The provision in the National Credit Act to assist overindebted people to restructure their debt through debt counselling was not designed as a punitive measure — nor as a measure to enable debt-stressed people to borrow more money to pay off debt.
Says CEO of the National Credit Regulator Gabriel Davel: “The National Credit Act is not trying to create a mechanism to enable Âpeople to run away from their debts. If that was the case, 90% of the population would seek out debt counsellors in order to find a means of borrowing more money. It would create havoc.
“Debt counselling is only in place for people who are in such dire straits that they are willing to restructure their own debts and to cut back on personal expenditure … and not to borrow any more money until those debts are settled.”
Chief operations officer, Nomsa Motshegare, says once people submit to debt counselling, credit providers are constrained by the new Act from taking further legal action against them.
“There is also a mechanism in place whereby a number of banks have come up with a voluntary debt counselling programme to try to assist over-indebted people to restructure and pay back their debts, without entering into the formal debt counselling procedure as laid down in the National Credit Act.
“However, if they still cannot meet their financial obligations, they are then referred to a debt counsellor.”
The process is still being rolled out and a company has been established and a CEO appointed, and negotiations on finalising the procedures are taking place among the banks themselves. A pilot scheme is also under way.
“We are highly in favour of this initiative,” says Davel, “because we believe that there are about 300 000 people or more that we would define as extremely over-indebted, to the extent that they probably can’t solve their financial problems themselves.
“And there are probably another 700 000 people or more that we would define as debt-stressed — it is probably the difference between a headache and full-blown flu. We say to debt-stressed people that if they don’t take immediate remedial action to get their debt under control, they will end up in far more serious trouble than they are in now.
“But they can act now to cut back on expenditure and not to take further debt and possibly get themselves out of this hole. We would hope that this intervention by the banks will deal with these cases that can still be dealt with on a voluntary basis, bearing in mind that the ‘trade off’ that debt counselling achieves inevitably means that the banks have to take losses as well, in order to write off the debts. But to achieve that write-off, the Âconsumer has to come to the party as well.”
Says Davel: “To the extent that banks can achieve these write-offs with a voluntary mechanism is an incentive for the consumer, the banks and other credit providers to negotiate and to reach an acceptable solution.
“But if this doesn’t work, and debt counsellors as provided for in the National Credit Act have to deal with a substantial number of cases, we will be faced with a much bigger challenge than we already have.”