Cabinet's recent approval of a credit information amnesty means that responsible lenders will have an even more important role to play in determining whether consumers can realistically afford credit.
According to Kevin Hurwitz, chief executive officer at Wonga.com SA, the granting of credit is vital to a healthy economy.
"Enabling consumers who have been unable to access credit, due to adverse listings on their profiles to do so, should be seen as a positive development for the economy provided it does not place extra financial stress on them. Therefore, the onus is on the credit provider to make accurate and reliable credit decisions about the worthiness of applicants."
Credit providers should be able to trust their own risk management processes to be robust enough to make the credit decision without relying solely on credit bureau listings, says Hurwitz.
"In addition to this, there is absolutely no need to increase the cost of credit because of the credit amnesty ruling as it is the responsibility of the credit providers to ensure they are doing adequate assessments on the consumer’s ability to repay the loan."
Hurwitz cautions however that by unilaterally granting renewed access to credit, including to those already impaired or struggling to cope with existing financial commitments, the exercise could result in a new wave of over-indebtedness among SA consumers.
Hurwitz warns that consumers need to realise that the debt itself will remain and they are not receiving a 'get out of jail free card'.
"Although the listing may disappear, the consumers are still liable for the debt itself. So if credit providers are not making accurate credit decisions, and grant credit to consumers who are already struggling financially, they could end up becoming over-indebted."
Hurwitz says that in terms of Wonga's own system, where prior to this amnesty these consumers with adverse listings would have been rejected straight away, now they will proceed through the company’s own automated risk engine.
"At Wonga.com we access several thousands of pieces of publicly available data to make an accurate credit decision, and we always believe it is better to access as much data as possible, rather than to just rely on one data source, such as the credit bureau. We are confident that our risk engine will be able to identify those customers who are credit worthy and those that are not because we constantly update and evolve the data we consider when making a decision.
"There will always be a mainstream need for credit, as a consumer's variable outgoings coincide with the consumer's fixed income, and so in this way credit will always be a vital part of the economy. However, the credit providers now have a greater responsibility to ensure more thorough checks are in place before credit is granted to ensure that not only consumers, but the economy does not suffer," concludes Hurwitz.