File photo: (David Zalubowski / AP).
JOHANNESBURG - Access to credit for homes and movable assets, such a vehicles, would become more difficult and probably more costly, because of one of the provisions of the National Credit Amendment Bill, the Banking Association of South Africa has warned.

Cas Coovadia, managing director of the association, said this was one of the unintended consequences of a provision in the bill.

Coovadia said on Friday the National Consumer Tribunal and courts were to be granted the power to make debt restructuring orders, which reduced 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.

He said this effectively legislated for the granting of concessions to all consumers seeking debt intervention or who could enter the debt review process.

“It also means that secured credit agreements, such as mortgages, could be restructured to an interest rate of zero percent, which is unsustainable for banks and consumers who hope to earn interest on their savings.

“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,” he said.

Coovadia acknowledged that over-indebtedness was a serious economic and social challenge in South Africa, adding that the association supported debt intervention to assist low-income consumers whose circumstance had changed for the worse, through no fault of their own, and when formal debt-counselling processes provided inadequate relief.

Not sustainable

However, Coovadia said the National Credit Amendment Bill, which was before the portfolio committee on trade and industry again last week, was not a sustainable debt-intervention measure. Coovadia said it threatened the ability of banks to extend credit to low-income consumers, hindering efforts to offer financial services to all South Africans.

“This is a result of the bill failing to balance the rights of consumers and credit providers and limiting the ability of banks to safeguard the savings and salaries entrusted to them by South Africans,” he said.

Coovadia said the scope of application of the proposed legislation was also too broad, adding the powers given to the minister to review and increase the income and unsecured debt thresholds were “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. They create uncertainty for credit providers, who will not be able to accurately assess the risk of loans not being repaid,” he said.

Coovadia stressed the consequences of the proposed broadened scope of the bill for consumers, the economy and sectors such as banking, retail and micro-lending, had not been subjected to an in-depth social and economic impact assessment and engagement with relevant stakeholders.

The banking association urged the portfolio committee on trade and industry to address the unintended consequences of the Bill and help to ensure the credit market could continue to provide financial services to those in need, in a sustainable and fair manner.