Tag: credit

Pick n Pay to offer food on credit

Debt counsellors are warning consumers against buying food on credit, saying that it will have a negative impact on overall debt.

Pick n Pay is the latest store to offer customers the option of purchasing groceries on credit.

The supermarket says that it will use its Smart Shopper card programme to select shoppers who qualify.

Pick n Pay deputy CEO Richard van Rensburg says that the store accounts have been designed to exclude hidden fees that exacerbate the cost of credit and charge the lowest monthly fee of R10.

However, Debt Rescue CEO Neil Roets says that it is better to buy assets on credit than food.

“Food is something that you definitely should not buy on credit. Good debt is having a home loan or a car. But if you have to finance food, then you are in big trouble.”

Debt counsellor Deborah Solomon says that it’s not advisable for shoppers to buy food on credit due to the interest charged on them.

“Food is a necessary living expense which you need to be able to have access to and it’s not wise to spend credit on food, especially when you can’t afford to pay that credit off in its full capacity at the end of the month.”

By Koketšo Motau for EWN

Indebted consumers stretch SA to its limits

Credit extension is growing faster than job creation, and the moribund economy cannot carry that burden forever

A 2014-15 World Bank report declared that South Africans were the world’s “biggest borrowers”. Consumer credit-use statistics — a comparison of employment and credit consumer numbers — suggest that South Africans are failing to manage their debt responsibly and that some credit providers might be missing the mark regarding their criteria in affordability assessments.

Despite tougher affordability requirements and large-scale efforts to educate consumers, credit use is outpacing employment growth, and the over-indebted gap is widening.

There were 16.9-million credit-active consumers in 2007, the national credit regulator’s Credit Bureau Report reads. At the time, 6.38-million (or 37.7%) had an impaired credit record. In 2013, there were 20.21-million credit-active consumers, of whom 9.69-million (47.9%) had impaired records.

A record is declared impaired if a debtor is three or more months in arrears on an account, if the debtor is under administration or if there are judgments against the debtor.

In the fourth quarter of 2016, there were 24.31-million credit-active consumers, 9.76-million of whom had impaired records — 40%, or two out of every five credit-active consumers.

While employment has increased by only 18% since 2007-08, the number of credit consumers has grown by almost 44%. The percentage of consumers in bad standing grew from 37.75%, to 40.15%. There are now 24.31-million credit consumers — more than 8-million more people than the total number of employed people in SA.

Even allowing for the fact that some people such as financially supported students may not need a job to qualify for certain credit accounts and not all SA’s employed people will be credit active, there is a huge difference in the numbers.

The official credit statistics for 2016’s fourth quarter peg collective consumer debt at more than R1.69-trillion. A significant portion of this — R8.75bn or more than half of debt book value — comprises mortgages, which are considered a wealth-creation type of debt.

For most people, a home loan will be the largest personal debt they incur in a lifetime.

If we move from rand value to sheer number of credit facilities by type, the numbers shift significantly. Mortgages only represent 4.47% of credit accounts. Credit facilities such as credit cards, overdrafts and store cards make up 65% of credit accounts and unsecured credit 14.6%.

These figures do not account for informal debt. Credit bureaus do not list what consumers owe municipalities, in school fees or unpaid medical accounts. One estimate is that only 40% of consumer-debt information is captured by credit bureaus.

As private loans and lending granted outside the formal system, such as loan sharks or mashonisa loans, are not captured, the problem is likely to be much larger than official numbers indicate.

World Bank survey data from a sample of 1,000 people in the Global Findex Report showed that 86% of South Africans took loans in 2016, mostly from acquaintances or private microlenders.

If risk pricing is added to the picture, the poorer end of the consumer market is out in the cold. All credit on offer — from loans to store cards or hire purchase agreements — is priced for risk: the higher the perceived chance of default, the higher the interest rate charged. Low-income earners will, therefore, usually be charged more than high-income earners for the credit on offer.

Instead of excluding poor and risky consumers from credit, many providers allow access but at higher interest rates. Prohibitive rates, greater need — due to lack of generational wealth or more insecure income — and a lack of financial education collide, often overwhelming the most economically vulnerable.

Under apartheid, most South Africans were denied access to certain financial services including credit, either through direct policies or systemic barriers. When that political system was dismantled, there was a desperate need to reform the social system and the barriers to financial inclusion.

The government has been chipping away at the legislation ever since with repeals, new acts, amendments to existing legislation, patches and policy reimagining. The goal is a very narrow sweet spot — increasing financial access while limiting opportunity for abuse of the hungry-for-credit populace.

The Usury Act of 1968 was replaced by the National Credit Act of 2005. The National Credit Amendment Act in 2015 was a further tightening of the reins, especially in terms of the affordability assessments that credit providers are now required to perform. With each new piece of legislation, the government has tried to get one step closer to that dual target.

Their success is a matter of debate, depending on which side of the market you find yourself. One particularly controversial move was the credit information amnesty, or as the credit and legal fraternity know it, the Removal of Adverse Consumer Information and Information Relating to Paid-up Judgments regulations, 2014.

It compelled credit bureaus to remove information of judgments, defaults, and terms such as “delinquent” or “slow paying” from consumer credit profiles, provided that the capital amount owing had been cleared.

This became a requirement of the bureaus and the credit providers supplying payment information to them. It also meant that no matter how abysmal consumers’ track records of debt payments were, if it was paid up, they were given a clean slate by credit providers doing new assessments.

It was championed by the Department of Trade and Industry and one that caused some ructions between it and the Treasury. In 2015, the then chief director of financial sector development at the Treasury, Ingrid Goodspeed, said that the Treasury had “fought that credit information amnesty, we fought it to the last day”.

Credit providers needed “more information, not less”, she said at the time.

“The fact that you wipe it out has not … changed anything. The same people who were overindebted before are now even more overindebted.”

The Treasury was asked to update its position on the matter, but was unable to respond in time for publication.

Officially, two out of five consumers are credit-stressed, and unofficially, the picture is much worse. By omitting municipal, education, private or loan-shark debt, and education debt, our country’s credit numbers underplay a significant portion of the personal debt carried by the average consumer.

Add to that the pressure of crippling debt-recovery measures such as garnishee orders and asset attachment, insecure employment, stretched regulators, loopholes in the laws and the rising cost of living and the picture is far worse.

Economists say that the amount of consumer debt a country can support depends on the health of the underlying economy. SA may be about to find out what the limits are.

Source: Supermarket
Graphics credit: Dorothy Kgosi

Fewer seek credit as tough times bite

Consumers, many of whom are vulnerable in an environment of rising retrenchments and weak economic growth, are trying to pay down debt.

Consumers adopted a cautious stance to credit applications in the first quarter of 2017, figures from the National Credit Regulator show.

At end-March, credit applications decreased by 998,000 to 9.53-million, representing a quarter-on-quarter decline of 9.5%, the regulator said. Consumers, many of whom are vulnerable in an environment of rising retrenchments and weak economic growth, are trying to pay down debt.

Head of Absa home loans Carel Grönum said last week household debt to disposable income, at 73%, was at its lowest level since the global financial crisis. Credit bureau Compuscan recorded a 13% year-on-year increase in the number of accounts that were more than three months in arrears in the first quarter, suggesting consumers cannot afford to take on more debt.

The total value of new credit granted in the first quarter fell 5.6% from the fourth quarter of 2016 to R116.5bn, representing a 7.5% year-on-year increase, the regulator said. The largest increase was recorded in the developmental credit category, which nearly doubled to R5bn. The value of mortgages granted and of other secured and unsecured credit agreements, fell.

Credit facilities such as credit cards and overdrafts increased moderately, while short-term credit granted also declined.

By Hanna Ziady for Business Day

Alan Amron has invented a battery-powered squirt gun, a digital photo frame, even a laser system that may someday provide a visible first-down line for fans inside NFL stadiums. He holds 40 US patents, but he’s most interested in an invention for which he gets no credit: the Post-it Note, that ubiquitous sticky-back product made into a worldwide success by the 3M Company.

Amron, 67, says he invented what he called the Press-on Memo in 1973, a full year before 3M scientists developed what later became known as the Post-it Note. Although Amron settled a previous lawsuit against 3M, he’s suing again in federal court in Fort Lauderdale. He says the company breached its previous agreement not to take credit. The settlement is confidential.

Now Amron wants $400 million in damages – and something he says is even more important to him.

“l just want them to admit that l am the inventor and that they will stop saying that they are the inventor,” Amron says in a recent interview. “Every single day that they keep claiming they invented it damages my reputation and defames me.”

3M, based in Maplewood, Minnesota, is a one of the 30 companies that make up the Dow Jones Industrial Average on the New York Stock Exchange. The maker of Scotch tape, Ace bandages, sandpaper, films, office products, window insulation, paint remover and hundreds of other products earned more than $30 billion in revenue in 2015, according to the company’s website.

The company says Post-it Notes were invented by 3M scientists Arthur Fry and Spencer Silver, both members of the National Inventors Hall of Fame. Silver came up with the adhesive—one that could be used over and over yet not mar surfaces to which it attached—and Fry the idea of using it for the small, yellow squares of paper to become sticky-back notes.

“3M developed Post-it Notes without any input or inspiration from Mr. Amron and it is false and misleading for him to state or suggest that he created, invented, or had any role in the product’s development,” says company spokeswoman Donna L. Fleming Runyon in an email. The company declined to comment further on the lawsuit.

Alan Amron talks to a reporter in West Palm Beach, Fla. Amron is suing 3M Company in a South Florida federal court in a dispute over who invented the ubiquitous Post-it Note.

Fry, now 84 and retired, is named as a defendant in Amron’s lawsuit, but Silver is not. Fry did not respond to an email and a phone message seeking comment. Silver also is retired, Runyon says.

The history of invention is full of people competing for credit for the same idea, and often things come about because smart people are working separately. Take the microchip: Texas Instruments and Fairchild Semiconductor battled for a decade in court over who came first and deserved the patent, deciding amid the wrangling it was best to work out a licensing deal for both companies.

Amron says his idea in 1973 came about with chewing gum. He was looking for a way to stick a note on his refrigerator for his wife and used gum, providing inspiration for the adhesive he would use on his Press-on Memo. That year he took the sticky notes to a New York trade show and met briefly with two 3M executives, Amron says, but nothing came of the meeting.

Fry and Silver came up with what 3M originally called the Press ‘n’ Peel memo pad in 1974, but it wasn’t brought to the market until 1977 and didn’t really take off until 1980, when it was renamed the Post-it Note. It’s now one of the top-selling items in 3M’s consumer products division, which in 2015 earned $4.4 billion for all products, company figures show.

Post-it Notes have become so iconic that in the 1997 movie “Romy and Michele’s High School Reunion,” the title characters, played by Lisa Kudrow and Mira Sorvino, claim credit for inventing them to impress their former classmates.

It was also in 1997 that Amron sued 3M claiming he was the true inventor. The case was settled, and Amron agreed to release the company from any future claims, which intellectual property lawyers say could make his new Florida lawsuit difficult to win.

“I would predict what he has left perhaps is the enforcement of a settlement agreement but not the claims he is pursuing,” says Miami attorney Jeffrey Feldman, who is not involved in the case. “The first thing I would want to know is whether or not there was an agreement between them regarding who was allowed to say what.”

Amron says the agreement was that neither could claim credit because, years earlier, a Swiss inventor had supposedly devised a similar product. But that turned out to be a less-useful adhesive, not the entire sticky note, and Amron says he felt 3M used the Swiss tale to trick him into the settlement – and is now breaching that deal by claiming credit for the product.

No trial date is set for Amron’s lawsuit, which survived a 3M initial attempt last month to get it thrown out based in part on the prior settlement of similar claims. A federal judge has ordered both sides into mediation to possibly reach a settlement and set various legal deadlines through December of this year.

Meanwhile, 3M continues to invent things. According to the company’s year-end 2015 statement, 565 U.S. patents were granted to 3M—bringing its total to more than 105 000.

By Kirk McKoy for www.cnbc.com

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