Proposed Consumer Credit Draft Bill: What does it mean for Namibians?
By Josef Kefas Sheehama.
There is a strong conviction that key stakeholders have the will and the capability to develop a robust credit market that will deliver on consumers’ rights inclusion. This underscores the need for legislative reform of consumer credit to deal with the complex consumer market. Such legislative changes will make it easier for most Namibians and small businesses to access credit and ensure that the strongest consumer protection is applied.
The proposed Consumer Credit Draft Bill should revisit the modus operandi of TransUnion Namibia which used to trade as Information Trust Corporation (ITC). The Credit Bureau is currently regulated by the Bank of Namibia. Credit bureaus can be defined as agencies that research and collect individual credit information that is useful for an assessment to make informed decisions.
However, it can also contribute to unemployment since people who are blacklisted by a credit bureau, even if they are active and skilled, will not be employed by companies in the formal sector.
Approximately 760,000 Namibians live on credit and 152,000 of this number have been blacklisted for failing to service their debts, according to TransUnion Namibia. The Country Manager, Marcha Erni, said the negative defaulters could be the unemployed, students who get study loans and fail to repay before getting a job, the retrenched, or those that retired, but it remains difficult to classify because Namibians have different reasons for being negative defaulters. The key issues here are the enforcement and protection of rights of those people that are most vulnerable and prone to exploitation.
The importance of the legal framework in Namibia cannot be overemphasized. An unregulated economy leaves the economically disadvantaged at the mercy of the rich and the powerful. Namibia faces a range of challenges that have emerged from the crisis. The government needs to put the economy back on the path to sustainable growth, find ways to handle complex and interrelated policy areas, anticipate and manage risks more effectively, and regain the trust of Namibians.
Effective regulation can provide strong support for meeting these challenges. Ineffective regulation, conversely, will slow recovery, inhibit growth, undermine efforts to address complex issues, and reinforce citizens’ skepticism of the government. The Namibian economy is currently at a low and we cannot continue to do the same thing year in and year out. We need a tactical innovation to help leapfrog the economy from where it is now to where it ought to be.
Therefore, a sound consumer credit legal framework can be an effective tool for boosting access to credit especially for individuals and SMEs. And enhancing access to credit improves stability and opportunities for families, businesses and the economy as a whole.
Moreover, the proposed Consumer Credit Draft Bill will further repeal outdated legislation such as the Usury Act, (1968), the Credit Agreements Act, (1980), and the Microlending Act, (2018). It is generally accepted that Namibia needs to reform its consumer credit legislation and remove the contradictions. The current position in Namibia is that both the Credit Agreements Act and the Usury Act provide only punishing for non-compliance with legislation. The reform proposes a solution based on the creation of an enforcement department, emphasizing the effectiveness of authorized persons as opposed to individual consumer actions. This means that the delegated department can develop specialist expertise in the legal complexities of the relevant legislation. Furthermore, that it has the power and resources to investigate and assess breaches of legislation, that it can act on behalf of a number of debtors, where individual action would be inappropriate, and that it redresses the power imbalance between parties to the contracts.
The Consumer Credit Draft Bill should offer a solution to these problems by providing various types of enforcement authorizations. A modernizing nation’s economic prosperity requires at least an inclusive legal framework centered on the protection of business and the economy. The essential legal reform required to create that frame is an adoption of a system of relatively precise legal rules, as distinct from more open-ended semi-discretionay standards.
A virtuous cycle can arise in which initially modest expenditures on law reform increase the rate of economic growth, in turn generating resources that will enable more ambitious legal reforms to be undertaken in the future. Therefore, the bill should lead to a high-level, activities-based law that is intended to apply equally to all financial service providers. This includes formal financial services, credit unions, microfinance institutions, money lenders, and digital financial service providers. The bill is to ensure an equal level of protection for all consumers and a level playing field for credit providers. The consumers concerned may be individuals or SMEs and so the law should apply equally to consumption and small-business facilities. Many of the provisions are framed in terms of principles.
Why do we need to reform consumer credit in Namibia?
We need to understand that a strong consumer credit protection framework helps protect consumers from possible market abuse and helps consumers benefit from well-informed decisions about how best to manage and use financial services. Consumer protection is especially important in an environment where financial products are increasingly complex and are being delivered through new distribution channels and where there is an increasing range of new non-bank service providers.
A Consumer Credit policy framework, if properly designed, implemented, and supervised, instills trust in consumer products and the services of financial service providers. Such a framework can thus be an important enabler for the uptake of financial products and services.
Additionally, there is no doubt that the policy will require adjustments to reflect the country’s context, including supervisory resources, the affair of consumer credit markets, constant innovations in products, delivery channels and providers, and existing institutions and legal frameworks.
Moreover, consumer credit will still require careful consideration of the subordinate legislation to deal with such detail as the specific features of different types of financial products and services. As a high-level diagnostic tool, it could be the basis for industry codes of conduct. I think the Consumer Credit Draft Bill is a potentially useful tool for recognizing the importance of consumer credit protection and meeting financial inclusion targets.
In conclusion, better consumer credit is an indicator of a better economy. Every country strives to achieve this and maintain it in the long run. At the same time, consumers need easy platforms. A good Consumer Credit Policy is the gateway to wealth.