When the government considers the merits of giving debt amnesty as part of its deliberations on the National Credit Bill, it needs to distinguish between people who are victims of unscrupulous lending practices and lack financial knowledge, and those who are repeat offenders, warns T-Sec economist Mike Schussler.
There have been widespread calls by organisations such as the South African Communist Party to have all negative credit data expunged from the credit bureaus. While debt amnesty was not initially included in the draft National Credit Bill, the government is considering certain measures and will probably incorporate a level of credit clearing to give offenders a second chance. Schussler argues that, while there are many genuine cases that will benefit from a once-off amnesty, there is a large percentage of people who are serial non-payers and these often tend to be the higher-income earners who know how to play the system. “When you look at the number of judgements passed in a year, you find that between 25% and 50% of the people are repeat offenders, and the same names come up each year.”
Schussler says these people are usually well employed, which allows them greater access to credit. However, they have no money sense and do not pay their basic living expenses, such as electricity and water, while going out for expensive dinners on their credit cards. Schussler is concerned that this type of debtor would be able to continue their destructive behaviour if their records were cleared as the lending institutions would have no track record of their non-payment.
A manager of a credit management and debt collection agency agrees that there are two types of defaulters and that the government needs to come up with a solution that helps the genuinely desperate cases while checking the behaviour of big spenders. The agency recently had a case where a junior worker in a company had been defrauded by his boss and is currently sitting with an outstanding credit-card bill that he believed had been paid. The owner of the company he worked for organised credit cards for those of his workers who would not have qualified in their own right. The minimum monthly repayments would be deducted from the workers’ salaries and paid over to the credit-card company. However, when the company folded, the owner absconded overseas and it was discovered that, despite deducting the money from their salaries, it was never paid over to the bank and the workers where liable for the outstanding amounts. “In this case the debtor made plans to repay the money, despite the fact that he was double-paying. These are the people who would benefit from an amnesty.”
Sadly, he says, for every one of these cases there are numerous ones where people are repeat offenders playing the game. “They know that many companies will not sue if the amount is relatively low owing to the court expenses involved, so they just spread their debt around several institutions with the intention of never repaying. Their attitude is “I already have five judgements; go ahead and add another one”. The manager says it is with these people in mind that a lending institution needs to have a record of judgements in order to be aware of the inherent risk in lending to them.
Schussler believes that the government should look at a system that is lenient towards once-off debt issues, as a result of the lender being an emerging and unsophisticated consumer, but which heavily penalises those who have repeat judgements against them. “This type of person will always remain a risk because it is in their psychology; it should be a matter of ‘five strikes and you are out for a decade’.”
How it works
There are currently three levels of credit keeping by credit bureaus. The first is an account history, which shows how often you pay your bills.
The second level is a default listing. No legal action has been taken but you have been registered as having defaulted on a payment. These records are held for three years.
The final level is when you have a judgement against you, that is, legal action has been taken. The judgement listing remains on the system for five years. However, it can be rescinded by a court ruling or by the creditor once you have made the payment.
Perhaps what the South African Communist Party should be more worried about is the fact that the judgement means the creditor has 30 years to recoup that debt, which is practically the rest of the debtor’s life, so he or she is never free of the judgment or debt until it has been paid. This could have far worse implications than a listing that disappears after five years, yet this is not addressed in the National Credit Bill. — Maya Fisher-French