Debtors’ free pass is hard for creditors to swallow

Some consumers may soon receive the “miraculous” debt cancellation prophesied in misleading church sermons if actions by parliament’s portfolio committee on trade and industry are successful.

Cosatu has thrown its weight behind the National Credit Amendment Bill, which the committee hopes President Cyril Ramaphosa will pass. If it becomes law, consumers earning R7,500 a month and with unsecured debt of no more than R50,000 would be forgiven the debt if they are deemed highly indebted by the National Credit Regulator.

The bill mooted by the committee has been in the making for a little over two years and — unsurprisingly — has encountered numerous delays.

It’s a short-sighted move for a country that boasts a high, and possibly rising, unemployment rate. Economists predict further job losses in the ailing mining sector, and in manufacturing there are no better prospects — yet.

On the global stage, debt pardons have typically been afforded to heavily indebted developing nations. But apparently in the 21st century, debt cancellation has also been applied to individuals caught up in credit and housing bubbles in developed nations.

Sure, there is a case to be made in SA if we dust off that age-old argument about historical economic injustices from our racially divided past.

Some people have been thrust deep into debt to manage numerous commitments — sometimes to dig extended family out of a financial hole — while chasing the trappings of a better life. Cars, property and fashion are among the things prized as a measure of success.

But banks are having none of it and have threatened to petition Ramaphosa if he signs the bill into law. Some bank customers may argue the bill is “karma” for the exorbitant charges clients face.

Banks want the bill rewritten and argue that generous concessions on interest rates are already provided to consumers in debt review. They say the bill may spur credit providers to restrict credit to low-income consumers or price in the extra risk with higher interest rates, among other consequences.

As alarmist as the sector’s moans are, this is enough to burst anyone’s bubble given the crucial role of credit, more than savings, in many household budgets.

Consumers are already getting the message and may not need the government to come to the rescue. PwC’s major banks analysis, published in March, indicates that for the year to December 2017, banks impaired fewer loans. Economist Mike Schussler pointed out on Twitter that debt judgments are the lowest in nearly three decades and that most credit-active people pay their debts.

But one wonders if, given a hospital pass, the number of credit delinquents would spike. Though it might have the noblest of intentions, this bill might become a liability.

Foolish political rhetoric, and its consequences, are hardly going to teach credit junkies a lesson.

@ashaspeckman

Banks say the bill may spur credit providers to restrict credit to low-income consumers