SA’s booming debt delinquency

MIXED NCA SUCCESS: DEBT REVIEW SEES 25% PA GROWTH IN COLLECTIONS

SA’s debt distress industry is booming. About 16 000 South Africans are signing up each month for debt review.

The advantage of debt review is that credit providers can’t launch legal proceedings against you for 60 days.

SA’s debt distress industry is booming. About 16 000 South Africans are signing up each month for debt review, as allowed under the National Credit Act (NCA). The number of SA consumers in distress has grown 61% since the NCA became law in 2007, while credit-active consumers are up 44% to more than 24 million, according to the National Credit Regulator’s Credit Bureau Monitor data. Of these 24 million, over 40% are in some form of financial distress.

But with more than 2 000 of the 3 000 registered debt counsellors having left the industry in recent years due, in part, to a cap on fees, it has left thousands of consumers without a debt counsellor.

The NCA was introduced to promote stronger consumer credit protection and to outlaw reckless lending. In some ways it has succeeded; in others it has failed miserably. Of the 800 000 who went under debt review in the decade since the NCA became law, about 30% have exited debt counselling, though 350 000 are still under debt review.

The advantage of debt review is that credit providers can’t launch legal proceedings against you for 60 days. The debt counsellor takes over negotiations with credit providers on your behalf, and you pay one, rather than multiple, monthly installments. But if you default on the debt review payments, credit providers can launch legal action for loan recovery.

Recently in parliament, the National Credit Regulator (NCR) addressed the portfolio committee on trade and industry on proposals to offer lower income groups debt relief or exemption. This alarmed credit providers, who argue a debt forgiveness programme will perpetuate SA’s already-poor savings culture.

The majority of loans come with credit life insurance, which pays off the loan in the event of the borrower’s death, disability or retrenchment. Ian Wason of the Intelligent Debt Management Group, and DebtBusters, says many of these products have been grossly overpriced and mis-sold. “There needs to be more focus on ensuring more is done for consumers to be assisted in claiming against these policies.” He says the NCR has the power to clamp down on reckless lending through affordability regulations, by increasing the minimum expense allocation, currently about 9%, to a more reasonable 40%. Chris van der Straaten of Hyphen PDA points to the 25% annual growth in collections and distributions as evidence of the debt review system’s success.

Rob Easton-Berry of Consumer Friend says: “Prior to the adoption of the NCA, over-indebted consumers had few options to restructure their debt. This resulted in the legal process running its course with houses being foreclosed on and vehicles being repossessed. Debt counselling now provides such a platform whereby debt can be holistically viewed, negotiated and restructured, thereby providing consumers with a new affordability and protection over their household assets.”

In parliament last month, the credit industry cautioned against legislated debt forgiveness measures and their unintended consequences. There was support for refining the debt review process to make provision for low-income consumers and give an incentive for debt counsellors to provide assistance, through debt counselling, to low-income consumers.

Of the 800 000 who went under debt review 30% have exited