National Credit Amendment Act will not resolve consumer credit crisis
Publish date: 22 November 2019
Issue Number: 99
Diary: CompliNEWS
Category: Legislation
Legalbrief Today Issue 4830
With more than 40% of credit-active consumers in arrears and a debt book totalling R1.7trn, the economy and society are under threat. In August 2019, the President assented to the National Credit Amendment Act, geared to providing an intervention. ‘But in its current form the legislation is not what is needed,’ says Mareesa Kreuser, legal adviser and audit manager at Summit Financial Partners, adding that the debt-relief provisions of the Act could put the banking industry at great risk because R13bn-R20bn of debt could be written off. Writing in Business Day, Kreuser notes the Act provides for debt relief for those with household incomes of less than R7 500 a month with unsecured debt of less than R50 000 and whose income versus the amount owing reflects a situation of over-indebtedness. She adds there is no clarity on how the authorities can carry out an assessment for over-indebtedness in the required manner for each individual debtor who seeks relief. ‘The sheer volume makes it highly unlikely that most people seeking relief will be helped,’ she says, noting the National Credit Regulator (NCR) – with one office in Midrand – will be the only authority to process these applications. ‘As the most vulnerable debtors are least likely to have access to tools such as computers and smartphones with wi-fi availability, the NCR would presumably need thousands of field agents with a physical presence countrywide. How this will practically be implemented is unclear.’ She adds the Act also makes provision for a complicated financial-review process, stretching over two years, before a debt can be written off. ‘The practical implications are that few consumers will reach the end of this process and have their debts written off,’ she says. Kreuser notes an estimated R407m of taxpayers’ money will be needed to make the provisions of the Act workable. ‘Considering that it is unlikely that more than R100m would be written off, the cost versus benefit of the exercise becomes questionable. It may be a lot simpler to merely write off the debt of those who clearly have no chance of repaying – those earning less than R7 500 a month.’
