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The signing into law of the National Credit Amendment Act by President Cyril Ramaphosa has drawn mixed reactions over whether it will be good or bad for over-indebted consumers.

The act allows certain applicants to have their debt suspended in part or in full for up to 24 months.

This debt may be extinguished altogether, if the financial circumstances of the applicant do not improve.

Certain criteria must be met to have the debt written off, which include:

  • * The unsecured debt must not be more than R50 000.
  • * The person did not earn more than R7 500 a month over the past six months.

It is unclear when the act will come into effect or whether it will apply retrospectively.

Dr Clif Johnston, vice-chairperson of the South African National Consumer Union (Sancu), said the bill was good news for the indebted consumers to whom it applies, although it would extinguish their debts only after attempting an exhaustive debt- rescheduling process.

“Consumers are usually blamed for getting themselves into financial difficulty.

“Sancu believes unscrupulous suppliers are more to blame by tempting consumers with easy credit.

“If the application of the bill is detrimental to such credit providers, then they have only themselves to blame for failing to assess consumers’ finances responsibly,” Johnston pointed out.

He said in future credit providers will have to be more careful about who they grant credit to. Sancu does not buy the argument that the bill will drive consumers to loan sharks.

“Indeed, it is intended to do the opposite by offering an alternative to a specific group of consumers, who would be well advised to take advantage of it,” said Johnston.

Benay Sager, chief operating officer of DebtBusters, said his debt-management firm supports the principle of helping over-indebted, low-income earners.

“The finer details of how exactly it (the law) will be implemented still need to be finalised. We feel that both the rights of the consumer and the rights of the credit providers must both be taken into account, and that a fair balance must be obtained.

“We understand that the National Credit Regulator (NCR) plays an important role in this, but we are concerned that they will not have the capacity to deal with the potential inflow of consumers who want to apply for this debt-relief solution,” said Sager.

“Debt-counselling should be considered as part of the solution, as that is a proved method of really helping over-indebted consumers to manage their debt, and get financially savvy when it comes to credit.”

Gerrie Fourie, the chief executive of Capitec Bank, said the act has been in discussion for two years.

“During the two years leading to the amendment, Capitec Bank planned and managed our exposure to the consumer market of those earning less than R7500 per month, being well aware of the regulatory development.

“We did this to such an extent that we can confidently say that we have sufficiently prepared for this. Our current exposure is less than 5percent of our book,” said Fourie.

Neil Roets, the chief executive of Debt Rescue, welcomed the basic principle of providing debt-relief for the poor, but said the government should be looking at a more inclusive way to provide relief.

Roets said it would be better to use the existing system of debt-counselling rather than for the NCR to set up another system from scratch.

“It has taken us more than a decade to get the debt-review process to the point where it is running smoothly to the mutual benefit of consumers and lenders.

“To go and tinker with this process now would be foolish in the extreme,” he said.

Roets said it was highly likely that financial institutions, which stood to lose billions if loans were written off, would tighten their lending criteria to the extent that many low-income consumers would not be able to obtain loans in the future.

PERSONAL FINANCE