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Debt relief for low- income earners

President Cyril Ramaphosa signed the National Credit Amendment Bill, also known as the Debt Intervention Bill, into law in August.

The National Credit Amendment Act 7 of 2019 aims to amend the National Credit Act, No 34 of 2005, to provide relief to over-indebted consumers.

While the National Credit Act 2005 promoted and advanced the social and economic welfare of South Africans; promoted a fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market industry; and protected consumers, there was no measure for debt relief.

“The main advantage of the Amendment Act is that there is now a measure in place for debt relief for a group of consumers who could not apply for any form of debt relief in the past,” explained Anne-Carien Du Plooy, the Acting Manager: Debt Intervention at the National Credit Regulator (NCR).

Du Plooy said the Act also addresses some deficiencies related to reckless lending; provides for possible compulsory credit life insurance (may be prescribed) in certain instances; and provides for better enforcement of the National Credit Act, including measures to address actions that were rendered unlawful by the Act – but which were not criminal – so that enforcement was limited to civil actions. The Act also corrects deficiencies in the powers of Magistrates Courts, relating to debt relief measures.

Debt intervention

According to Du Plooy, consumers will qualify for debt intervention if they meet the minimum qualifying criteria.

The criteria include being a natural person (or joint estate); a consumer under unsecured credit agreements, short-term credit transactions or credit facilities only - provided that the total of principal debts under these agreements is not more than R50 000; an average income during the six months preceding the application of no more than R7 500 per month; being over-indebted and have not been sequestrated or subject to an administration order.

“Having a secured agreement will disqualify a consumer from debt intervention,” said Du Plooy.

“Once it is established that a consumer meets the minimum qualifying criteria the NCR may recommend voluntary re-arrangement of the consumer’s debt (where a consumer can repay his debts within five years); refer the matter to the National Consumer Tribunal for suspension of the consumer’s obligations for a period of 12 months; and apply to the National Consumer Tribunal for an extinguishment of the consumer’s obligations,” she explained.

Reckless lending and spending

According to Carla Oberholzer, Debt Adviser and Public Relations Officer at Debtsafe, the Act gives the NCR power to tackle reckless lending practices and to suspend agreements relating to this.

However, consumers need to be careful. “If all else fails, a consumer that qualifies for this debt intervention process can have debt written off. However, this is not a process that will happen overnight. Consumers have to be careful to not take out credit and think that it will miraculously disappear and be written off instantly,” she said.

In addition, qualifying consumers hoping to get their debts written off must bear in mind that a commencement date for the legislation has not yet been set.

Industry voices concerns

“Even though the intention of the Act seems good, there are certain concerns,” said Oberholzer.

“For example, there is a concern that there could be an increased cost of credit for low-income earners. This would mean that consumers would more likely try to access informal credit providers rather than formal providers, like banks, as banks won’t be so lenient in future when it comes to lending,” she said.

The Banking Association SA (Basa) agrees. “The legislation may well limit credit providers’ ability and appetite to extend credit to consumers earning less than R7 500 gross per month. Where credit is extended, it is likely that it will be at an increased price to counterbalance the expected risks being introduced by the new law, leading to long-term financial exclusion for the lower-income segments of the market,” Basa said in a media statement.

Basa also said that the National Credit Amendment Act is not a sustainable debt intervention measure as it fails to balance the rights of consumers and credit providers.

“This is not correct,” said Du Plooy. “Credit providers will be afforded the opportunity to respond to any application prior to a re-arrangement order, suspension order and/or extinguishment order being granted and their rights are therefore not prejudiced in any way,” she explained.

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