NATIONAL CREDIT AMENDMENT BILL

Publication Date: 24/08/2018

Over-indebtedness is a serious economic and social challenge in South Africa. The Banking Association South Africa (BASA) supports debt intervention to assist low-income consumers whose circumstance have changed for the worse, through no fault of their own, and when formal debt-counselling processes provide inadequate relief.

However, the National Credit Amendment Bill, which is before the Portfolio Committee on Trade and Industry again this week, is not a sustainable debt-intervention measure and threatens the ability of banks to extend credit to low-income consumers – hindering efforts to offer financial services to all South Africans. This is a result of the Bill failing to balance the rights of consumers and credit providers and limiting the ability of banks to safeguard the savings and salaries entrusted to them by South Africans. Specifically:

• The National Consumer Tribunal and the courts are to be granted the power to make debt restructuring orders – which reduces the interest rate, fees and charges for credit agreements in debt intervention and debt review processes – to zero for a period of five years or longer. This effectively legislates for the granting of concessions to all consumers seeking debt intervention or who can enter the debt review process.

It also means that secured credit agreements, such as mortgages, could be restructured to an interest rate of 0%, which is unsustainable for banks and consumers who hope to earn interest on their savings. The unintended consequences of this provision are that access to credit for homes and movable assets, like vehicles – which can be sources of income and wealth creation – will become more difficult and the cost of credit is likely to increase. Banks have a fiduciary duty to protect the deposits of their savers and investors, which are used to extend credit.

• The scope of application of the proposed legislation is too broad. Those qualifying for debt intervention must have an average monthly gross income of under R7 500 and total outstanding unsecured debt of R50 000. Their debt can be extinguished after a period of up to 24 months, during which the levying of interest, fees and charges and the obligation to make payment towards the debt, will be suspended.

• The powers given to the Minister to review and increase the income and unsecured debt thresholds are deemed to be an unlawful delegation of legislative power. They do not provide stakeholders with an opportunity to publicly participate in the process, making it procedurally unfair.

These create uncertainty for credit providers who will not be able to accurately assess the risk of loans not being repaid. The consequences of the proposed broadened scope of the Bill for consumers, the economy and sectors such as banking, retail and micro-lending, have not been subjected to an in-depth social and economic impact assessment and engagement with relevant stakeholders.

BASA is committed making existing debt-relief mechanisms work and assisting those that are over-indebted so that they can be rehabilitated, educated in financial management and can return to the credit market. Consumers that have entered debt review have received voluntary concessions on interest rates from banks, beyond those required by the existing National Credit Act, of R3,4 billion in 2016 and R3,976 billion in 2017. In addition, sizable amounts of prescribed debt are being expunged monthly by the banks.

We urge the portfolio committee to act in the interests of all South Africans by addressing the unintended consequences of the Bill and helping to ensure that the credit market can continue to provide financial services to those in need, in a sustainable and fair manner.