New debt relief framework to be introduced?

The Portfolio Committee on Trade and Industry is looking to introduce new measures to address debt. In a statement released by chairperson of the portfolio committee on trade and industry, Joanmariae Fubbs, she highlighted that the portfolio committee has adopted the sub-committee report on measures to address debt, which has recommended that introduction of a Committee Bill in relation to this.

The intentions of the bill

“The Bill aims to amend the National Credit Act of 2005 (NCA) so as to provide for simpler and more rigorous enforcement of the Act and criminal prosecution of lenders who contravene the Act,” explained the statement.

In addition to introducing stricter punishments for those who contravene the NCA, there are also suggestions that additional legislation around debt counselling is established. The aim is to have “an effective debt counselling framework for low-income workers and capped debt relief to promote a change in the borrowing and spending habits of an over-indebted society,” said the committee.

Debt relief

According to Adrian Williams, the chairperson for the sub-committee, the new provisions will provide relief to over-indebted consumers and will limit the widespread abuse of consumers by unscrupulous lenders.

Annelene Dippenaar, group chief legal, compliance and risk officer at Compuscan, noted that there may be some challenges to the implementation of a debt relief system. She believes that simply writing-off of consumers’ debt may result in them taking on more debt, and being over-indebted again in the future. “We found that a majority of those consumers whose information was removed, within six months, they were in default again, so they again had a terrible credit record. It is not a case of relieving someone’s debt and then they’re just going to go out and get credit and if you can’t afford it, you can’t afford it, you will be in default most probably again.”

Dippenaar highlighted that overall South Africa has a good debt counselling system, however, some information could be kept more up-to-date when it comes to consumers’ credit information.

“The understanding that I had from the meeting was that one of the things that they would like to improve with the debt counselling is the forced use of this DC system, which will allow for more up-to-date and real-time information of a consumer that’s under debt counselling. And then also one that they call a 74Q certificate is issued that says the consumer is now rehabilitated under debt counselling. So that information gets sent through and it’s confirmed, and you know that it’s accurate. So the consumer debt counselling status will be more accurately reflected,” said Dippenaar.

Interaction between stakeholders

During engagements between the committee and various stakeholders, issues surrounding over-indebtedness, its socio-economic impact on society and measure that would provide debt relief were discussed. Some of the issues highlighted included retrenchments, consumers who are ill-informed about credit, the obligations and costs accompanying credit, credit life insurance and reckless lending.

While this bill may not address all concerns and challenges at this stage, Williams noted that the committee has requested permission to introduce a Committee Bill that will address the most critical gaps identified.

“Any caped debt-relief measure will have financial implications for the State with regards to administering the process. However it is envisaged that the result of caped debt relief is short-term and will have long-term beneficial consequences for the economy,” said Williams in the statement.

Fubbs added: “Whatever the Committee does (regarding debt relief) cannot encourage reckless lending or irresponsible borrowing. The intention of this draft legislation is to encourage a change of behaviour on the part of both lenders and borrowers.”

But what does it all mean?

Despite the statement from the portfolio committee on trade and industry there is still not a clear indication as to the finer points that they are wanting to implement.

The committee must now seek the permission of the National Assembly for the introduction the National Credit Amendment Bill of 2016 into legislation. However, it is evident that more engagement with regards to the finer points of what is to be implemented and how is still needed.

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