Parliament, The Portfolio Committee on Trade and Industry was briefed today on the socio-economic impact assessment study (SEIAS) on the National Credit Amendment Act and the implementation plan.
The SEIAS acknowledged the legitimate need for the measures introduced by the Act. However, it raised a number of possible unintended consequences to the target group, such as an increase in the cost of credit and reduced credit supply to this group due to the increased risk.
The committee Chairperson, Mr Duma Nkosi, said while a SEIAS is not mandatory for a Committee Bill, the previous committee saw it beneficial to request that a SEIAS be undertaken.
The committee noted the findings and recommendations from the SEIAS and welcomed the Minister's proposed approach to address the unintended consequences identified in the SEIAS, while maximising the benefits to the targeted group. The committee will continue to support the implementation process as it remained of the view that the Act is a building block for developing an inclusive and sustainable financial system for all. It emphasised that the enforcement of the law is critical to achieve this.
The committee further welcomed the National Credit Amendment Act which was assented to on 13 August 2019. The Act provides a mechanism for poorer consumers who are unable to access and/or afford existing debt relief mechanisms, such as insolvency, debt administration and the current debt relief mechanisms, to deal with over-indebtedness. Thus, addressing the current unfair discrimination that exists in the debt intervention landscape on the basis of socio-economic status, is tested against the equality principle set out in section 9 of the Constitution.
This measure is targeted at consumers who only have unsecured credit agreements, unsecured short term credit transactions or unsecured credit facilities to a joint maximum value of R50 000, either receive no income, or receive a monthly income that does not exceed R7 500 and are over-indebted.
For those targeted, over-indebted consumers who are able to repay their debt after a debt rearrangement, a free long-term debt intervention measure exists similar to the current debt review mechanism. For consumers who cannot afford to pay their debt even if it is restructured and/or have no income, a short-term debt intervention measure has been introduced. This will allow their debt to be suspended for up to 24 months. If their situation improves, they will have their debt restructured. If not, the debt may be extinguished after two years.
Furthermore, the Act provides measures to all over-indebted consumers to curb reckless lending, empower magistrates' courts to reduce interest rates, fees and charges when considering debt review applications, and to introduce regulations for targeted credit life insurance for all unsecured credit that is extended for six or more months up to a value of R50 000 at a lower rate. It also introduces new offences and penalties in relation to debt intervention, credit agreements, and registration.
Source: Parliament of the Republic of South Africa