Suspended regulations could lead to more debt problems

The Department of Trade and Industry’s decision to suspend the affordability assessment regulations for six months (from March till September 2015) could lead to more people getting in debt and result in the financial services industry not taking the matter seriously, warned Ian Wason, CE of DebtBusters, South Africa’s largest debt counsellor.

Rob Davies, Minister of Trade and Industry, made the announcement in the Government Gazette last week Friday. “It’s concerning that the affordability assessment regulations have been suspended as they are vital for the protection of over-indebted consumers. The financial services sector has had a number of scandals recently and a few companies have shown to be poor in conducting proper affordability checks to ensure that customers can afford to take on the credit that they are applying for.”

“The delay in these affordability assessments couldn’t have happened at a worse time - with the weakening rand, increasing living expenses and the recent repo rate increase. With a further increase in the repo rate anticipated in September, consumers cannot afford to be taking out any more debt without this protection in place. We do however recognise that the process changes required by retailers in particular is impossible to implement immediately, we do not think it is necessary to put in place a blanket suspension for all credit providers as responsible credit providers should be doing these affordability checks already,” said Wason.

Stats released by DebtBusters in its quarterly Debtometer last month show that it’s often the poorer South Africans that are hardest hit by debt: Lower income earners (that earn less than R10, 000 per month) have 90%+ of their debt as unsecured debt.

What’s more, short term credit of between R5, 000 and R8, 000 has increased by an eye watering 389% in one year, with over 1,1 million South Africans taking out payday loans (expensive loans that need to be paid back within a month) per month in the quarter.

“The affordability assessment regulations were a step in the right direction to ensure that fewer people are caught up in a spiral of debt. As the Bill states, it’s meant to protect the interests of customers and I believe such a Bill will go a long way toward protecting the poor in particular in South Africa. But with a suspension in place and potential further delays we are concerned that could result in more people falling into the debt trap and some in the financial services industry not taking their role in being fair to customers seriously.

“I call on the Minister of Trade and Industry to give reasons as to why the suspension was necessary and make assurances that the suspension will only hold till September. This will go a long way to assuring the public that the government has customers’ best interests at heart and that they are not bending to the pressures that some companies in the financial services industry may be imposing on them as they fall short of the necessary requirements,” added Wason.