Wed, 26 Feb 2020

5 questions on the 'debt relief bill' unpacked

17 Aug 2019, 22:14 GMT+10

Parliament announced on Thursday that President Cyril Ramaphosa signed the National Credit Amendment Bill into law earlier this week, ending a nearly two-year journey for the peace of legislation aimed at protecting low income earners from crippling debt.

The law - also referred to as the "Debt Relief Bill" - allows low-income workers to extract themselves from debt through debt restructuring if they earn a gross income of R7 500 or less per month, have unsecured debt of R50 000, or have been found to be critically indebted.

However, between the need for low income earners to be protected from what government considers reckless credit agreements and the banks' need collect on their lending from clients, questions abound regarding what this bill means for banks and borrowers.

Ramaphosa signs 'debt relief bill'

What are the details?

The bill gives the National Credit Regulator significant powers to suspend reckless credit agreements if the credit provider suspects their credit agreement in an assessment constitutes a reckless agreement.

The bill also enjoins a debt councillor to report suspected reckless credit agreements to the National Credit Regulator or a magistrate's court.

The now-enacted bill makes provisions for a tribunal which may impose fines if a credit provider or debt counsellor fails to report a suspected reckless credit agreement.

The bill also allows that any court proceedings where a credit agreement is being considered may make a recommendation to the National Credit Regulator for an evaluation into whether the affected consumer would apply for debt intervention.

What do parties think?

The African National Congress has high hopes that the newly-passed bill will provide assistance to low income earners in South Africa who have been targeted by reckless credit agreements.

When she introduced the bill in the National Assembly last year, Fubbs said the party believed the bill would go a long way in strengthening the National Credit Act in a responsive and responsible manner.

"The National Credit Amendment Bill 2018 empowers the poor, low income worker, debt counsellors and the magistrates. Therefore, I appeal to all members of this House of Assembly, in the spirit of the Constitution and to adopt this National Credit amendment Bill," Fubbs said.

However, the Democratic Alliance and formations representing the banking sector has expressed their misgivings that the law will make it harder for South Africans to access credit and more expensive for banks to write debt off.

Any other considerations we should know about?

In its formal submission to Parliament on the National Credit Amendment Bill, the Banking Association of South Africa has said the banking sector has provided debt relief amounting to billions to indebted consumers, which causes banks to forfeit billions yearly.

A research survey into access to credit for poor households in South Africa by Francis Okurut found that poor South Africans were more likely to access informal credit in the absence of collateral requirements for such borrowing in the formal sector.

"These findings confirm that improving access to organised credit markets (i.e formal and semi-formal credit markets) by the poor and Blacks, remains important in the fight against poverty," the survey report said.

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