The Banking Association South Africa (Basa) has warned that legislated debt relief would create instability in the credit market and reduce access to credit for poor and low-income consumers.
Its warning comes ahead of public hearings on the Draft National Credit Amendment Bill, to be hosted by Parliament’s Trade and Industry Portfolio Committee next week.
The amended bill seeks to provide capped debt intervention for poor and low-income consumers, with those eligible for proposed debt relief earning a gross monthly income of R7 500 or less. It aims to provide relief for consumers with unsecured credit but only for debt accrued up to November 24 2017, which may not exceed R50 000, and may only be used once per lifetime.
Basa, on behalf of its members, is to oppose the bill at the public hearings.
According to it, the legislated discharge of debt obligations will convey the “wrong message to consumers in terms of their responsibilities and behaviour in the credit market and industry”.
Basa managing director Cas Coovadia, said such legislation would fundamentally change consumer behaviour and create a potential moral hazard. This, as some consumers would incur and default on their debt believing that the obligation would be expunged, which would be unfair to those that honour their debt obligations.
The industry body also said the legislation would have severe consequences for the banking industry and economy at large. It said the loss rates on bank’s unsecured loan portfolios stand to increase if they are unable to recover monies lent, which would lead to changes in risk appetite and pricing to ensure the profitability and sustainability of said portfolios. This, in turn would impact consumers as access to credit for poor and low-income consumers would be restricted due to higher costs of credit. Currently, the banking sector grants 76.3% of new unsecured credit in the market.
To ensure that access to credit is not unnecessarily constrained, it said the success of both debt intervention measures provided for by the National Credit Act (NCA) as well as voluntary measures undertaken by the industry should be considered. It said voluntary debt relief measures – including debt counselling rules, payment holidays, restructuring and debt consolidation among other initiatives – offered by banks saw a reduction in interest of R3.43 billion in 2016.
Citing data from the National Credit Regulator (NCR), it said consumers with impaired credit records have since reduced to levels last seen in 2008 and that credit granted has become stagnant over recent years.
Given the success of voluntary measures, it believes there is no need for legislated debt relief measures. Coovadia said work on the amendments to the bill began in 2016, at a time of distrust, populist rhetoric and talk of horror stories and not on data-based rationale.
Instead, it proposes the introduction of a subsidy – from either the fiscus, credit providers or a fund comprising of fees collected by people already accessing debt review – to cover the costs payable for consumers to make use of existing debt review measures. It said one of the biggest obstacles to indebted consumers seeking assistance is fees payable to debt counsellors.
Moneyweb previously reported that per NCR regulations debt review fees include a once off restructuring fee, which is equal to the monthly repayment of credit providers with a maximum of R6 000 plus VAT. Consumers under debt review are also liable for monthly aftercare fees and a legal fee, negotiated between debt counsellors and their attorneys.