Wendy Hall

Consumer Industries Reporter

THE National Credit Bill, due to be passed by Parliament in the first half of next year, aims to protect consumers from becoming dangerously overindebted, and will have significant consequences and costs for retailers.

The law’s rigorous customer checks and communication requirements mean clothing and furniture retailers offering credit will bear daunting compliance costs, including staff training, marketing and system upgrades.

"The price of implementation is immense," says Werksmans Incorporated attorney Eric Levenstein.

"Retailers have underestimated the cost and level of training that will be required to complete consumer credit assessments under the legislation."

Furniture retailer JD Group administers more than 1,74-million customer accounts and credit sales account for 51,1% of total merchandise sales for the year.

CEO David Sussman says the group does not expect that the bill will curtail its credit business.

He says that "until regulations are published in the Government Gazette, we can’t categorically tell what the upside or downside will be regarding revenue".

The bill, which replaces the Usury and Credit Agreements acts, was passed in the National Assembly last month, and has yet to be debated in the National Council of Provinces.

But retailers are able to make certain assumptions now about compliance with the new law.

"As of yet there is no clear line of sight on the regulations," says Ian Woods, financial services executive at Edcon.

"We can, however, estimate that the cost and impact of the regulations will be quite significant."

Woolworths’ head of financial services Sam Ngumeni says the company may have to spend a lot of money to comply with the bill.

"It is a big unknown to us and is an issue that is rattling the industry," Ngumeni says.

The legislation requires retailers to do extensive checks on the state of a customer’s finances before offering credit. If their creditworthiness is found to be lacking, a retailer may be found to be reckless, the agreement cancelled and the retailer will have to take the loss.

When processing credit applications, staff will have to complete an exhaustive financial means test to determine what existing payment obligations an applicant has.

This will include frequency and regularity of income, and the financial means of any other adults in the household who may be able to share in financial obligations.

This will require staff training and electronic cross-referencing with records kept by the National Credit Bureau.

Levenstein says the bill is unclear regarding the extent to which retailers can rely on credit reports instead of doing comprehensive background checks themselves.

There is a risk that stores may frighten away customers with credit checks, Levenstein warns.

The bill restricts credit limit increases to once a year.

"Retail credit controllers are going to need to go on a steep learning curve," Levenstein says.

He says very few retailers have made provisions for compliance costs in their financial statements and many underestimate the bill.

Woods says the trade and industry department, which initiated the bill, also underestimated its effect on business. "A national loans registry on its own is going to be a huge management cost and will need skilled people to manage it and safeguard the data," he says.

However, retailers agree that there is a need for the National Credit Bill as the current legislation is insufficient to protect the country’s consumers from overindebtedness and irresponsible spending.

Total consumer debt in SA amounts to R12bn annually.

"There is a problem in SA in that too many people with inadequate funds are given too much credit," Levenstein says.