Capitec Bank’s earnings report came with a stark warning about the misuse of the debt review process. CEO Gerrie Fourie’s comments have shone a spotlight on a growing concern that could have far-reaching implications for the country’s credit market.
Debt counsellors are supposed to be the unsung hero, the last bastion of hope for the overindebted and spendthrifts, guiding them from their financial ruin to solvency. Except some of them don’t. Some are more like a wolf in sheep’s clothing lurking in the shadows.
In fairness, debt counsellors are vital to the credit market. Without them, the whole system would skid off into an abyss of unmanageable debt and economic chaos.
But, as with any great power, comes great responsibility and, increasingly and worryingly, the irresistible temptation to abuse it. Some of these saviours have turned to the dark side, using the force of debt review not to liberate, but to ensnare. It is a twisted game in which the price is a credit report that reads like a horror story. And the prize? A three, four to five-year financial purgatory where consumers are walled off from the credit market.
The practice is not just harming consumers, it also poses a systemic risk. Capitec reported a sharp rise in credit impairment charges, partly due to clients under debt review. Chances are it is a prevalent trend across the industry, signalling a credit squeeze, especially for low-income earners.
What’s the solution? Do we throw the baby out with the bathwater? Do we cast aside debt counsellors? No, we need them, but we need them to remember their ethical and professional standards. They are indispensable in the credit ecosystem. But the abuse of the debt review process requires immediate attention from the national credit regulator.
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