Treasury fears proposed debt relief bill gives minister too much power
Treasury is concerned about the wide and unfettered powers granted to the minister of trade and industry to prescribe debt intervention measures in a proposed bill providing debt relief to overburdened consumers.
The proposed debt relief could result in the write-off of between R13.2bn and R20bn, which is the total debt falling under the debt-extinguishing provisions of the National Credit Amendment Bill.
Treasury’s concern about provisions in the bill is shared by the Banking Association SA as well as senior counsel Wim Trengove, who was asked by Parliament’s trade and industry committee to give an opinion on the bill’s constitutionality.
According to the National Credit Regulator, the total outstanding gross debtors book of consumer credit for the quarter ended December 2017 was R1.76-trillion. This credit was extended by banks, retailers, nonbank financiers and other credit providers.
The committee met on Tuesday to deliberate on the bill, which will provide debt relief in certain circumstances for overindebted consumers with a gross monthly income of less than R7,500 who have unsecured debt of no more than R50,000 and have been determined as overindebted by the National Credit Regulator.
In terms of the bill, the minister would have the power to extend the bill’s provisions on debt extinguishment beyond the 48-month implementation period provided for.
The minister would be able to prescribe a debt intervention measure — including the extinguishment of debt — to alleviate household debt and address economic circumstances that constituted a significant exogenous shock that caused widespread job losses or was caused by a natural disaster.
The minister would be empowered to adjust the maximum gross monthly income of a debt relief applicant and adjust the total qualifying unsecured debt.
Treasury deputy director-general Ismail Momoniat warned in the Treasury’s latest submission on the bill that the “unfettered power” to prescribe debt intervention measures “will not only lead to great uncertainty and constitutional objections but will likely lead to a tightening of credit”.
He said: “We remain concerned that actions taken using these powers may not promote an industry that is sustainable, efficient or accessible, putting additional strain on balance sheets of lenders and will increase the cost of credit of borrowers considered to be in a category ‘likely’ for debt extinguishment.”
The Banking Association SA did not support the minister being given these powers, saying that if the unsecured debt level was increased “credit providers may be forced to reconsider their involvement in this market”.
The ministerial power to prescribe debt intervention measures in specified circumstances “may result in credit providers restricting credit to populations where stability of repayment cannot be guaranteed with a reasonable level of certainty”, it said.
Trengove also expressed concern about the “free hand” given to the minister to introduce any kind of debt intervention measure, for any purpose and for any duration.
He believed that this delegation of Parliament’s power to introduce debt intervention measures was unconstitutional. It would be at the expense of credit providers and would deprive them of their constitutionally protected property rights, he said.
“The overall impression created by the provisions that regulate the minister’s power to introduce new debt intervention measures is that their purpose might be to provide social assistance to communities in distress,” Trengove said. “That is … a worthy goal but the duty and cost of the provision of social assistance should normally be borne by government and not by private credit providers.”
While he acknowledged that debt extinguishment per se amounted to the deprivation of property of credit providers, Trengove believed it was nevertheless permissible and lawful under section 25 (1) of the Constitution as it would occur within a law of general application.
It was not arbitrary as the bill ensured that it was procedurally fair and as there was sufficient reason for the deprivation.
One of the grounds for the banking industry’s opposition to the bill was that the extinguishing of debt would deprive banks of their property, namely the debt owed by borrowers. It was therefore unconstitutional, the industry submitted during public hearings on the bill.
Dealing with procedural fairness, Trengove said that credit providers threatened with the deprivation of their contractual claims would be given the opportunity to make submissions to the National Consumer Tribunal when it took a decision to suspend or cancel their rights.
Trengove also said the purpose of the extinguishing of debt was to provide poor people with the kind of relief that had always been available to more affluent debtors in distress.
That is, it would relieve insolvent debtors of the indefinite burden of debts that they could not realistically ever repay.
The debt would only be cancelled, Trengove noted in his opinion, “if there is no real prospect that the debtor will be able to pay the debt and accordingly only when the credit provider’s claim has become irrecoverable and worthless or worth very little”.