Address the cause of debt

I note with interest the trade and industry portfolio committee’s undertaking to amend the National Credit Act to provide debt relief to the overindebted.

I would bring it to the attention of MPs that they are focusing on the effects of this expensive form of debt and not addressing the cause. Why do millions of South Africans find it necessary to incur such debt? MPs should rather focus on the social structures that create the environment for unsecured lenders to thrive. The constitutionality of what they are exploring is questionable and the unintended consequences of creating a moral hazard will hang like the sword of Damocles over the unsecured lending industry should these proposals be adopted in their current form.

We should remember that behind the statistics of contractual delinquencies, bad debts and impairments there are individuals with impaired credit records, the result of which can have devastating consequences for years, as they cannot obtain value additive and productive debt such as vehicle asset financing or mortgages.

I understand that the cost of living for the poor and working class as a percentage of their total income is significant, and they sometimes need to borrow. I take the point that the national minimum wage may alleviate this challenge. However, even the middle class is being consumed by such debt.

In understanding the social structures that create this state of overindebtedness our legislature would be better empowered in formulating policies that can address the reasons for this state of overindebtedness.

Jared Abels Via e-mail