debt relief bill

Photo: Nick Youngson / CC BY-SA 3.0 Alpha Stock Images

Debt-relief bill could limit low-income households’ access to credit

There are fears the recently signed National Credit Amendment Bill could have the opposite of the desired effect.

debt relief bill

Photo: Nick Youngson / CC BY-SA 3.0 Alpha Stock Images

Parliament announced that President Cyril Ramaphosa has signed the National Credit Amendment Bill into law despite concerns raised by opposition parties and the banking sector.

Debt-relief bill signed into law

Dubbed the ‘debt-relief bill’, the National Credit Amendment Bill aims to help low-income workers pull themselves out of seemingly insurmountable levels of debt.

However, the controversial part of the bill is that it allows for the provision to cancel the debt altogether.

It will allow intervention for overly-indebted customers who earn R7500 per month or less and have unsecured debt of R50 000 or more, or are otherwise found to be critically in debt by the National Credit Regulator.

This intervention will start with a restructuring of the debt over five years and, if that turns out to be ineffective, provision for the National Credit Regulator to cancel the debt altogether if all avenues have been exhausted.

South Africa’s economy is struggling and unemployment is sky-high, so a move like this is sure to be a popular one with the people of the country.

It is important to protect the most vulnerable members of society and moves to alleviate crippling debt from poor are admirable. However, not everyone is a fan of the bill.

Banking sector and DA object

The Banking sector is opposing the bill, predictably, because it will directly affect their bottom line.

National Treasury expects the debt-relief proposals could see between R13 billion and R20 billion of debt wiped out.

Another clause in the bill requires debt councillors to report suspected reckless lending to help officials curtail risky loans and debt extensions offered by companies, which shouldn’t impact the big banks too much but will hopefully discourage that behaviour from smaller institutions.

Claims the bill could have the opposite of intented effect

The Democratic Alliance (DA) believe the move would actually result in it becoming more difficult for low-income households to receive credit in the first place and generally just have the opposite effect than what was intended.

“The amendment bill, will increase the cost of credit for low income earners, weaken the fight against illegal lenders and negatively disrupt the credit market while posing a financial risk to the state, when SA consumers are already under enormous financial strain,” DA member of Parliament Dean Macpherson said.

DA MP Dean Macpherson

The concern is that people may start taking out more loans believing they will just be cancelled by the state eventually, which would make matters even worse for government, the banking sector, and the people who have to pay back those loans.

“The DA is concerned that this act will increase, instead of decrease, the appetite among low-income earners to incur more debt with no intention of ever paying it back, creating a massive moral hazard, as long as they remained within the legislated threshold of indebtedness.”

DA MP Dean Macpherson