by Jenny Reid
While being in debt isn’t a crime, reckless lending and irresponsible credit laws are sending people into a brutal credit storm, one that can have repercussions on business owners throughout South Africa - especially with the Credit Amendment Bill being pushed through by government. What does this mean for HR?
The blanket credit amnesty, proposed by this bill, will remove about two million names from credit blacklist databases, and amendments to the act could see:
1. Paid-up judgements and defaults being automatically removed,
2. Stricter adverse listing rules,
3. Collecting and listing prescribed debts being criminalised, and
4. The access of employment agencies to credit histories being limited.
People risk and screening processes will become trickier
Although the bill’s general objective is very commendable, point 4 above will make it easier to mask employees’ possible bad credit histories and consequently make companies vulnerable to theft and other security breaches.
While the National Credit Act (NCA) is meant to support education on credit and promote responsible lending, evidence shows that this legislation has largely failed to do this:
- After the 2007 amnesty, research detailed by the Credit Provider’s Association (CPA) shows that over 60% of those who were cleared ran up new credit, with over 70% ending up with unmanageable debt.
- Reserve Bank information shows that a large number of consumers use a significant portion of their disposable income to service debt. No doubt about it: unsecured lending is contributing to the credit crisis in South Africa.
However, even without the changes to the NCA, a regulatory provision in the current act stipulates the length of time any credit bureau may hold and publish credit information. The CPA says that on average 2.2 million inquiries, 40 000 judgements and almost 200 000 default notations are removed each month because of this law’s parameters.
You need to be smart when you approach people risks and screening policies
With the nation becoming increasingly indebted and the number of garnishee orders trebling in the last five years, it’s important for businesses to use independent and specialised security resources to address its employees’ stability and integrity. People in lower income groups and previously disadvantaged communities are especially vulnerable to debt. With legislation changes happening on a regular basis, it’s important to review your employee security screening policies continuously.
Now more than ever, employees, managers and HR consultants will have to widen the nets, dig deeper and scrutinise employees in greater detail. This is why it’s important to have a comprehensive people risk management programme in place that covers everything:
- From pre-employment screening to accessing risk databases, to
- Background checks and looking at security concerns specific to an industry.
If necessary, you must do a detailed credit check on an employee in a position of trust or one who works, and you trust, with money. Moreover, a programme like this can work in conjunction with other security strategies to give added value. You could also look at introducing financial education programmes or debt counselling in your workplace to create awareness and foster responsible lending habits.
The truth is that debt plays an important role in security clearance so it’s important to have the right people risk services and screening policies in place from the start. Work with trusted security providers and continuously update these procedures to have peace of mind and stability in the workforce.
This article first appeared on HR Pulse.