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National Credit Amendment Bill: Making it harder for South Africans to loan money

According to economic analysts, the new ‘debt relief’ bill will hurt consumers.

load shedding eskom rand

Photo: Pixabay

A new ‘debt relief’ bill, currently under review before the Portfolio Committee on Trade and Industry, has the propensity to damage loan agreements in South Africa.

While South Africans find themselves suffocating under a pile of debt, government measures, including a new ‘debt relief’ bill, are set to hurt low-income earners most, by restricting access to loans.

National Credit Amendment Bill shortsighted says analyst

This is the message from Cas Coovadia, managing director of Banking Association South Africa (BASA). Speaking to Business Tech, Coovadia argues that the National Credit Amendment Bill fails to balance the rights of consumers and credit providers.

The economic analyst points to a number of variables which threaten the stability of both consumers and the lending sector. While in theory, the new amendment bill aims to protect lenders, the result of proposed over-regulation will end up hurting consumers in the long run.

According to Coovadia, the amendment bill is short-sighted and poorly considered. The economist warns that the implementation of such a bill stands to jeopardise vital financial assistance opportunities, saying:

“The consequences of the proposed broadened scope of the bill for consumers, the economy and sectors such as banking, retail, and micro-lending, have not been subjected to an in-depth social and economic impact assessment and engagement with relevant stakeholders.”

Debt concessions threaten lending regulations

The National Credit Amendment Bill seeks to grant debt restructuring orders to the National Consumer Tribunal and the courts.

What this effectively means, is that consumers who seek debt intervention through the review process can receive concessions which will nullify debts to zero, for a period of five years. This will have an enormous effect on the way banks do business, and as a result, will impact those seeking to lend, as explained by Coovadia:

“It also means that secured credit agreements, such as mortgages, could be restructured to an interest rate of 0%, which is unsustainable for banks and consumers who hope to earn interest on their savings.

The unintended consequences of this provision are that access to credit for homes and movable assets, like vehicles – which can be sources of income and wealth creation – will become more difficult and the cost of credit is likely to increase.

Banks have a fiduciary duty to protect the deposits of their savers and investors, which are used to extend credit.”

Minimum requirements for debt relief

Coovadia adds that the proposed legislation’s scope is far too broad for sustainable implementation. Again, the proposal hasn’t taken into account the issue of cause and effect, as explained by the economist:

“Those qualifying for debt intervention must have an average monthly gross income of under R7,500 and total outstanding unsecured debt of R50,000.

Their debt can be extinguished after a period of up to 24 months, during which the levying of interest, fees and charges and the obligation to make payment towards the debt, will be suspended.”

Flouted public procedure

Coovadia also argues that the National Credit Amendment Bill is procedurally flawed, as public participation clauses have been flouted.

Coovadia maintains that the judicial responsibility handed to Ministers would be beyond their lawful mandate, saying:

“They do not provide stakeholders with an opportunity to publicly participate in the process, making it procedurally unfair.”