ABOUT USTruworths Ltd• Listed Company with over 300 stores • Over R3b Turnover with 1.3m customers• R1b debtors book• Focussed on fashion retail• Primary credit product 6 months interest free

The National Credit Bill

Truworths respect the principles around the bill and welcome many aspects of this, including :

The aspects of full disclosure The avoidance of over indebtedness Discouraging of reckless credit Fair extension of credit to those that have been precluded

in the past

Background New accounts

Application score used in conjunction with a bureau score Application scorecards do not use race but criteria such as time at

existing job, contactibility, time at place of residence Salary and risk determine credit limit given Due to volume some applications are approved automatically

Existing accounts Accounts scored every month

Internal – score calculated by ourselves – how you currently manage your Truworths account

External (bureau) indicated how you currently manage your Truworths and other accounts

Based on score (risk) applications are granted additional credit Similarly score predicts when to contact a client in arrears

Backgound to credit (example)500 525 550 575 600 625 650 675 700 725+10 0.1:12030

40 1:1506070

80 100:190

100 200:1 A

PP

LIC

AT

ION

SC

OR

E

CREDIT BUREAU SCORE

Odds are calculated from recent previous historySome applications are automatically approvedCan process more than 50,000 applications in a monthIncome and odds determine credit limit

Backgound to credit (example)500 525 550 575 600 625 650 675 700 725+500525550575600 +625 + +650 + + +675 + + + +700 + + + + +

725+ + + + + + +

CREDIT BUREAU SCORE

INT

ER

NA

L R

ISK

SC

OR

E

Accounts are scored regularlyOnly those who utilise their accounts and have a good risk are increasedIncreases are automatic unless client has indicated no to increases

Sec. 63 - Right of information in an official language

Must make documents available in at least two languages Can propose to make use of same two

Issues Documents not defined in the bill Large cost implications and difficult to do

Recommendations Bill should define “documents” Preferably one language (preferred) but if not

One of the languages should be stated as English 2nd Language selected by credit provider should be capable of

application throughout the country 3rd possibility is that sufficient time given to phase the

language requirements in (if multiple per region). Not preferred.

Section 71 – Removal of record of Debt adjustment

A consumer whose debts have been re-arranged may apply to a debt councillor for a clearance certificate

Debt councillor may issue this if consumer has satisfied his obligations

Consumer can approach bureau to expunge his record

Issues As retailers rely on scorecards and models to make decisions

this removal may impact our ability to make accurate risk decisions

Expunging the record may be worse for the consumer, as it would take away history indicating his ability to repay

Recommendations Keep the existing arrangement (3 and 5 years) Alternatively take off the default / judgement but keep consumer

payback history when under rearrangement

Sect.73 (2) – No negative option marketing for credit limit

increases

Cannot offer to increase the credit limit on the basis the limit will be automatically increased unless the consumer declines the offer

Issues Retailers evaluate risk on an ongoing basis Typically start with a small (R400) credit limit and increase

gradually after 6 months Increase only those who are using facility and paying well (int &

ext) Taking this away could severely impact retail turnover It is very costly to score individually Also impact on customer service

Recommendations For credit grantors to continue to automatically increase credit

limits as long as they have a formal process in place to evaluate affordability, e.g. internal and external scorecards to determine risk

Sect. 78 (3) – Interpretations relating to reckless credit

The term “financial, means and obligations” includes income or any right to receive income, regardless of the source, frequency or regularity of that income and the financial means and obligations of other adult persons within the consumers immediate family and household

Issues This definition is too broad Cannot practically be evaluated

Recommendation Definition should change to incorporate “regular income from

consumer and spouse or partner only”

Section 81(2) – Prevention of reckless credit

A credit provider must not enter into a credit agreement without first taking reasonable steps to assess the consumers general understanding and appreciation of the risks of credit

Issues Although required the bill does not determine how this should

be done, leaving it open to abuse on both sides When processing large numbers, e.g. 50,000 applications per

month, one cannot take every customer through this Store staff are not experts at credit risk

Recommendations To utilise scorecards and history to gauge the level of

understanding, for example a good bureau record with a number of credit lines would indicate a good understanding

Sect.119 (1) Increases in credit limit (credit facility)

A credit provider can automatically increase a credit limit once per year, by an amount not exceeding the lessor of the average monthly purchases or payments over the past 12 months

IssuesThis is likely to result in declines in retail turnover with resultant job lossesIncreased amounts stipulated are infrequent and very lowDoubt if an impact analysis has been done in this area

RecommendationsTo continue to use worldwide best practice by making use of scorecards and models to determine when an account should be increasedAlternatively to have these more frequently than once per year, and to increase the amount that can be given

Example of spend levels subsequent to a credit limit increase

Spend Pattern per Month after Opening

0

50

100

150

200

250

300

350

spend1 spend2 spend3 spend4 spend5 spend6 spend7 spend8 spend9 spend10 spend11 spend12

Conclusion

There are a number of issues in the bill that we believe will add to our costs

There are also areas that could affect the reliability of bureau information

This could penalise companies such as ourselves that have issued responsible credit for many years and lead to a decline in profitability

This could result in less appetite for risk, slowing down the access of credit and therefore sending consumers to the informal lending markets

InaccurateInaccurateInformationInformation

HigherHigherCostsCosts

Less appetiteLess appetitefor Riskfor Risk

Less creditLess creditgivengiven

Chase lendersChase lendersto informalto informalmarketmarket

+

Conclusion

We thank you for your time and hope our comments have been taken as constructive criticism

We will make ourselves available if required