Debt relief law passes constitutional muster, says Ebrahim Patel
The banking industry had petitioned the president not to sign the bill in its current form
Trade & industry minister Ebrahim Patel says SA’s controversial debt-relief law passes constitutional muster and most countries have similar laws to tackle over-indebtedness.
“All over the world, there is legislation to deal with high debt levels,” Patel said in response to questions in the National Assembly. He said President Cyril Ramaphosa had consulted with legal experts before signing the bill into law. The experts had all approved.
This is despite the release of a socioeconomic impact assessment study in parliament in September that suggested the law will eventually disadvantage many over-indebted, low-income earners who are the intended beneficiaries of the system.
The banking industry had petitioned the president not to sign the bill in its current form on the grounds that it will result in a restriction of credit to low-income earners and that it is an unconstitutional deprivation of property.
According to the government-commissioned study by consulting firm Genesis Analytics, parliament should reconsider the passage of the bill in its current form based on the impact evidence that has come to light. It suggests that parliament should introduce the debt-intervention system, but within the bounds of the current debt-review system, with subsidy mechanisms for low-income consumers.
In August, Ramaphosa signed into law the bill that gives the National Credit Regulator (NCR) powers to write off unsecured loans — which do not need collateral — worth R50,000 for consumers found to be critically indebted and earning no more than R7,500 a month.
Patel said the socioeconomic report raised several concerns. It had also suggested a number of proposals to tackle high debt levels.
DA MP and spokesperson on trade & industry, Dean Macpherson, said it was clear that the debt relief bill will become the “biggest exclusion to low-income people in the credit market”.
According to the Genesis study it is unlikely that the introduction of the law will have a significant economic impact at a macro level. Its impact will be relatively greater on microlenders and retailers whose loan books are smaller than those of banks, but more skewed towards low-income borrowers. Microlenders and retailers are likely to see proportionally bigger writedowns than banks, but this is not likely to affect the stability of the banking system.
There are just more than 20-million credit-active consumers in the country, and of that group close to 12-million earn less than R7,500 per month.
The study suggests that the law will mostly benefit the informal credit market. On the other hand, the formal sector credit providers could lose about R3.9bn of existing credit on their books. There are also second-round losses for retailers in the form of lost sales of about R1.9bn, according to the study. The fiscus will take on additional costs of R407m a year to fund the debt counsellor activities of the NCR and National Consumer Tribunal.