Another debt forgiveness plan ‘is not a good idea’

The proposed “debt forgiveness plan” whereby consumers’ outstanding debts older than three years will be erased will plunge consumers deeper into debt in the long run, experts say.
The new legislation means if a con­sumer has not paid any instalments on the outstanding debt for three years it is said to have expired and must be removed from credit bureau records.
In 2014, the government introduced the credit amnesty, which pertains to credit records where all registered credit bureaus were required to remove adverse consumer credit information on their systems until the end of May 2014.
About 3.18 million South Africans had benefited.
However, the new proposal has been called a disaster for the economy and for consumers.
“Rather than helping consumers, the debt forgiveness programme will plunge them deeper into debt in the long term,” Magnus Heystek, economist at Brenthurst Wealth Management said.
Heystek stressed that if lenders are compelled by legislation to write off even minimal amounts of debt, it would shake confidence to the core in the South Afri­can economy.
“It was patently obvious that this was an ANC election ploy trying to buy votes from the more than 50% of South Afri­cans who are deeply indebted.
“Should the government decide to go ahead with this idea, it will ultimately be the banks who will lose out when lend­ers are unable to service their loans,” he said.
He said the only way the banks would be able to recoup their losses would be by charging higher interest rates for what will be perceived as high-risk loans.
Neil Roets, CEO of one of the largest debt management companies in South Africa, Debt Rescue, said although no details have been provided on the plan, if the measure came to pass it would bring adverse long-term consequences.
“Lenders, which include both banks and the retail sector, already have to cope with prescription legislation, which means if a consumer has not paid any instalments on the outstanding amount for a period of three years it is said to have expired.
“This will be plunging consumers into an untenable situation where they will pay virtually their entire salaries to debt collectors leaving little money for food and other essentials,” Roets said.

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