There have been varying views on the National Credit Amendment Bill 2018, colloquially referred to as the Debt Relief Bill. The Bill seeks to assist low income over-indebted consumers. It proposes two forms of debt invention the first entailing an application through the National Credit Regulator the second being a debt intervention measure prescribed by the Minister of Trade and Industry.
It should be made clear from the onset that this Bill seeks to assist low income consumers and the proposals envisaged in the Bill do not apply to all consumers.
The first debt intervention proposal in simple terms proposes giving the National Credit Regulator (NCR) the power to exercise debt intervention where a debt intervention applicant has applied to the regulator in the prescribed manner for debt intervention, if as at November 24 2017 that applicant had a total unsecured debt owing to credit providers of no more than R50,000 and that applicant earns less than R7500, has no readily realisable assets and is not subject to debt review. Should the application be successful the NCR will refer the application to the National Consumer Tribunal which has the power to suspend all qualifying credit agreements in part or in full for a period of 12 months. If the financial circumstances of the applicant do not improve, the tribunal can write off all or part of the debt under the qualifying credit agreements.
The second debt intervention proposal envisages the Minister of Trade and Industry prescribing debt intervention measures to alleviate household debt that has become unmanageable due to either job losses, a natural disaster or an industry sector that has experienced a large number of retrenchments. This debt intervention by the Minister of Trade and Industry is only applicable to indigent persons, consumers who earn less than R7,500, or persons who suffered unforeseen loss of income or who are subject to adverse conditions in a sector that has been identified by the Minister of Trade and Industry.
The proposed amendments have raised several concerns amongst stakeholders in the consumer credit industry. The concerns raised during the public comment period include, amongst others:
- Challenging the constitutionality of the Bill, in particular questioning whether the extinguishing of debt thereby removing a credit provider’s claim against the consumer in terms of the underlying loan is constitutional.
- That the Bill could increase the cost of credit to poor and lower-income consumers.
- That the proposals will restrict the provision of credit to poor and lower-income consumers.
- There is a risk of poor and lower-income consumers borrowing money from loan sharks if credit to their market is restricted.
- Requesting an economic impact assessment is conducted on the potential impact of the debt intervention measures.
The Bill has been the subject of parliamentary public hearings and there continues to be engagement with Parliament on the Bill. However in assessing the mechanisms in the Bill one must first consider what mischief the Bill seeks to address and once that is determined then assess whether the proposals are the best mechanisms for achieving the redress of the identified mischief.
In order to answer the question of what mischief the Bill seeks to address the history of the Bill becomes relevant. The Bill is the brainchild of the Parliamentary Portfolio Committee on Trade and Industry. The Parliamentary Portfolio Committee on Trade and Industry stated (through its chairperson) that the Bill intends to “deal effectively with South Africa's debt trap from which the vulnerable cannot escape.” The Bill was intended “to promote responsible lending and a savings culture, and to protect the most vulnerable.” The mischief the Bill seeks to address is the unending debt (i.e. the debt trap) vulnerable individuals find themselves in and are unable to escape from.
The Department of Trade and Industry has expressed its support for the Bill and has indicated that it will be proposing further amendments to the draft Bill.
In reviewing the submissions submitted by stakeholders during the public comment period it is clear that there those who believe the Bill addresses the mischief while there are those who believe it does not.
There are several factors the Bill does not address which one would argue are critical for achieving the intention of the Bill and ultimately addressing the “debt trap” mischief.
Factors which impact a consumer’s over-indebtedness which are not addressed in the Bill – and one would argue should not be addressed in a legislative bill but rather form part of a wholistic approach to addressing over indebtedness – include, inter alia, lack of financial literacy, access to debt review services, and poor personal financial management.
Addressing the over-indebtedness of consumers will require a wholistic approach which not only seeks to regulate the providers of consumer credit but also seeks to address the behavioral trends of over-indebted consumers. The danger of focusing merely on regulation to address an issue like over-indebtedness which has social and economic elements is that in focusing on regulation the objectives of the regulation itself could be missed as the social and economic elements are not addressed. Regulation operating in a vacuum can have unintended consequences or no intended consequences at all.
The mischief of over-indebtedness will not be solved by solely regulating the supply of consumer credit, but must also provide for mechanisms to deal with the demand for credit (i.e. the behavior of consumers). As stated above, it should be noted that those mechanisms may not be legislative in nature.
The Parliamentary Committee on Trade and Industry and the Department of Trade and Industry have indicated that a further draft of the Bill is expected following the comments received during the public hearings. Only time will tell whether the Bill will succeed in addressing the identified mischief however as stated above if the intended mischief is over-indebtedness then the Bill is but one part of a multitude of solutions that needs to be implemented.
Written by Lerato Oguntoye, Financial Regulatory Consultant