Debt-relief bill the banks hate is close to completion
The National Credit Regulator’s role amounts to a conflict of interest, and changes to thresholds should go through Parliament, says the DA
Parliament’s trade and industry committee is in the final stages of processing a draft bill providing debt relief for heavily indebted consumers that remains substantially unchanged despite strong opposition from the banking sector.
The committee is expected to conclude its deliberations on the draft National Credit Amendment Bill once Parliament resumes work after the winter recess at the end of July.
The bill proposes to give the National Consumer Tribunal the power to extinguish debt in certain circumstances.
The targeted group for the envisaged debt relief would be individuals earning a gross monthly income of not more than R7,500, who have no readily realisable assets (excluding exempted items mentioned in the bill), are not subject to debt review, and have debt of less than R50,000 excluding interest and charges.
The minister can review the income and asset thresholds from time to time by means of a notice in the government gazette.
Treasury has estimated that the total debt that could fall under the bill at between R13.2bn and R20.7bn.
The banking sector is not in favour of the proposed bill, which it says will harm lower-income groups because credit providers will limit the extension of credit to them in a bid to limit their risk.
Banks say they have their own debt-relief measures in place.
Retailers are also opposed to the bill.
The bill’s opponents warn that providing debt relief as proposed will entail moral hazard as it would foster a culture of nonpayment and drive up the cost of credit.
The committee has published specific clauses of the bill for additional public comment.
These deal with the powers of the court to reduce interest rates, charges and fees to zero for a period of five years; consultation between the trade and industry minister and the finance minister on funding for financial literacy and capability programmes by means of imposing of a levy on financial services providers; and adjustments to income and debt thresholds.
DA trade and industry spokesman Dean Macpherson said the DA was very opposed to the proposal to empower the minister to review income and asset thresholds.
"We are absolutely firm that this should go through Parliament. It is a committee bill and therefore the committee needs to take responsibility for it, It can’t outsource its responsibility to the minister."
The DA is also opposed to the proposal in the bill that would make the National Credit Regulator (NCR) a de facto debt counsellor as well as being a regulator, which it regards as a conflict of interest.
Macpherson believed the answer to overindebtedness lay in making debt counselling and debt services available to lower income groups, rather than in providing debt relief.
He was worried that the bill could open up the possibility of 9-million people applying for debt relief, which the NCR would never be able to handle.
"I don’t think the bill has been thought through practically and logically," he said.
Extinguishing debt would increase the cost of credit to everyone, and restrict access to credit as credit providers impose tighter conditions on credit extension.
"This is going to be very problematic for poor people at the end of the day," Macpherson said.