Pretoria, South Africa.

12-14 August 2010

International Conference on

Over-indebtedness & Credit Regulation

Pretoria, South Africa.

12-14 August 2010

Treating Customers Fairly

A new model for

market conduct regulation

in consumer credit?

IntroductionIntroduction

Possibility of a different approach –

does Treating customers fairly provide

fresh ways to ensure better outcomes?

NCA represented key departures in the

regulation of consumer credit in SA

First time all consumer credit is regulated

under a single Act & has change credit

landscape & practices significantly

However, outcomes of credit landscape do

not always appear to be fair for consumer

IntroductionIntroduction

TCF approach originated in the UK’s FSA

Currently considered by the FSB (SA’s non-

banking regulator)

Requires firms inculcate principles & rules of fair

treatment of customers

Intensive supervision by regulator – statutory

returns, on-site visits (firm specific and

thematic), on-the ground inspections

Clear signals regarding enforcement and

penalties

Education of consumers on their responsibilities

Product Life stages approach to Product Life stages approach to

Treating Customers Fairly (TCF)Treating Customers Fairly (TCF)

Outcomes for consumersOutcomes for consumers

Consumers can be confident that:o They are dealing with a firm where TCF is central to

corporate cultureo Products & services marketed and sold in the retail

market are designed to meet the needs of identified consumers

o Advice is suitable & takes account of consumer’s circumstances

o Will be provided with clear information & are kept informed before, during and after sale

o Will be provided with products that perform as financial institutions have led them to expect

o Will not face unreasonable, post-sale barriers imposed by financial institutions to change products, switch providers, submit claims or make complaints

Outcomes of Outcomes of

Treating Customers FairlyTreating Customers Fairly

Implementation of the TCF Implementation of the TCF

programmeprogramme

Change of mindset in the industry

o Leadership, strategy, decision-making, controls,

recruitment, rewards

Clarity of regulatory expectations

Education to encourage consumer

responsibility

A supervisory approach that is pre-emptive

& intensive

Enforcement & compliance

Price disclosure in the credit marketPrice disclosure in the credit market

Disclosure & transparency (necessary but not sufficient)• Complex financial transactions – no information

on suitability or affordability

• Full disclosure of pricing and term often confuses

• Comparison shopping undermined with risk-based pricing

Quality of price disclosure & approach of certain providers• Pre-agreement disclosure requirements

• Section 92 of NCA

• Form prescribed for small agreements

Loan category:Loan category:

mortgagesmortgages & & micro loansmicro loansProvider

Category

Loan Category "Quote"

Obtained

Incomplete or in

terms of 92(7)

Information

correct

Bank Mortgage � incomplete �Bank Mortgage � �Bank Mortgage � �Bank Mortgage � incomplete misleading

Bank Mortgage � incomplete �Bank Mortgage � �

Bank microloan � misleading

Bank microloan � 92(7) �Bank microloan �

92(7) misleading

Bank microloan � 92(7) �Bank microloan � 92(7) misleading

Bank microloan � 92(7) �Microlender microloan � �

Loan category :Loan category :

store cards & store cards & credit cardscredit cardsProvider Category

Loan Category "Quote" Obtained

Incomplete or in terms of 92(7)

Information correct

Retailer Store card�

Retailer Store card�

Bank credit card�

incomplete misleading

Bank credit card�

incomplete misleading

Bank credit card�

incomplete

�

Loan category : Loan category :

installment agreementinstallment agreementProvider Category

Loan Category "Quote" Obtained

Incomplete or in terms of 92(7)

Information correct

Vehicle dealer installment agreement

�incomplete misleading

Vehicle dealer installment agreement

�incomplete misleading

Retailer installment agreement����

Retailer installment agreement�

Retailer installment agreement�

incomplete�

Retailer installment agreement����

92(7)����

Retailer installment agreement� �

Retailer installment agreement�

incomplete misleading

Retailer installment agreement�

92(7)�

Retailer installment agreement�

92(7)�

ConclusionConclusion

NCA has been hailed for its focus on the

protection of consumers

Unless spirit of NCA is complied with, mere

compliance with the letter of the law may

produce outcomes that fall well short of the

intensions

Discussion focussed only on an analysis of

pre-agreement quotations – could be

expanded to include

oo reckless lendingreckless lending

oo approaches of providers to debt review, etcapproaches of providers to debt review, etc

ConclusionConclusion

Adoption of TCF approach should not imply more

legislative change

TCF should provide better outcomes – responsible

leadership & not mere compliance function

Supervision should become more intensive and

ultimately more effective – evalution of TCF

approach in firm

Enforcement and penalties essential

Together with robust ombudsman, improved

education and consumer responsibilities it should

produce fairer outcomes for consumers