Ramaphosa signs controversial debt-relief bill into law

President Cyril Ramaphosa has signed into law the controversial debt-relief bill which contains provisions strongly opposed by the banking industry and the DA.

In a formal announcement published in parliament on Thursday, the national legislature revealed that the president approved the National Credit Amendment Bill earlier this week.

The bill provides for the extinguishing of the debt of heavily indebted consumers who earn a gross monthly income of no more than R7,500; have unsecured debt amounting to R50,000; and who have been found to be critically indebted by the National Credit Regulator.

The Treasury estimates that the debt-relief proposals could result in the write-off of R13.2bn to R20bn of debt, which is the total amount of debt falling under the debt-extinguishing provisions of the bill.

The banking industry opposed the proposals on the grounds that they would result in a restriction of credit to the low-income section of the market and that the extinguishing of debt represents an unconstitutional deprivation of property. It would also mean that credit providers would have to price in the additional risk.

DA MP and spokesperson on trade and industry Dean Macpherson said on Thursday the party is dismayed that Ramaphosa has signed into law the “deeply flawed and possibly unconstitutional” bill, drawn up by the portfolio committee on trade and industry in the fifth parliament.

“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,” said Macpherson

“This is why I petitioned the president in April 2019 to give due consideration to the very real issues related to this Act as well as its constitutionality.”

Macpherson said to make matters worse, the state has no idea what the cost to the economy and credit market will be, and has been unable to clarify the cost implications for the country in implementing the bill, including where the R100m will come from to fund the National Credit Regulator and National Consumer Tribunal to support their new mandates to process debt-relief applications.

“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.”

Macpherson said the act in its current form fails to make adequate provision to deal with illegal and unregistered rogue lenders who take advantage of consumers who have no recourse or protection from the state.

“The weakness of this approach is such that an illegal lender only becomes guilty of the offence if reported by consumers and if he or she is located and found guilty. The probability of someone reporting a loan shark is next to zero. It appears that President Ramaphosa has buckled to pressure from groups like Cosatu who have very little regard for the damage this act will do to the poor.”

Macpherson said the DA advocates for credit legislation that protects consumers from debt traps and illegal lending while ensuring the sustainability of the credit markets.

“In contrast, the president has signed into law legislation in an information vacuum which will have disastrous consequences for consumers, the cost of credit and the restriction of credit for low income South Africans,” he said.

Cosatu said the new law should be implemented without delay. The union said it will provide badly needed debt relief to millions of over-indebted and heavily exploited workers and their families.

“It targets in particular households headed by children, persons with disabilities and women … It is not reckless as claimed by the banking association. It is reasonable, balanced and will give a helping hand to those who need it most,” Cosatu said.

However, it stressed it is critical for consumers not to mistake it for a greenlight to engage in reckless financial behaviour.

The law will allow eligible highly indebted consumers to apply for various debt relief interventions, including:

• Restructuring their debt repayment schedule over five years or, if not possible, then suspending credit payments for 12-24 months with regular reviews;

• Extinguishing the debt or a percentage of the debt if after two years the consumer is still not able to pay the debt; and

• Empowering magistrates to reduce interests charges to as low as 0%.

“These interventions will only be possible once all existing consumer debt relief options have been exhausted. Consumers need to understand that once accepting such interventions they will not be eligible to apply for further credit for a certain period,” Cosatu said.

The union federation urged the department of trade & industry, and the National Credit Regulator to move swiftly to publish the relevant regulations and announce when they will come into effect.

“No unnecessary delays by sleepy officials will be acceptable. The banks and lenders must come to the party, embrace the progressive spirit of the amendment act and ensure its implementation. Both the government and the private sector must engage in mass public education campaigns to ensure consumers are aware of their rights.”

Article by BEKEZELA PHAKATHI and BusinessDay