The National Credit Amendment Bill, which is before the Portfolio Committee on Trade and Industry again this week, is not a sustainable debt-intervention measure and threatens the ability of banks to extend credit to low-income consumers.
This is according to Cas Coovadia, MD of Banking Association South Africa (BASA), who said that the bill fails to balance the rights of consumers and credit providers – and limits the ability of banks to safeguard the savings and salaries entrusted to them by South Africans.
He added that the uncertainty surrounding the bill means that credit providers will not be able to accurately assess the risk of loans not being repaid.
“The consequences of the proposed broadened scope of the bill for consumers, the economy and sectors such as banking, retail, and micro-lending, have not been subjected to an in-depth social and economic impact assessment and engagement with relevant stakeholders,” he said.
Coovadia set out three of the biggest issues with the bill that were causing uncertainty:
Power to restructure
Under the proposed bill, the National Consumer Tribunal and the courts are to be granted the power to make debt restructuring orders – which reduces the interest rate, fees, and charges for credit agreements in debt intervention and debt review processes to zero for a period of five years or longer.
This effectively legislates for the granting of concessions to all consumers seeking debt intervention or who can enter the debt review process, said Coovadia.
“It also means that secured credit agreements, such as mortgages, could be restructured to an interest rate of 0%, which is unsustainable for banks and consumers who hope to earn interest on their savings,” he said.
“The unintended consequences of this provision are that access to credit for homes and movable assets, like vehicles – which can be sources of income and wealth creation – will become more difficult and the cost of credit is likely to increase. Banks have a fiduciary duty to protect the deposits of their savers and investors, which are used to extend credit.”
Scope of legislation is too broad
According to Coovadia, the scope of application of the proposed legislation is too broad.
“Those qualifying for debt intervention must have an average monthly gross income of under R7,500 and total outstanding unsecured debt of R50,000,” he said.
“Their debt can be extinguished after a period of up to 24 months, during which the levying of interest, fees and charges and the obligation to make payment towards the debt, will be suspended.”
No public participation
Coovadia said that the powers given to the Minister to review and increase the income and unsecured debt thresholds are deemed to be an unlawful delegation of legislative power.
“They do not provide stakeholders with an opportunity to publicly participate in the process, making it procedurally unfair,” he added.