On 24 November 2017, the draft National Credit Amendment Bill (“Amendment Bill”) was published for public comment.  The Amendment Bill is expected to have a significant impact on the lives of hundreds of thousands of South Africans, as well as large parts of the banking and finance sector in South Africa.  The Amendment Bill seeks to amend the National Credit Act 34 of 2005 (“National Credit Act”) to provide debt interventions for low income individuals with the aim of addressing over-indebtedness.  Furthermore, it aims to provide for the evaluation and referral of debt intervention applications and the enforcement functions of the National Credit Regulator.

The Amendment Bill permits a person who, as of 24 November 2017, earns less than R7 500.00 per month and who has no readily realisable assets (excluding exempted items mentioned in the Amendment Bill), who are not subject to debt review and who owe less than R50 000.00 in unsecured debt relating to credit agreements, to make an application to the National Credit Regulator for debt intervention.

The National Treasury conducted research on the targeted credit market – of just how far-reaching the Bill is likely to be – stating that as the proposed Bill is currently crafted, 16 million loans could qualify for debt intervention.

The research also indicated that 59% of loans in this earnings category who are able to service their debt may qualify for debt intervention. The research also indicated that only 29% of these loans are three or more months in arrears.

It was proposed by the National Treasury that the Amendment Bill be transformed to provide a limited form of “poor man’s sequestration”, with clear indications about who will actually apply for this debt intervention, such as those who can under no circumstances afford to pay off their debt.

The Amendment Bill, in its current form, will have far-reaching consequences for credit providers in terms of the National Credit Act.   However, there are many concerns surrounding the Amendment Bill, these include the possibility that reducing or removing debt might lead to consumers spending recklessly with the knowledge that the debt could be written off.  This would lead to an increased risk for credit providers who might end up making access to credit more difficult for low income consumers in the long run.

27 June 2018