NCA Amendments Soon to Take Next Step?
For the past 3 years, the Portfolio Committee on Trade & Industry has been working on a way to assist the poor of the country to deal with their growing debt. This is in response to the growing need among millions of low income South Africans who have little income but are accessing credit and getting deeper and deeper into trouble.
It has been acknowledged that sequestration is essentially a mechanism for the rich to deal with their debts and as yet no “poor mans’s Sequestration” option has been forthcoming. Government has taken steps to curb reckless lending but consumers are still borrowing money they can’t really afford to repay or borrowing money that they struggle to repay when their situation deteriorates. More than that it has proved difficult to get anyone motivated to investigate and enforce reckless credit granting. A few victories here and there have seen some progress but the process has brought down huge banks overnight and offers a systemic risk if pursued as originally envisaged. The latest move has been to financially incentivize Debt Counsellors to look into the matter (R1500 fee). Uptake has been mixed as the work involved far outweighs the fee provided for in the NCR guideline on fees (which many ignore in any case).
Debt review was introduced over a decade ago and due to the pricing model put forward by the NCR has been only able to help the growing middle and upper class while essentially leaving poorer consumers out to dry due to affordability reasons.
‘but progress has been slow and has done little to slow down the growing reliance of the poorest in the country on credit’
Steps have been taken through court cases and changed legislation to reduce the abuses in EAO’s (Garnishee orders) and other such collection overreaching but progress has been slow and has done little to slow down the growing reliance of the poorest in the country on credit. Increasingly consumers are even turning to credit to afford basics like food.
Now the Portfolio Committee on Trade and Industry are putting forward the creation of a new debt review like process (called Debt Intervention) performed by the National Credit Regulator (NCR) and are legislating a requirement for all parties to report possible reckless credit or face punishment.
‘a requirement for all parties to report possible reckless credit or face punishment.’
The process is basically debt review done for free by the NCR for consumers who earn less than R7500, who have no assets and debt smaller than R50 000. This puts it in the area where, in the past, Administration Orders were common and well lower than the average consumer who enters debt review currently. It also caters for those who cannot make any repayments on debt due to having no income whatsoever.
The new Draft bill was circulated for public comment which came back with many areas of concern. Over time the wording of the original bill has been adjusted and some sections even removed totally. Subsequent discussions over the constitutionality of the bill have been held and it now looks that with a few final wording changes the bill is ready to be adopted by the Committee (perhaps even on the 16th of August 2018).
If the Draft Bill is adopted it will move on to two further significant hurdles namely the National Council of Provinces (at Parliament) and then the President’s office. If passed, it is likely to then face some very serious legal push back from the credit industry – who greatly fear the possible writing off of smaller debts for these consumers which could have massive impact on their ability to hand out more credit, will shift risk profile offerings to this portion of the population and their debtors book (if write offs do actually happen).
Then would follow the implementation challenges. The NCR are already making changes with the amendments in mind and have appointed a Debt Intervention department head, are beginning to develop the infrastructure they will require and are rumouredly shopping around for space to house the very large potential operation (it is estimated that they will need to take on another 3300 staff members, at least).
Debtfree will continue to monitor and report on developments with this legislation.