Dealing with hardship

FINANCIAL CRISIS: OMBUDSMAN WARNS ABOUT TOUGH TIMES AHEAD What are options to rehabilitate an account in arrears or minimise losses.

The Ombudsman for Banking Services is warning consumers that tough financial times are waiting for them in 2023. Inflation is the highest it has ever been and the repo rate has steadily increased with more increases expected in the near future.

The majority of consumers are further stressed by regular and significant increases in fuel prices which also have a knock-on effect on food and transport costs.

“All of these increases wiped out the financial relief offered by the rate reductions of 2020,” says Ombudsman Reana Steyn.

The problem is that increasing numbers of defaulters may in turn increase the number of creditors instituting legal action for the foreclosure or repossession of financed goods.

Increasing interest rates

Steyn says while there has been a significant decrease in interest rates since the 2008 great financial crisis, where interest rates were close to 12%, consumers had to endure a year where the interest rate increased significantly over a very short period.

Statistics from the South African Reserve Bank (Sarb) show that in December 2021, the interest rate was 3.5% before it steadily increased during the year to its current level of 6.2%.

“This is bad news for many consumers who are paying off bonds and vehicle finance agreements. There will be increased instances of consumers defaulting on their credit payments,” Steyn says.

Rising fuel prices

We all need fuel in one way or another to get around, which means that the pockets of many consumers are also under threat from regular increases in the prices of petrol and diesel.

“For many South Africans, this is worse than rising interest rates. Not only does the fuel increase impact consumers directly, but these increases also exert an indirect impact on food and clothing prices as well,” says Steyn.

Overcoming financial challenges

Many people feel a sense of dread as they are forced to come to terms with their own potential financial crisis, but studies show that the way to approach this issue helps to determine the probability of overcoming the problem.

“Managing this crisis will cause a lot of stress, but partners and families need to come together and formulate a plan to meet their financial needs. They need to draw up a monthly budget, make provision for emergency savings and look at their monthly expenditure, making cuts where necessary,” Steyn says.

How to deal with credit in a crisis

Many consumers use debt as a way to manage the worst effects of the financial crisis. The latest information from RCS Loans shows that consumers save on average -0.3% of their salaries per month. This means that the vast majority of South Africans do not save but borrow to make ends meet.

Steyn advises all individuals who are struggling to repay their debts, or anyone who foresees that they will not be able to pay their debts in the near future, to urgently contact their credit providers to seek assistance.

Her office has found over the years that most banks are open to offering some form of assistance to customers who find themselves in financial difficulty. Therefore, her advice for consumers is to be open about their situation and talk to their banks about their financial problems before it becomes a problem.

Steyn says banks offer these payment options to rehabilitate the account in arrears or minimising the losses for the customer and the bank in the event of a rehabilitation not being possible:

▶ Credit restructure agreements, where the monthly instalment payable is reduced but the repayment term is extended. The outstanding balance will increase due to the additional interest, fees and other charges that must be added;

▶ Holiday payment arrangements where the consumer is absolved from making monthly payments towards the debt for a period of up to six months. This option is available for an account in good standing (not in arrears) and may also result in the repayment term being extended as well as the outstanding balance increasing due to the interest and relevant charges;

▶ Voluntary or statutory debt review processes according to the National Credit Act;

▶ Debt consolidation, where a credit provider offers to consolidate a number of the over-indebted customer’s credit products into a new consolidated credit product such as a loan. The customer is left paying one loan;

▶ The surrender of movable goods, such as a vehicle or furniture in line with section 127 of the National Credit Act. Consumers have the option of selling the goods themselves but may need approval from their credit provider; and

▶ In the case of property, bank assisted sale programmes where the banks market and sell the property becomes an option.