National Credit Amendment Bill

    September 26, 2018

    There are always costs the average South African isn’t going to be able to afford. They will need to get a cash loan. The National Credit Amendment Bill protects consumers but may act against lenders.

    Maybe you want to start your own business or buy a home or car. The chances are you’re going to need a loan from the bank or some financial institution.

    But now the National Credit Amendment Bill looks as though it will threaten the ability of the banks to extend credit to those on low incomes. Credit providers will restrict credit to those people where there is no guarantee of stability of repayment.

    National Credit Amendment Bill – Looking for Credit in Risky Places

    MicroFinance SA says a total of 5.1-million people with unsecured credit of R3.2bn could benefit from this debt intervention.  These same people will possibly look for credit by means of informal channels. That is risky as these channels don’t offer much in the way of consumer protection.

    National Credit Amendment BillAccess to credit for a home or car is going to become more  difficult and costly too. Cas Coovadia of the National Credit Association says that this aspect was an unintended consequence of this provision.

    Secured credit agreements could be restructured to an interest rate of zero percent. This will be unsustainable for both consumers and banks who wanted to earn interest on their savings. The bill doesn’t balance the rights of consumers and credit providers. It also limits the ability of banks to protect the savings of South Africans.

    Coovadia also went on to say that the uncertainty with the bill means that credit providers aren’t able to assess the risk of loans not being repaid. In fact the consequences of the proposed scope of the bill hasn’t undergone an in-depth impact assessment with the relevant stakeholders.

    National Credit Amendment Bill – Issues Outstanding

    Some of the issues causing uncertainty with the bill include –

    • secured credit agreements with an interest rate of 0%. This isn’t suitable for consumers and banks who want to earn interest on their savings.
    • the scope of legislation is too wide. Those who do qualify for debt help must have an income of less than R7,500 and total outstanding unsecured debt of R50,000. The borrower can cancel their debt  after a period of up to 24 months, suspending the obligation to make payments, the levying of interest and fees etc.
    • stakeholders haven’t been provided with the chance to publicly participate in the process, and this makes it procedurally unfair.
    • cancelling debt would simply allow consumers to think that they could incur debt and default on it without any action against them, creating risk for credit providers.

     

    The National Credit Amendment Bill has been introduced as a means to provide debt relief for low income earners. As alw, the bill will write-off up to R20bn. And while it is a great mechanism to help the poor, the Banking Association of South Africa doesn’t support debt cancellation. They  believe it will cause instability in the financial and credit market. They believe that a sustainable credit market is of critical importance for the development of South Africa.

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    All info was correct at time of publishing