DEBT RELIEF BILL: LOW-INCOME CONSUMERS TO HAVE THEIR DEBTS WRITTEN-OFF

The portfolio committee on trade and industry proposed an amendment to
the National Credit Act in order to provide debt relief to South Africans
struggling with debts.

The Draft National Amendment Bill was published in the Government
Gazzette on 24 November 2017 and has received much attention from different
industries, including business, banking and government. Of concern is the
possible effects the proposed amendment will have on these industries and how
it will impact our economy.

In terms of the Bill, poor and low-income consumers who earn less than
R7.500.00 per month and who have a total of not more than R50 000.00 of
unsecured debts may apply, only once, to the National Credit Regulator (NCR)
for debt intervention. This application is done by the consumer personally and
is only for debts incurred up to 24 November 2017.

Once the consumer has made the application, the NCR will make a
determination of whether the applicant requires the intervention or not. If the
NCR is of the view that the applicant does require the assistance, a member of
the National Credit Tribunal can suspend all credit agreements in part or in
full. Further, if it appears that the financial situation of the consumer is
not improving, the consumer can have his debts written off.

In terms of the World Bank report, South Africans are the world’s
‘biggest borrowers’ and cannot manage their debts responsibly. About half of
credit-active consumers have impaired records. With so many people struggling
with debts and qualifying for debt intervention in terms of the Bill, it raises
concerns about the impact this will have for businesses and credit providers
who followed the right procedures in granting credit.

Essentially what the Bill says is that if you once bought a Television
set and a washing machine under credit when you could afford it but later lost
your job or got more responsibilities, you can have your debts under those
credit agreements extinguished but still keep the goods purchased in terms of
the agreement. This differs entirely from what the NCA seeks to achieve, which
is promoting fair, competitive, sustainable, responsible, efficient, effective
and accessible credit market and industry; and to protect consumers while
balancing the rights of suppliers.

The Bill also has the potential of deterring credit providers from
giving credit to low-income consumers as there is a risk of them being
written-off. The effect of this is that we will have consumers who are denied
access to credit even if they have maintained good credit records, purely on
the basis of being low income earners.

Further concern is that the Bill will encourage irresponsible behaviour
by consumers who will be under the belief that they can have their debts
extinguished.

Although the Bill is supposed to provide hope for low-earning consumers
who are struggling to pay off their debts, it will have far-reaching
consequences especially for our economy. With the Bill being at its final
stages, retailers should brace themselves for a possible further cut of debts
owed to them.

GUEST AUTHOR BIO

Charmaine Schwenn

Charmaine Schwenn

Attorney

Schwenn Incorporated Attorneys & Conveyancers

Over the last two decades, Charmaine has grown a loyal following of clients. As a former partner at Tate, Nolan and Knight Inc., Charmaine has worked with clients across a diverse spectrum of industries and needs.