Confronting the realities: Banking Association SA MD Cas Coovadia says the body is not in favour of a legislated change in debt obligations for consumers. It will speak at a parliamentary hearing next week. Picture: ROBERT TSHABALALA
Confronting the realities: Banking Association SA MD Cas Coovadia says the body is not in favour of a legislated change in debt obligations for consumers. It will speak at a parliamentary hearing next week. Picture: ROBERT TSHABALALA

The Banking Association SA has voiced frank criticism of a bill proposing debt-relief measures, that is to be debated in Parliament next week, saying it could accelerate irresponsible borrowing and increase the cost of credit for all consumers.

The association was not in favour of a "legislated change" in debt obligations for low-income consumers, as had been proposed by Parliament’s trade and industry portfolio committee in the Draft National Credit Amendment Bill, MD Cas Coovadia said on Thursday.

The association would make its submissions to Parliament during hearings on the matter.

Nearly 10-million consumers have impaired credit records, or about 39% of those who are credit active, according to the national credit regulator (NCR). Consumers have impaired records when they fall behind on their debt repayments by three or more months, or if they have an adverse listing, judgment or administration order.

In an attempt to tackle SA’s overindebtedness problem, the regulator has introduced a raft of new legislation in recent years, including compulsory affordability assessments and caps on the rates, fees and credit life insurance charged on loans.

Now, the portfolio committee, under the chairmanship of Joan Fubbs, wants to provide debt relief to consumers earning R7,500 a month, or less, and who have unsecured debt not exceeding R50,000 as at November 24 2017.

Consumers in the target group can apply only once to the NCR for a debt intervention. The NCR can then refer cases to the National Consumer Tribunal, which can take steps to provide debt relief, such as reducing interest costs, lowering the monthly instalment or declaring the agreement unlawful.

"The bill will provide relief to overindebted South Africans who have no other effective or efficient options to extract themselves from overindebtedness," according to the draft.

But Coovadia said existing interventions, such as regulations and debt counselling, had helped cut overindebtedness.

While debt review had helped thousands of South Africans pay off their debt, it had not assisted low-income consumers because of the costs associated with it, said Neil Roets, CEO of debt counselling company Debt Rescue.

He described the draft bill as a "brilliant idea" because it would help poorer people.

Average costs for debt restructuring were between R6,500 and R7,500, Coovadia said. The association had proposed the introduction of a subsidy to cover these costs.

The National Debt Counselling Association (NDCA), which is made up of large debt-counselling companies, such as DebtBusters, supported the bill but said that National Credit Act provisions, such as those pertaining to affordability and reckless lending, could be better used to help consumers.

There were more than 3,000 debt counsellors in SA, which suggested the industry had the infrastructure to deal with assessments required in terms of the bill, the NDCA said.

"Encouraging responsible payment behaviour is a fundamental aspect of a well-functioning credit market and should not be compromised," said Coovadia.

Standardised debt-relief measures would increase the cost of credit for all consumers, even those with positive repayment behaviours.

ziadyh@businesslive.co.za

 

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