The new credit law and what it means for you

A new law could see mil­lions of people’s debts wiped out – but it’s con­tro­ver­sial


SHE rises be­fore the crack of dawn, trav­el­ling long dis­tances from her home in the sub­urb of Kraai­fontein to her jobs in cen­tral Cape Town and other parts of the Mother City. Noloy­iso Lombo (46) is a do­mes­tic worker, earn­ing up to R4 000 in a good month. “It’s dif­fi­cult be­cause I work on com­mis­sion,” she tells DRUM. “The one man I work for two days a week pays me R2 000 a month.”

Her sec­ond job in­volves work­ing for a clean­ing agency where she’s em­ployed for three to four days a week de­pend­ing on book­ings, and the money she takes home isn’t enough to pay all her debts.

The sin­gle mom has to take care of her 28-year-old daugh­ter and two grand­chil­dren, mak­ing sure they have a roof over their heads and are fed and clothed. That means there isn’t enough money left over to pay her debts.

She owes around R20 000, an amount that’s crept up over the past five years. Her debtors in­clude cloth­ing re­tail­ers, and she owes money on her daugh­ter’s

col­lege fees.

“It’s a real stress for me be­cause I don’t have enough to pay what I owe,” she says. “And I can’t buy any­thing be­cause if I do, my debtors are af­ter me.”

Noloy­iso is one of mil­lions of South Africans who’ve in­creas­ingly tight­ened their belts yet still can’t make ends meet. She can’t sur­vive with­out the debt she’s in­curred – yet it’s stop­ping her im­prov­ing her life.

But soon Noloy­iso’s wor­ries might all be over. Thanks to a new law, low earn­ers like her could see their debts wiped out.

That’s right – it will be as if it never hap­pened.

But, of course, it’s not just as sim­ple as say­ing you want it gone and so be it.

The Na­tional Credit Amend­ment Act 7 of 2019, re­cently rat­i­fied by Pres­i­dent Cyril Ramaphosa, won’t ap­ply to ev­ery­one or to all debt.

The part of the act that refers to debt be­ing can­celled – praised by some but seen as reck­less by oth­ers – is aimed at house­holds within a cer­tain in­come cat­e­gory. It ap­plies only to people earn­ing R7 500 a month be­fore de­duc­tions.

There will also be sev­eral other fac­tors to con­sider be­fore some­one qual­i­fies, and a lot must happen be­fore the new act can be put to prac­ti­cal use.

Ex­perts warn this step can also make debt more ex­pen­sive in the long term, and could end up harm­ing the very people it’s in­tended to help.

But those who sup­port it say it will make a huge dif­fer­ence in the lives of many poor South Africans who sim­ply can’t get on track be­cause of the huge bur­den of debt they have to carry. Th­ese are con­sumers who have no other op­tion but to in­cur debt to sur­vive from day to day.

We break down the de­tails.


The pro­posed mea­sure to strike debt is part of a series of amend­ments to the Na­tional Credit Act.

The new amend­ment act, also called the Debt Re­lief Bill, is meant to help the poor­est and most in­debted South Africans.

Its over­ar­ch­ing pur­pose is to strengthen the Credit Act and pre­vent ex­ploita­tion of es­pe­cially lower-in­come house­holds. But what’s made most con­sumers

sit up and take no­tice is the prospect of hav­ing their debt writ­ten off.

The new law is specif­i­cally aimed at help­ing debt-rid­den con­sumers who earn less than R7 500 a month and have un­se­cured debt, such as credit and store cards or per­sonal loans, of a max­i­mum of R50 000.

If you owe more than R50 000 you may not ap­ply to the Na­tional Credit Reg­u­la­tor (NCR) for debt in­ter­ven­tion. But af­ter con­sid­er­ing fac­tors such as in­fla­tion, the rel­e­vant min­is­ter may ad­just this to­tal debt amount once a year.

The amend­ment won’t ap­ply to those who are in debt coun­selling, se­ques­trated or in court-or­dered debt ad­min­is­tra­tion. And it doesn’t in­clude home and car loans.


But this won’t just be a free-for-all – your debt won’t au­to­mat­i­cally be ex­punged if you qual­ify for it.

Once the leg­is­la­tion is implemente­d, you’ll have to ap­ply to the NCR for the process to start.

The NCR will be in charge of ad­min­is­ter­ing th­ese reg­u­la­tions and will as­sess each ap­pli­ca­tion and de­cide whether the sit­u­a­tion is dire enough to war­rant the debt be­ing writ­ten off.

You could say the NCR will act as a type of debt coun­sel­lor or debt man­ager – but with­out the fees this usu­ally comes with.

It might de­cide that the ap­pli­cant is ca­pa­ble of getting them­selves out of debt with the nec­es­sary guid­ance and debt re­struc­tur­ing.

De­tails about im­ple­men­ta­tion still need to be worked out but for the time be­ing the process and time frame look some­thing like this:

The NCR as­sesses whether the ap­pli­cant is over­bur­dened with debt, and whether any of the credit agree­ments con­sti­tute reck­less lend­ing.

The NCR then has sev­eral routes it could de­cide on. It could deny your ­app­li­ca­tion in its en­tirety, rec­om­mend vol­un­tary debt re­struc­tur­ing, or in­ves­ti­gate reck­less lend­ing agree­ments to see if the lenders are li­able.

If the NCR finds the ap­pli­cant is un­able to pay off their debt, it might sus­pend re­pay­ments for a year.

The NCR will re­assess the sit­u­a­tion at the end of this pe­riod. If the ap­pli­cant is then in a bet­ter po­si­tion and able to pay off their debt within five years, the NCR can ne­go­ti­ate new re­pay­ment terms and in­ter­est rates on the ap­pli­cant’s be­half.

But if it’s found that the sit­u­a­tion hasn’t im­proved, the NCR may sus­pend re­pay­ments for an­other year.

Then, if the ap­pli­cant is once again found to be un­able to re­pay their debt, the debt might be ex­punged, either fully or in part.

This will be a lengthy process and crit­ics say the NCR doesn’t have the nec­es­sary re­sources to help the many deb­trid­den con­sumers who’ll ap­ply.


Un­der the new amend­ment act, an es­ti­mated 9,5 mil­lion in­debted South Africans could be el­i­gi­ble to have their debt ex­punged.

But ap­pli­ca­tions can only be made once a start date has been ad­ver­tised in the Govern­ment Gazette.

“It’ll take some time – pos­si­bly up to two years – for reg­u­la­tions to be fi­nalised so the law can be implemente­d,” says ­Be­nay Sager, COO of debt-coun­selling firm DebtBuster­s.

Mean­while con­sumers should be wary of getting into more debt, Sager warns.

“Tak­ing out more credit than you can af­ford isn’t a good idea and could have long-term im­pli­ca­tions for your credit record.”


So will the new laws be a god­send to so­ci­ety’s most vul­ner­a­ble or put them at even more risk? It de­pends who you ask. The bank­ing sec­tor hasn’t been pos­i­tive about the changes. The amend­ment act in its cur­rent form “doesn’t achieve the in­tended ob­jec­tive of help­ing overindebt­ed con­sumers”, says Cas Coova­dia, man­ag­ing direc­tor of the Bank­ing As­so­ci­a­tion South Africa (Basa).

Banks have been vol­un­tar­ily help­ing em­bat­tled con­sumers for years by pro­vid­ing bil­lions of rands’ worth of re­lief in the form of in­ter­est rate cuts, he says.

Debt in­ter­ven­tion mea­sures “shouldn’t in­tro­duce un­cer­tainty and in­sta­bil­ity into the credit mar­ket, as this will have a fur­ther neg­a­tive ef­fect on con­sumers and the SA econ­omy,” Coova­dia says.

The bank­ing sec­tor ab­so­lutely sup­ports debt-re­lief mea­sures to over-in­debted con­sumers whose in­come cir­cum­stances have been weak­ened be­yond their con­trol, he adds.

But he be­lieves the new amend­ment will dis­rupt the credit sys­tem, which is care­fully cal­i­brated to func­tion in a cer­tain way.

“By mak­ing pro­vi­sion for the ar­bi­trary ex­pung­ing of debt, the act in ef­fect pre­vents banks from ex­tend­ing re­spon­si­ble credit, par­tic­u­larly to those in low-in­come house­holds who of­ten need it most.”

Why? Be­cause of the risk in­volved in lend­ing to people who might not be able to pay and who might then even­tu­ally have their debt writ­ten off.

The act will make credit providers even more cau­tious of ex­tend­ing credit to people who, for ex­am­ple, earn less than R7 500 a month, Coova­dia says.

And if banks aren’t giv­ing people loans and con­sumers still des­per­ately need money, they’ll find it else­where, crit­ics ar­gue. This might drive des­per­ate con­sumers

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‘It will pro­vide badly needed debt re­lief to mil­lions’

straight into the clutches of un­scrupu­lous so-called loan sharks – un­reg­u­lated mi­crolen­ders who charge im­pos­si­ble in­ter­est rates and ex­tend loans to those who’ve run out of bor­row­ing op­tions.

“An un­in­tended con­se­quence of the new act could be that credit providers will have to re­view their lend­ing cri­te­ria for the cat­e­gory of con­sumers in­volved as they’ll be per­ceived as a higher risk,” says Neil Roets, CEO of debt coun­selling firm Debt Res­cue.

“And if such con­sumers don’t meet the cri­te­ria, they’ll be left with little op­tion but to turn to un­reg­u­lated lenders – which will have a detri­men­tal im­pact on their rights and their fi­nan­cial cir­cum­stances in the long term.”

The Demo­cratic Al­liance (DA) is wor­ried the act will en­cour­age South Africans to get into debt.

“The DA is con­cerned that this act will in­crease in­stead of de­crease the ap­petite among low-in­come earn­ers to in­cur more debt, with no in­ten­tion of pay­ing it back,” says Dean Macpher­son, DA shadow min­is­ter for trade and in­dus­try.

“The act in its cur­rent form fails to make ad­e­quate pro­vi­sion for deal­ing with il­le­gal and un­reg­is­tered rogue lenders who take ad­van­tage of con­sumers who have no re­course or pro­tec­tion from the state.”

The Na­tional Cloth­ing Re­tail Fed­er­a­tion has also ex­pressed its con­cern over what the fu­ture holds for re­tail­ers.

Michael Lawrence, the fed­er­a­tion’s ex­ec­u­tive direc­tor, em­pha­sised that many clients in the re­tail sec­tor fall into the cat­e­gory the Debt Re­lief Bill ap­plies to. As a re­sult, many credit providers in the in­dus­try will be hes­i­tant to ex­tend credit.

Roets ac­knowl­edges that con­sumers, es­pe­cially in the be­low R7 500 in­come bracket, can’t al­ways af­ford the le­gal fees of­ten as­so­ci­ated with debt coun­selling, de­spite th­ese le­gal fees be­ing quite rea­son­able, as debt coun­sel­lors ne­go­ti­ate them with at­tor­neys. “Since 2007 debt coun­selling has proved to be a suc­cess­ful so­lu­tion to as­sist con­sumers who are over-in­debted,” he says. This might have been a bet­ter route to fol­low in­stead of writ­ing off the debt, Roets be­lieves. “A much bet­ter so­lu­tion would’ve been for govern­ment to sub­sidise the le­gal fees for con­sumers within the de­fined cri­te­ria, thus en­abling them to make use of debt coun­selling.” Roets says SA’s con­sumer debt prob­lem is largely a con­se­quence of poor fi­nan­cial literacy. Most con­sumers re­ceive little or no fi­nan­cial ed­u­ca­tion at any stage of their life. “When people start earn­ing an in­come, they are of­ten not e­qu­i­pped to han­dle the pit­falls that come with tak­ing up credit. “Over-in­debt­ed­ness in SA can be dra­mat­i­cally re­duced if the govern­ment pro­vides thor­ough fi­nan­cial ed­u­ca­tion at school level around topics such as the cost of credit, re­spon­si­ble use of credit, liv­ing ex­penses and good and bad debt.”


Trade fed­er­a­tion Cosatu praised Ramaphosa for sign­ing “one of the most propoor and pro-worker laws”, and reck­ons the banks are over­re­act­ing. “It will pro­vide badly needed debt re­lief to mil­lions of over-in­debted and ex­ploited work­ers and their fam­i­lies,” says Matthew Parks, Cosatu’s par­lia­men­tary co­or­di­na­tor. “It’s a help­ing hand to those who need it most.” But he urges South Africans not to take it as a li­cence to shop. “It’s crit­i­cal for con­sumers not to mis­take it for a green light to en­gage in reck­less bor­row­ing or fi­nan­cial be­hav­iour.”

‘This will have a fur­ther neg­a­tive ef­fect on con­sumers’

Pres­i­dent Cyril Ramaphosa re­cently rat­i­fied the so-called Debt Re­lief Bill.

Trade fed­er­a­tion Cosatu says the Debt Re­lief Bill will ben­e­fit the poor but Basa’s Cas Coova­dia (BE­LOW) be­lieves it won’t meet its ob­jec­tive.

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