ANGELIQUE ARDÉ: Call for rethink on rolling debt relief
Heavyweights have their say on draft that empowers a politician to grant debt relief
If you were hoping to benefit from a partial or total write-off of debt under the debt-relief exercise mooted by the government, don't hold your breath.
It's not likely to happen any time soon and unless you are not earning an income, you probably won't qualify.
A draft bill circulated among members of parliament's portfolio committee on trade and industry proposes, among other things, that the minister of trade and industry be empowered to grant debt relief to certain overindebted consumers at his discretion.
However, the bill contains no clear definition of who would benefit from debt relief, says Anton Alberts, a Freedom Front Plus MP.
Furthermore, it has been created in the face of the National Treasury's opposition; in the absence of a regulatory impact analysis; and ahead of the committee's planned trip to Wales, Scotland and the EU to ascertain how other countries have dealt with debt relief, Alberts says.
"The economic rationale and effect [of the relief] must be established because the country's economy cannot absorb any more harm," he says.
This week, representatives of the South African Reserve Bank, the Department of Justice and Constitutional Development and the South African Revenue Service made submissions to the committee on the draft bill.
Janet Terblanche, the divisional head of policy, statistics and the industry support department at the SARB, told MPs that proposed debt relief was likely to have unintended consequences such as increases in interest rates as credit providers perceive greater risk in lending and tighten access to credit. She said it could also drive vulnerable consumers to unregistered credit providers (in the event of them not qualifying for credit from registered lenders).
Terblanche said the impact of debt relief on the banks could only be determined by the Reserve Bank when it was more clearly defined, and she asked the committee to give the central bank the opportunity to do a quantitative impact study before finalising the bill.
During deliberations the committee has suggested that only no-income and/or low-income borrowers with unsecured debt should benefit from debt relief.
Terblanche told MPs unsecured debt constituted 27% of total retail credit and that credit card debt accounted for the largest portion of the banks' unsecured book.
She said the Reserve Bank was of the view that the role of debt counselling needed to be taken into account when discussing debt relief and that there was insufficient evidence to support the proposed bolstering of the minister's powers to grant debt relief at his discretion as opposed to it being a one-off exercise.
Opposition party MPs agreed that debt counselling was the key mechanism to provide consumers with debt relief, but acknowledged that it was of no use to people who are unemployed.
The DA's trade and industry spokesman, Dean Macpherson, said the DA was fundamentally opposed to empowering the minister to grant "rolling" debt relief. "We have said that if the ruling party wants another debt-relief process, it must be by way of a bill. Alternatively, the committee must do a full review of the National Credit Act. But what we have is a draft amendment to the NCA."
The NCA introduced what is known as the statutory in duplum rule, which supersedes the common law in duplum rule. The latter restricts the amount of interest that a creditor can charge a debtor who is in default. Interest stops running when the unpaid interest equals the outstanding capital amount at the time of default. But statutory in duplum is more generous and extends beyond interest to cover service fees, credit insurance, default charges and collection costs. It aims to provide a form of relief to a consumer in debt.
The draft bill proposes that the National Consumer Tribunal be empowered to determine the maximum interest, fees and other charges that apply to your debt "for a period" according to what it deems to be fair and reasonable, the deputy director-general of the Department of Justice and Constitutional Development, Kalayvani Pillay, told parliament.
She said the committee needed to consider whether this provision changed the operation of the statutory in duplum rule and, if so, would necessitate further deliberation.
Parliamentary legal adviser Advocate Charmaine van der Merwe told MPs there was no need to make changes to the in duplum rule.
Counselling needs fixing
If the government wants to provide debt relief to more people, the focus ought to be on debt counselling and fixing the problems with this mechanism before creating a new one, Pretoria-based debt counsellor Charl Marais says.
Marais's comments echo the views of members of parliament's portfolio committee on trade and industry and those of the South African Reserve Bank, presented to parliament this week.
Debt counselling is an incredible tool, but the process requires reform, says Dean Macpherson, the DA's spokesman on trade and industry.
Anton Alberts, the Freedom Front Plus's MP on the portfolio committee, says the National Credit Regulator is not supporting debt counsellors.
"Magistrate's courts are implementing the law incorrectly, in some cases awarding cost orders against both client and counsellor." Alberts says this needs to be addressed by, among other things, clarifying the NCR's obligations, applying pressure on it to act, and ensuring that there is legal certainty, so that "magistrate's courts can apply the [National Credit Act] consistently".
Marais says debts are being refinanced. The existing debt is "all obligations under all credit agreements", he says. "When additional interest is charged on the outstanding contractual amount that is 'refinancing' and it is prohibited."