The National Credit Amendment Bill, which President Cyril Ramaphosa has signed into law recently, is not a mechanism to expunge debt for the over-indebted. Informally this new Bill is known as the “Debt Relief Bill’. Even though it was not made clear in the parliamentary announcement when the new Bill will come into effect or whether it will apply retrospectively, it will have consequences and it will raise concerns.
This new Bill aims to provide relief to over-indebted South Africans who have no other means of extracting themselves from the spiral of over-indebtedness and is rather an instrument affording the low-income market access to Debt Review at no cost. Therefore, specifically, this new Bill will allow certain applicants within the ambit of the Act, to have their debt suspended in part, or in full, for up to 24 months. Where after, these debts may then be extinguished, altogether, provided that the financial circumstances of the Consumer/Applicant does not improve.
In order to qualify for this expungement, the Consumer(s) must prove the following: √ The criteria for meeting this debt write-off include:
- The unsecured debt is not more than R50,000;
- That the unsecured debt was accrued through unsecured credit agreements, unsecured short term credit transactions or unsecured credit facilities only;
- The Consumer(s) do not earn more than R7,500 (seven thousand five hundred Rand) per month over the last six months prior to bringing the application.
Once this Bill has been Gazetted, it will allow for debt intervention, which will be accessible to the market segment which doesn’t qualify, or is economically viable to fall within this ambit, therefore, to be placed under formal Debt Review.
This new Bill is of huge concern to the Banks and other opposing parties. In South Africa where households spend almost 75% (seventy five percent) of their available spending funds on servicing their debts, high default rates are more than likely. Disposable income is therefore under increasing pressure, warranting the banking sector and other opposition parties to warn that this Act will make access to credit even more difficult and even more so expensive.
What Is Debt Review?
Debt review, or Debt Counseling, is “rehab” for your finances. In other words, it is a financial mechanism for those over-indebted consumers to better manage their finances and to start afresh by applying for Debt Review at a registered Debt Counsellor.
This new Bill introduces a number of new offense related to debt intervention, offense prior uncommon for Debt Review.
Under this Bill, a person who intentionally submits false information related to debt intervention will commit an offense. Therefore, any person who intentionally alters his/her/joint financial circumstances, to ensure to qualify for debt intervention (Debt Review), will also be guilty of an offense in terms of this new Bill.
Concerns from the Banking Industry
South Africa’s banking industry has previously raised concerns with regards to the Bill, especially after it proposed to write off billions of Rands worth of debt accruing from every day ordinary South Africans, therefore, the Banking Association of South Africa (BASA) does not support the principle of “debt forgiveness”. This will ultimately result in the Banks making the lending conditions to the Consumers much tighter, in an already tight economy, making it even more difficult for the poor to be financed, identifying them as prey for predators pretending to assist the over-indebted. In this instance, just think about the newest hype for Consumers unable to afford vehicle finance, being targeted by "rent-to-own" schemes. Therefore, the banks stand to lose billions of Rands.
Contact us at DPB Attorneys / Conveyancers to advise you on all your credit related matters. We are here to assist you through your times of trouble.