Debt relief will pass muster if correct path followed, MPs told

The Department of Trade and Industry believes that the extinguishing of debt as proposed in the draft National Credit Amendment Bill will be constitutional as long as it follows a particular process that embodies the audi alteram partem (listen to the other side) rule.

This was the view of senior counsel who advised the department on the constitutionality of the draft bill, which aims to offer debt relief — including ultimately the write-off of debt — to those with a gross income of less than R7,500 with no assets.

Director-general Lionel October gave the response of the department and of the National Credit Regulator to the public comments on the proposed bill to Parliament’s trade and industry committee.

The banking sector opposes the bill, arguing that banks have effective debt relief measures. Concerns were expressed that the move would be unconstitutional as it would deprive credit providers of their property.

October said in a briefing to the parliamentary committee on Tuesday that all jurisdictions accepted that debt could be extinguished (for example in liquidations and business rescue) and that this was not expropriation. What was key was the process followed and that the other side had the opportunity to be heard.

Debt could not be written off in a generic way using a “sledgehammer” approach without dealing with the individual overindebted applicants and the individual credit providers.

It could not be done on a group basis. “We have to strengthen the bill to allow for the National Consumer Tribunal to play a bigger role and allow credit providers to have some say in the process.”

October stressed that the department fully supported the bill but would propose certain amendments to strengthen it. He said interventions would also be required to strengthen the capacity and powers of the National Credit Regulator and the National Consumer Tribunal. The department estimated that 1.7-million individuals fall in the targeted group of indebted consumers who could benefit from the proposed debt relief.

October said the department would propose that the regulator be empowered to employ 70 debt counsellors to help the vulnerable who had not benefited from debt counselling. “We are proposing that the National Credit Regulator provide direct assistance to this low-income group,” he said.

In terms of the legal opinion given to the department, the draft bill needs to give the tribunal the discretion to suspend debt and extinguish debt in a fair way. The bill would have to be amended to give the tribunal the necessary powers to do this.