National Credit Amendment Bill poses serious financial risks to the economy and consumers

Issued by Dean Macpherson MP – DA Shadow Minister of Trade and Industry
06 Sep 2018 in News

Next week in the National Assembly, the Democratic Alliance will oppose amendments to the National Credit Act by the Portfolio Committee on Trade and Industry (PCTI) through the National Credit Amendment Bill which will increase the cost of credit for low income earners, weaken the fight against illegal lenders and negatively disrupt the credit market while posing a financial risk to the state.

In 2016, the Committee had requested permission of the House in terms of Rule 273(1) to amend the National Credit Act of 2015 so as to provide for:

  • criminal prosecution of lenders who contravene the Act;
  •  an effective debt counselling framework for low-income workers; and
  • capped debt relief to promote a change in the borrowing and spending habits of an over-indebted society.

Instead of working within the provisions of the National Credit Act and input from public hearings, the Committee arbitrarily decided that individuals who earned less than R7 500.00 per month and had unsecured debt agreements totalling R50 000.00 should receive debt relief intervention.

The DA is concerned that this approach will increase, instead of decrease, the appetite among low income earners to incur more debt with no intention of ever paying it back creating a massive moral hazard, as long as they remained within the legislated threshold of indebtedness.

Realising the challenges posed by this proposal, I submitted an alternative proposal which made suggestions to deal with:

  • reckless lending;
  • various forms of credit available to consumers;
  • requirements on lenders with respect to affordability assessments before granting credit; and
  • a framework for the implementation of Debt Relief Intervention.

The Committee rejected this proposal (see attached proposal here).

The Bill in its current form fails to make adequate provision to deal with illegal and unregistered rogue lenders who take advantage of consumers who have no recourse or protection of the State. The weakness of this approach is such that an illegal lender only becomes guilty of the offence if reported by consumers and if he or she is located and found guilty. The probability of someone reporting a loan shark is next to zero.

Of particular concern is that, the Committee has failed to provide clarity on the cost implications for the state in implementing the Bill including where the R100 million will come from to fund the National Credit Regulator and National Consumer Tribunal to fund their new mandates to process Debt Relief applications.

In addition, the financial implications to the credit market are yet to be costed as the Committee is yet to receive an update from the Department of Trade and Industry which undertook to conduct a Socio-Economic Impact Assessment Study (SEIAS) on the post-implementation impact of the legislation.

The DA advocates for credit legislation that protects consumers from debt traps and illegal lending whilst ensuring the sustainability of the credit markets. In contrast, the Committee has sought to create legislation in an information vacuum which could have disastrous consequences for consumers, the cost of credit and the restriction of credit for low income South African’s.