President Cyril Ramaphosa signed the National Credit Amendment Debt Relief Bill last week. The objective of the National Credit Act is to promote fair and accessible credit to all South African’s. But will the bill be beneficial for lower-earning consumers in the long run? The new bill could contradict “fair” and “accessible” to all and here’s why…
The new debt relief bill is promising to write off debt for low income and unemployed consumers who are over-indebted, but the application thereof is misunderstood. The bill is of extreme concern to the banking industry and their low-income clients. Only a small fraction of very vulnerable consumers may benefit from this bill after a vigorous vetting process.
The Banking Association of South Africa (BASA) have reached out to President Ramaphosa in an attempt to petition the act, however, their petition was not heard. The group has pointed out to the Presidency that the act is not a sustainable debt relief measure. Nor does it provide a balance between consumers and credit provider rights. According to BASA, the act puts low earning South Africans savings, investments and credit accessibility at risk.
A study by BASA and DTI found that banks would have to increase the cost of credit for high-risk lenders or avoid lending to low-income consumers altogether. This may lead to an unintended consequence of low-income consumers seeking credit from unregulated lenders such as loan sharks. It will also be likely that successful debt intervention candidates will struggle to gain access to credit again after having their debt extinguished, not unless their financial profile drastically improves.
Neil Roets, CEO of Debt Rescue warns that credit providers aren’t going to put up an easy fight either. Court orders will be brought to question, delaying the implementation of debt intervention to their respective consumers.
Although the Debt Relief Bill has been officially signed, there is still a lot of uncertainty around the bill and its intentions…
Here’s what you need to know about the Debt Relief Bill:
You cannot apply for debt intervention at present:
There is no implementation date yet.
The NCR and NCT do not currently have the infrastructure and processes to handle applications yet. And it may be some time before we see progress in this area.
Candidates need to meet strict criteria before applying:
The bill only applies to consumers who have been earning a gross income of below R7 500 for at least 6 months before applying or who have been unemployed for some time. Applicants also cannot have more than R50 000 in unsecured debt and must be found over-indebted by the National Credit Regulator.
What are the criteria:
- No realisable assets in their name above the value of R2 000 (unless a tool of the trade) i.e. vehicles or property
- R50 000 or less in unsecured debt
- Found to be over-indebted by the NCR
- A gross income of below R7 500 for at least 6 months before applying
- Unemployed with no prospect of finding work within 24 months
All other debt relief measures will be taken first before any debt can be extinguished:
Consumers hoping to get their debt written off by simply filling in an application form may have been grossly misled. The NCR and NCT need to take effective measures before writing off any debt. Consumers will be given a time frame to find a means of settling their debt. Only when all other debt relief measures have been taken, will the debt be considered eligible to be written off.
Further precautionary measures will be taken to try and tackle over-indebtedness:
Successful applicants will need to go through a compulsory financial literacy counselling and financial literacy training. Reckless lending assessments will also become mandatory. Any consumer who is found to be over-indebted when applying for debt relief/review will receive a reckless lending investigation. Credit life insurance will also become compulsory on unsecured debt below R50 000 with a repayment term of more than 6 months.
What are the present options available to over-indebted consumers?
If you fall within the strict criteria outlined above, there is not much you can do about applying for debt intervention until the Debt Relief Bill has been implemented. However, if you think you may be over-indebted and you are struggling to out of debt, then get in touch with a registered debt counsellor such as Debt Rescue today for a free assessment.