Debt Relief 17 November 2016

Table of Content Introduction Debt relief measures Debt relief criteria Impact, consequences and challenges of legislating debt relief measures and criteria Proposals Questions

Introduction

Introduction Capitec Bank acknowledges that clients’ circumstances may change after taking up credit These changes may lead to distress and create a need for debt relief We therefore support the Committee’s intention to assist distressed consumers Capitec Bank offers various debt relief measures to clients who are experiencing some form of distress or who experienced distress in the past The type of debt relief depends on a consumer’s unique situation and hinges around the importance of the engagement with the client

Debt Relief Measures

Debt Relief Measures (not provided for in the NCA) Debt Relief Measures applied by Capitec Bank (provided for in the NCA) Debt Relief Measures applied by Capitec Bank (not provided for in the NCA) Debt Review Debt Counselling Rules System Prescription of Debt Rescheduling, including payment break rescheduling Draft Credit Insurance Regulations Retrenchment cover for full settlement of balance Limitation of Fees and Interest Rates Debt Consolidation (not available to arrears clients) Affordability Assessment Regulations Bespoke Arrangements Settlement Campaigns

Debt Relief Measures (not provided for in the NCA) Debt Counselling Rules System (DCRS) Capitec supports DCRS, whereby concessions beyond what is required by the NCA were agreed by the Credit Industry Due to the fact the rules were agreed to by the Credit Industry, the acceptance rate of proposals are high We support transfer of ownership to the NCR and amendment of the conditions of registration by the NCR to enforce and increase utilisation of DCRS

Debt Relief Measures (not provided for in the NCA) Rescheduling Arrears clients who are not able to settle their arrears through a catch up arrangement, can reschedule their loan Clients are offered rescheduling to overcome a temporary loss of income resulting from maternity leave, short time, strikes etc. or alternatively to assist with a temporary cash flow shortage resulting from an extraordinary large expenditure e.g. medical expense Rescheduling is also offered to provide cash flow relief for the remainder of a loan where clients are struggling to meet the existing monthly obligations due to a change in income or expenditure Rescheduling can take the form of a payment break, temporary lower instalment, or merely extending the term of the loan to reduce the client’s instalment for the remainder of the loan. Capitec Bank also offers rescheduling to clients who pro-actively want to prevent falling behind on their instalments

Debt Relief Measures (not provided for in the NCA) Rescheduling The type of rescheduling that is offered is determined through considering each client’s unique circumstances Rescheduling does not entail granting additional credit or an increase in the interest rate; it entails the amendment of the repayments on an existing loan Where rescheduling does not bring sufficient relief to a client who is still earning an income, debt review becomes a feasible option

Debt Relief Measures (not provided for in the NCA) Credit Insurance The outstanding loan balance is settled in full if the client was retrenched or lost their job as a result of the employer being liquidated The unsecured nature of Capitec’s loan products enable full settlement of the outstanding balance

Debt Relief Measures (not provided for in the NCA) Debt Consolidations Clients can qualify to consolidate their credit products if they are up to date with Capitec and pass the same rigorous affordability calculation and risk assessment that is applied for any other credit application Consolidation of credit is beneficial for our clients if their credit with Capitec and other credit providers is settled with more favourable terms and where total repayment obligations are reduced

Debt Relief Measures (not provided for in the NCA) Bespoke arrangements Bespoke arrangements are entered into to accommodate clients temporarily until they are able to commit to a more structured repayment plan Clients are also held back from being handed over to an external debt collector if there is propensity to make a minimum payment

Debt Relief Measures (not provided for in the NCA) Settlement campaigns Clients are provided with an opportunity to settle their outstanding credit at a discount. Cases are assessed on merit.

Debt Relief Criteria

Debt Relief Criteria Capitec considers a client’s unique circumstances to determine the appropriate debt relief measure By setting criteria for target groups, time frame, the type of debt and the manner in which the debt relief measure will be effected, flexibility to determine the appropriate measure is lost For example: debt relief may become a need at any point during a client’s credit life cycle and life stage Considerations should be given to the current as well as future circumstances, prospects and obligations

Debt Relief Criteria By legislating criteria, credit providers will offset the increased expectation of loss given default by reducing access to credit to targeted groups Paying customers could become dis-incentivised to pay their debt Credit providers have a responsibility to grant credit responsibly and we support monitoring and supervision of legislation that was put in place to promote responsible lending

Impact, Consequences and Challenges of Legislating Debt Relief Measures and Criteria

Impact, Consequences and Challenges of Legislating Debt Relief Measures and Criteria Consumer Consumers could become dis-incentivised to pay their debt Consumers who previously had access to credit may be denied due to credit providers hedging for the increased expectation of loss given default Cost of credit will increase Credit Providers Credit providers will not be able to price adequately for the risk of individual consumers Access to credit will decrease Financial stability of the banking system could be impacted Economy This was also covered sufficiently in the BASA slide pack

Proposals

Proposals DCRS Transfer of ownership to the NCR Amendment of conditions of registration by the NCR to enforce and increase utilisation of DCRS VDMS Revival of the proof of concept Track, monitor and receive feedback on the implementation of legislative amendments which have been enacted or are yet to be enacted and support and/or enable debt relief Policy on financial inclusion is a specific government programme as led by National Treasury and should be acknowledged within the context of debt relief proposal considerations

Questions