The ins and outs of the Debt Relief Bill

The National Credit Act Amendment Bill, otherwise known as the Debt Relief Bill, was signed into law by president Cyril Ramaphosa in August 2019.

But what does this bill mean for consumers who are struggling with their debt? Justmoney found out what the bill entails and why it’s being criticised by industry experts.

Tip: If you're struggling with your debt, fill in this form to get a free call-back from a debt counsellor. 

What the Debt Relief Bill will do

According to Adele Barnard, senior financial planner from Sanlam, the bill will benefit South Africans who earn R7,500 or less per month and have unsecured debt of R50,000 – excluding home loans and vehicle finance.

Consumers who fit this description will have to apply to the National Credit Regulator (NCR), which will assess their unique circumstances and decide whether they are able to settle their debt or not. If not, the NCR will suspend their debt for 12 months.

When this grace period comes to an end, the NCR will again assess whether the consumer is able to settle their debt. If not, they may be allocated a second grace period or have part or all of the debt written off.

“The bill seeks to assist over-indebted South Africans to benefit from debt relief. There is a genuine need to help low-income consumers who are financially overextended and cannot honour their commitments,” says Barnard.

However, she emphasises that the debt relief is not automatic and that the new law only applies to those who meet specific criteria. Consumers need to qualify for debt relief, and they may not be eligible to apply for further credit for a period of time.

How has the industry responded?  

Barnard points out that the Debt Relief Bill will impact both borrowers and banks – possibly having a less favourable effect on the banks.  

“The banking industry is strongly opposed to the new bill. It could have a detrimental impact on the industry because existing debt owed to the banks will be written off. It will also impact its ability and willingness to lend to low-income customers in the future,” explains Barnard.

“Should consumers be unable to be assisted by a bank, they will seek alternative avenues such as informal sources, for example, loan sharks. This could force consumers to make use of unregulated lending at even more exorbitant interest rates, only adding to their problems,” she adds.

Barnard believes another major concern is that it will increase, as opposed to lessening, reckless financial behaviour among consumers, with low-income earners possibly incurring more debt with zero intention to pay it back.  

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According to Benay Sager, chief operating officer at DebtBusters, there are still many unanswered questions about how the new law will work in practice.

“It will take some time, possibly up to 24 months, for regulations to be finalised so the law can be implemented. Taking out more credit than you can afford in the meantime isn’t a good idea and could have long-term implications for your credit record,” says Sager. 

He explains that there’s a genuine need to help low-income consumers who are over-indebted and who cannot pay back their debt.

“But, based on over 10 years’ experience helping this client segment, we know that good counselling needs to be part of the process so that over-indebted people don’t find themselves back in the same position again,” says Sager. 

If you're ready to start the debt counselling process, click here.