/ 14 September 2018

Debt relief won’t be a quick fix

The debt relief legislation could write off poor people’s debt as a last resort
The debt relief legislation could write off poor people’s debt as a last resort, and criminalise illegal microlenders. (Delwyn Verasamy/M&G)

Low-income and over-indebted consumers may soon have the right to have their debt written off. The Debt Relief Bill, formerly known as the National Credit Amendment Bill, is nearing finality and could be passed by March.

Debating the Bill in the National Assembly on Wednesday, the chairperson of the trade and industry parliamentary committee, Joanmariae Fubbs, said the “extinguishing” of debt would be a last resort, which could come into effect after a long debt administration process. 

This process could, at most, take up to seven years.

The Bill was approved by the National Assembly and will now be sent to the National Council of Provinces.

“I … would expect to see a Bill passed … and getting sent to the president in March,” said Fubbs.

In terms of the Bill, people earning less than R7 500 a month with unsecured debt of less than R50 000, and who find themselves unable to pay their debts because of being retrenched or having lost a breadwinner, will be able to apply to the National Credit Regulator (NCR) for “debt intervention”.

The first step will be the restructuring of the debt, such as paying lower instalments over a longer period.

Should the consumer still be unable to settle the debt —despite the restructuring — within a period of five years, the matter will be referred to the National Credit Tribunal (NCT), which can suspend all credit agreements for a period of between 12 and 24 months.

If the consumer’s finances do not improve after 24 months, the tribunal can expunge a part or all of the debt.

“What is important to consider is, should we continue to allow a group of people who are vulnerable not to benefit in the same manner or similar to others of us who earn more than R7 500?” Fubbs said.

The intention of the reforms was not to discriminate against low earners, she said.

At present debt counsellors don’t deal with debtors who earn less than R7 000 because they cannot afford to pay the fees.

The Bill faced some opposition on Wednesday, particularly from the Democratic Alliance.

What started as a committee Bill had “morphed into a 2019 election Bill” for the ANC, said Dean Macpherson, the DA’s spokesperson on trade and industry.

He warned that the Bill would restrict credit and increase costs for the poorest of the poor, negatively affecting the credit market.

“The wide scope of this Bill could see between two million and 20-million people apply for debt relief, with a potential cost to the economy of between R20-million and R50-million,” he said. He added it would create a moral hazard by increasing “unrealistic expectations ahead of the elections that consumers with unsecured debt can simply have it expunged”.

Research by consultancy firm Eighty 20, commissioned by the treasury, found that more than nine million people could potentially benefit from debt intervention, estimating that the total amount of debt that could fall under debt extinguishment ranged from R13.2-billion to R20.7-billion.

Fubbs said the criticisms were “extremely strange” because in the low- and middle-income countries and economically developed countries where this type of debt intervention had been introduced, there had been none of these negative outcomes.

Clark Gardner, the chief executive of Summit Financial Partners, said the proposed debt intervention criteria might not be well understood by the qualifying consumers. He said lawmakers were not in touch with these consumers.

Gardner said individuals who should benefit from debt intervention were grant recipients who had been targeted by predatory lenders, he said. So the concern was who would act on their behalf, do the application and pay for this service.

“The NCR has already demonstrated it has no capacity or interest in servicing the consumer and so it is not the answer,” he said.

Fubbs said the National Consumer Commission, the NCR and the NCT were working with the treasury to establish an educational programme once the Bill was passed. Officials would be stationed in the various government offices to educate consumers on the debt intervention process. 

The Bill also criminalises illegal unregistered lenders and makes provision for magistrates to restructure debt agreements for people who are struggling to make debt payments, including to reduce the interest rates to zero.

She said the debt intervention would be free and the offices of the NCR would be given the necessary capacity as soon as the Bill was passed.

Tebogo Tshwane is an Adamela Trust business reporter at the Mail &Guardian