Debt intervention may accelerate irresponsible borrowing

The proposed amendments to the National Credit Act could discourage consumers from paying their debts and increase irresponsible borrowing, said the Banking Association of South Africa (BASA).

“Consumers who have previously repaid their debts could be dis-incentivised to do so as standardised debt intervention measures and debt intervention criteria reward negative repayment behaviour and will accelerate irresponsible borrowing,” the Association explained.

In the bill, the Portfolio Committee on Trade and Industry proposes debt intervention with the aim of addressing over indebtedness and providing relief to consumers who have no means of paying their debts.

The bill allows consumers who earn less than R7,500 and have an unsecured debt of not more than R50,000 to apply for debt relief.

The Association believes the implementation of the bill will be a big loss for the banks. 

It pointed out that, “While extinguishing the debt may be regarded as a once off loss, implementing the bill will result in the banks incurring significant ongoing operating costs.”

The Association further added that implementing the bill will be detrimental to the consumers as it could limit their chances of accessing credit, as well as increase the cost of credit.

BASA believes the current measures that are used to assist over-indebted consumers are sufficient as it has resulted in a decrease in over-indebtedness and it led to an improvement in consumer behaviour.

They also believe that appropriate debt intervention measures which rehabilitate and reintroduce the consumer into the credit market are necessary and they support the existing measures. “We believe that the existing measures both legislated and voluntary are achieving this for the most consumers,” says the association.

According to the Association, the government needs to allow the past amendments to work before they write them off.

“We still need to allow for the full embedment of the legislative amendments that have been implemented over the past 3-5 years in order to evaluate their impact before further legislative measures are introduced,” remarked BASA.