the National Credit Act is in place. Yet, the demand for credit is high, despite increased interest rates and other financial obstacles.

"Since the new Credit Act, first time credit applicants have more obstacles to cross in lieu of the requirements needed to qualify for credit, and yet, almost forty percent of credit applications to the companies we work with are submitted by credit cadets per month," says Simon Trupp of PIC Solutions, a credit and risk management company for the retail industry. Retail trade sales are an important indication of the demand for credit and this is likely to translate into inflation. Unfortunately, it is expected that consumers will be heavily affected by the recent power shortages, petrol and interest hikes and may resort to their plastic cards as a short term solution.

However, the rate of new credit issuance has been curbed by the tough screening process required by the Act. Simon Trupp comments, "The National Credit Act has improved South Africa's risk management through its strict requirements for applicants. So although our customers have experienced a dip in credit applications, they are finding that repayments are more regular."

The National Credit Act has enabled companies like PIC Solutions the opportunity to help their clients improve debt collection by carefully screening the individuals who apply for credit. "The National Credit Act has been designed to protect the interests of both parties by placing boundaries around the issuing of credit. This enables both the credit applicant and the creditor the advantage of a more cautious lending rate in the face of rising inflation. And while it has decreased the rate at which credit is lent out, it is increasing the percentage of returns through the screening process," adds Trupp.

The Act requires that the credit applicant's suitability be carefully examined before the application is approved. "The trend we are seeing now is more reliable debt repayment, whereas in the past we would have had a much larger percentage of debtors failing to fulfill their repayment obligations. Naturally, the trend has been to equate new credit customer acquisition with the growth in the company, but it may be the case that we now look at the rate at which a company receives repayment on the credit it issues as a more reliable and accurate source."

Amongst other things, the Act aims to minimise the granting of reckless credit and regulate credit costs as well as enforce disclosure of these costs. In a day and age where plastic is the main means of payment, retail and credit cards have the advantage of offering consumers convenience. However, it has been the case that consumers use their credit cards to spend money that they do not have, resulting in chronic debt.

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