The extinguishing of debt granted to the poorest of the poor under certain circumstances was nothing less than the beginning of expropriation said Dawie Roodt, chief economist at the Efficient Group.
While providing a breather for hard-pressed consumers if it was found that debt had been improperly extended to over-indebted individuals who earned a gross monthly income of no more than R7,500; had unsecured debt amounting to R50,000; and who had been found to be critically indebted by the National Credit Regulator, the new Credit Amendment Act could have dire unintended consequences, Roodt said.
“We’re on the threshold of seeing the expropriation of land without compensation. Now the ANC government is fiddling with the financial system by condoning the write-off of anywhere between R13-billion and R20-billion (according to the National Treasury) of debt belonging to banks and other financial institutions.
“These loans are property as much property as anything else and is supposedly protected by article 25 of the constitution. What kind of message is this sending to the ratings agencies such as Moody’s and Standard & Poor’s? As the constitution stands at the moment, there is a strong possibility that the law is unconstitutional,” Roodt said
DA MP and spokesperson on trade and industry Dean Macpherson said on Thursday the party was dismayed that President Ramaphosa had signed into law the “deeply flawed and possibly unconstitutional” bill, drawn up by the portfolio committee on trade and industry in the fifth parliament.
“The amendment bill 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, when SA consumers are already under enormous financial strain,” said Macpherson.
Neil Roets, CEO of Debt Rescue, welcomed the basic principle of providing debt relief for the poor but said that the government should be looking at a more inclusive manner in which relief could be provided.
“The process of debt counselling has been working superbly well for many years and has assisted many thousands of indebted consumers to pay off their debts by paying smaller instalments over a longer period of time through mutual agreement with lenders,” he said
He said it would be infinitely better to use the existing system of debt counselling rather than for the National Credit Regulator 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,” Roets said.
Roets said it was highly likely that financial institutions – who stood to lose billions should loans be written off – would tighten lending criteria to the point where most of these individuals would not be able to get loans in future.
“The very group that the debt forgiveness programme is allegedly aimed at according to the Department of Trade and Industry – retrenched workers and low wage earners – will be the very people who will not be able to source a line of credit when this policy becomes law.”
The debt review process was introduced in 2007 with the National Credit Regulator (NCR) providing for over-indebted consumers making use of a debt counsellor who will help calculate with them what amount of money was needed to cover living expenses and what was available to repay debts – usually in smaller amounts over a longer period of time.