Pro­posed debt-relief mea­sures ‘will re­ward ir­re­spon­si­ble con­sumers’

Weekend Argus (Saturday Edition) - - FINANCE PERSONAL - KABELO KHU­MALO

PRO­POSED leg­isla­tive mea­sures to help over-in­debted con­sumers might prove to be a dou­bleedged sword, dis­cour­ag­ing con­sumers from man­ag­ing their credit re­spon­si­bly, the Bank­ing As­so­ci­a­tion South Africa (Basa) warns.

The or­gan­i­sa­tion was re­fer­ring to the draft Na­tional Credit Amend­ment Bill, which was pub­lished by Par­lia­ment’s port­fo­lio com­mit­tee on trade and in­dus­try last year. Pub­lic hear­ings on the bill are due to be held over the next two weeks.

The draft bill per­mits a per­son who earns less than

R7 500 a month and who owes less than R50 000 in un­se­cured debt re­lat­ing to credit agree­ments to ap­ply to the Na­tional Credit Reg­u­la­tor (NCR) for in­ter­ven­tion.

If the NCR is of the view that the ap­pli­cant re­quires as­sis­tance, a sin­gle mem­ber of the Na­tional Credit Tri­bunal can sus­pend all the ap­pli­cant’s qual­i­fy­ing credit agree­ments in part or in full for 12 months. If the ap­pli­cant’s fi­nan­cial cir­cum­stances do not im­prove, the tri­bunal can de­clare the debt un­der the qual­i­fy­ing credit agree­ments ex­tin­guished, ei­ther in full or in part.

Cas Coova­dia, the man­ag­ing di­rec­tor of Basa, says leg­is­lated debt in­ter­ven­tion will ac­cel­er­ate ir­re­spon­si­ble bor­row­ing.

“Con­sumers who have pre­vi­ously re­paid their debts could be­come dis­in­cen­tivised to do so, as stan­dard­ised debt­in­ter­ven­tion mea­sures and debt-in­ter­ven­tion cri­te­ria re­ward neg­a­tive re­pay­ment be­hav­iour. This will mean that con­sumers who have a good re­pay­ment his­tory will no longer be re­warded for such be­hav­iour when they ap­ply for fur­ther credit,” says Coova­dia.

Basa says it will pro­pose to the com­mit­tee that a sub­sidy to in­tro­duced that can be used to cover what con­sumers pay to use ex­ist­ing debt re­view mea­sures.

Eu­gene Bester, who spe­cialises in bank­ing lit­i­ga­tion at Cliffe Dekker Hofmeyr, says the pre­am­ble to the bill does not pro­vide for debts to be ex­tin­guished, but this is ex­actly what it seeks to achieve.

“At first blush, the pur­pose of the draft bill seems in­nocu­ous. Af­ter all, debt in­ter­ven­tion could per­haps be in­ter­preted as a mech­a­nism aimed at as­sist­ing con­sumers, but not nec­es­sar­ily in­ter­ven­tion to such an ex­tent that obli­ga­tions owed by con­sumers to credit providers are ex­tin­guished,” Bester says.

Coova­dia warns that leg­is­lat­ing broad-based deb­tre­lief mea­sures could ac­cel­er­ate the growth of un­scrupu­lous lend­ing prac­tices.

“Ac­cess to credit could po­ten­tially de­crease due to po­ten­tial de-risk­ing, and the cost of credit will in­crease, due to a cul­mi­na­tion of eco­nomic fac­tors and the re­cent amend­ments to the Na­tional Credit Act.”

Neil Roets, the chief ex­ec­u­tive of debt coun­selling firm Debt Res­cue, says most con­sumers are a point where they must face the fact that they can­not main­tain the life­style they had in the past.

“It has now be­come a mat­ter of sur­vival. Open­ing more ac­counts and ac­quir­ing more store cards and credit cards is ab­so­lutely not the an­swer.’’

“South African con­sumers have con­sis­tently notched up the un­en­vi­able rep­u­ta­tion as hav­ing one of the high­est debt ra­tios as a per­cent­age of GDP among emerg­ing-mar­ket economies,” Roets said.

Ac­cord­ing to a World Bank re­port, South Africans are the big­gest bor­row­ers in the world.

Sta­tis­tics from the NCR show that up to 10 mil­lion South Africans are se­verely in ar­rears on their debt.


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