Credit amnesty doesn’t clear debt

Cape Town – It seems a near certainty that the government will introduce a second credit amnesty. In its recent presentation to parliament, the department of trade and industry made it clear that they were determined to proceed with the scheme.

However, there are many in the financial sector who expressed great concern over the consequences of such a credit amnesty.
Mark Seymour, chairperson of the Credit Providers Association, warned that removing blacklisted creditors from databases would make credit providers more cautious when lending money, particularly to lower income groups.

Without complete credit records, credit providers would find it difficult to assess credit worthiness. He also said that the increased risk might also be passed on to other consumers in the form of more expensive credit.

An unexpected consequence of the amnesty may be that consumers with clean credit records may then be charged higher interest rates.

Debt Rescue CEO Neil Roets said that although the envisaged amnesty may remove millions of blacklisted people from credit bureau databases – it will in real terms have a negative impact because it will encourage already over-indebted consumers, to borrow more.

He added that there is a lack of understanding among most consumers that the debt resulting from a credit agreement has to be paid.

“Because there had been inadequate information made available to the poor and semi-literate consumers with the previous credit amnesty, many people thought that their debt had simply been wiped clean.

“Even those who realised that this was not the case used the opportunity to get into more debt, because they were no longer blacklisted.”

Proper education to consumers will be needed with this credit amnesty. According to the National Credit Regulator, the purpose of the amnesty would be to provide new credit opportunities, reduce the cost of credit repair and help consumers pay less for credit.

The amnesty is a foregone conclusion, but how it is to be implemented is still being considered.

Trevor Bailey , chairperson of the regulators board, told parliament in February that research had shown that a credit amnesty would benefit 86% of those with debt less than R10 000 but earning up to R15 000 a month.

The department of trade and industry and the National Credit Regulator are expected to submit a report to parliament’s trade and industry portfolio committee next month on how best to implement the amnesty. This report will form part of public hearings.

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