Johannesburg - "There's been a mountain of challenges - but we're almost there." That was JD Group CEO Mias Strauss's parting take on the massive systems and training overhaul that the giant furniture retailer - just as all other retailers - has been orchestrating across its operations for the past 18 months in preparation for 1 June: D-Day for the implementation of the National Credit Act (NCA).
It's no easy feat: from application forms that need to be printed in two official languages, new IT systems and credit scorecards, the need to provide quotations on affordability and - most daunting of all - having to train thousands of employees, all aspects of the credit process will change.
Retailers on the whole welcome the NCA, saying that the engagement process with the government and the National Credit Regulator (NCR) never had - in Strauss's words - "any bad vibes".
"We support its intent, as it increases transparency and tries to protect consumers against discrimination, exploitation, overindebtedness and the granting of reckless credit," says Truworths' customer relationship management director Emanuel Cristaudo.
However, it's the unforeseen consequences of execution that some are worried about. The cost of credit will, perversely, be higher come 1 June as banks and retailers will be able to charge higher rates in order to offset risk.
The Credit Agreements Act (which covers credit facilities and hire-purchase agreements) is one of the pieces of legislation that the NCA is replacing. Under the NCA the maximum rate retailers can charge will be calculated by taking the repo rate (currently 9%), multiplying it by 2.2 and adding 10 percentage points. The result is that the maximum rate will shoot from a current 23% to 29.8%.
'Can be flexible with customers'
That presents retailers with opportunities, as they're better able to price for risk and could reach into new market segments. Says Strauss: "For the first time there's a relationship between rates and risk. The market will determine the rate and we can be flexible with customers."
Edgars Consolidated Stores (Edcon) group executive for financial services Ian Wood says the company won't hike rates up to the maximum point but will instead keep the amount between 23% and 25%. "There are two options: either we increase the rate to offset costs or we keep the rate low and take on more customers to increase our customer base."
Edcon has gone for the latter, recently offering 400 000 clients rates that are between 300 and 500 basis points below the maximum rate. "If they accept, it can be very profitable," says Wood.
Bits of the Act are inefficient: where retailers could go to credit bureaus and get many bureau scores at once - and hence qualify for a better price - the new Act requires individual checks. "Costs will go up and eventually have to be passed on. It's an inefficient way of doing this," says Wood.
Another inefficiency is that, while credit granters are now required to obtain a full picture of an applicant's financial health and from there determine eligibility, there's no central database where that information is readily available.
Training staff is an overwhelming undertaking. For example, JD Group has 1 000 stores and has to train 12 000 employees. "That will be the biggest challenge," says Strauss. "We've trained 240 - and that's only on NCA compliance systems. There are further training issues."
'Customers are under the wrong impression'
But what most worries retailers is the uncertainty concerning the issue of debt counsellors. While having someone to help consumers navigate their personal finances is a good thing, the circumstances under which they can access debt counsellors are still unclear. "Customers are under the wrong impression that, whether or not they're in financial trouble, they'll get advice," says Strauss.
For a consumer to be eligible for debt counselling, a magistrate must issue a court order for up to R100 000. That means more work for lawyers and the tribunal at the NCR and it's unlikely that someone in a dire debt situation would be able to foot the legal costs. Further, all facilities will be frozen when a person is on debt counselling, which "is very harsh", according to Wood.
"There needs to be a step before that, where earlier in the process all stakeholders can work together to prevent that credit lockout. It needs to be a soft process without costs for the consumer and which doesn't lock the consumer out. Currently, the industry is working on a voluntary debt counselling approach, in which the consumer, debt counsellors and credit providers work together to bring relief to cash-strapped consumers," says Wood.
To date, only 70 prospective debt counsellors have submitted applications countrywide.
A National Debt Counselling steering committee - comprising the Banking Council, Consumer Credit Forum, the NCR, banks and retailers - has been set up to look at the issue and has asked Government for an extension on the implementation date for debt counselling.
Says Wood: "We're working with government on the process, and industry must help. If not, there could potentially be a flood."