Unsecured credit providers in SA still breaking the law on a ‘massive scale’

Debt management firm Debt Rescue says that widespread new legislative measures in the pipeline will bring relief to deeply indebted consumers in South Africa.

Credit providers which includes everybody from micro lenders, retailers and the four big banks have been served notice that if they lend money to over indebted consumers these loans may be written off and criminal steps taken against the directors of these companies, said Debt Rescue CEO, Neil Roets.

Part of the National Credit Amendment Bill which is now being debated in parliament, the new measures will give the National Credit Regulator (NCR) the power to not only investigate cases of reckless lending but to also act against these entities and declare agreements entered into with over indebted individuals null and void.

Roets said the move is long overdue because many retailers and other supplier of unsecured credit are still breaking the law on a ‘massive scale’ by lending money to over indebted consumers thereby plunging them ever deeper into a debt hole.

“We see examples of this on a daily basis with individuals who approach us for debt counselling in order to be placed under debt review.

“It is patently obvious in many cases that reckless lending was taking place by extending credit to the unemployed and consumers who are carrying an excessive debt load,” Roets said.

Department of Trade and Industry officials said in Parliament on Tuesday that they intended extending the powers of the National Credit Regulator to conduct proactive investigations and impose administrative fines on perpetrators as well as empowering Trade and Industry Minister Rob Davies to provide debt relief mechanisms through regulations. It is believed that this will include measure to forgive debt in certain circumstances.

According to Debt Rescue, the proposed legislation partly arose out of a court case involving Capitec in which the court ruled that the NCR needed a reasonable suspicion of wrongdoing to investigate a matter.

Existing legislation however did not give the NCR the power to conduct proactive investigations and there was no clarity as to what constituted reasonable suspicion, it said.

Roets said that one of the consequences of the proposed legislation will be that the NCR will have the power to declare credit agreements reckless and unlawful, with such lending being criminalised and directors held personally accountable for these practices.

NCR CEO Nomsa Motshegare in her address to the committee said the issue of debt forgiveness was currently under discussion and would include students and retrenched workers who might have their loans written off.

She said at end June total outstanding consumer credit balances stood at R1.66 trillion, a 2.3% increase year on year.

Impaired accounts had increased from 19.9-million to 20.2-million representing 24% of all accounts.

“We have seen double digit growth over last three years in the number of over indebted consumers who wanted to go under debt review in order to pay off their crippling debt on smaller instalments over a longer period of time, Roets said.

Credit bureaus hold records for 24.08-million credit-active consumers. Those classified in good standing amounted to 14.41 million.

The NCR said that the number of impaired accounts increased 23.93% to 20.24 million when compared to the previous quarter‚ and up 1.47 million year-on-year.

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