A draft bill giving the National Consumer Tribunal the power to extinguish debt in certain circumstances has been published for public comment by Parliament’s trade and industry committee, which formulated it.
The targeted group for debt relief are individuals earning a gross monthly income of not more than R7,500, who have no readily realisable assets (excluding exempted items mentioned in the bill), are not subject to debt review and have debt of less than R50,000.
The draft National Credit Amendment Bill also provides for mandatory credit life insurance on all credit agreements longer than six months with a value of less than R50,000.
The committee spent many months preparing the draft bill which arose out of its concern over the level of overindebtedness in the country.
Also of concern was the fact that certain categories of consumers who had no hope of extricating themselves from their debt burden were excluded from existing debt intervention measures because of their high cost.
Committee chairperson Joan Fubbs said the salary threshold to qualify for a debt intervention might be too low and could be changed following public comment. The DA abstained from supporting the bill, which trade and industry spokesman Dean Macpherson said was drawn up in the absence of crucial data.
He was also concerned about the retrospective application of the proposed law to credit agreements that were already signed and the danger that the proposed system could completely undermine the existing debt review system.
National Clothing Retail Federation of SA executive director Michael Lawrence said the draft was still being studied but flagged as possible concerns the constitutionality of the tribunal intervening in already signed contract agreements, the absence of an economic impact study and comparisons with international best practice, and the low R7,500 threshold.
According to the national credit regulator (NCR) there were 24.78-million credit-active consumers at the end of June 2017, of which 9.69-million (39%) had impaired records and could be considered overindebted. A consumer has an impaired record when in arrears three or more months’ payments or with an adverse listing or a judgment or administration order against them.
In terms of the bill, individuals in the target group can apply for a debt intervention to the NCR, which will determine if they qualify. The NCR can submit a recommendation to the National Credit Tribunal for a decision. The tribunal will have several options for debt relief such as limiting the maximum interest, fees or other charges that can be paid under a qualifying credit agreement for a period not exceeding 12 months, with the possibility of this being extended for a further 12 months on application. The tribunal could order that no interest, fees or charges be payable.
The tribunal may also decide on the maximum monthly instalment that the applicant can be expected to pay to credit providers over 12 months.
If the tribunal decides that the applicant qualifies for debt intervention it must suspend all of the qualifying credit agreements, in part or in full, for 12 months, before the expiry of which the applicant must present his or her financial circumstances to the tribunal. The suspension can then be extended for a further period of 12 months.
If the financial position of the applicant has not improved during the 24-month period, the tribunal must declare the debt in whole or in part extinguished.
Someone who has had their debt extinguished can then apply for a rehabilitation order which will only be granted by the tribunal if all debts plus interest under the credit agreement have been paid.
Once the tribunal has made a ruling on debt relief, the individual concerned will be prohibited from taking out any more credit for a maximum of three years.
The tribunal will also be empowered, on recommendation of the NCR, to suspend credit agreements considered to be reckless.
The draft bill makes it compulsory for credit providers and debt counsellors to report suspected reckless credit agreements to the NCR and that they be fined by the tribunal if they fail to do so.
Trade and Industry Minister Rob Davies may prescribe a debt intervention measure to alleviate household debt in the event of a significant exogenous shock that caused widespread job losses; a regional natural disaster; or for a sector subject to mass retrenchments.
The draft bill proposes a fine or imprisonment not exceeding 10 years or to both a fine and such imprisonment for anyone intentionally submitting false or misleading information in an application for the debt intervention.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.