President Cyril Ramaphosa has signed into law the controversial National Credit Amendment Bill which is geared to provide relief to over-indebted consumers, according to a Fin24 report.

The legislation, also known as the ‘Debt Intervention Bill’, will enable low-income workers to extract themselves from debt through a process of debt restructuring if they earn a gross income of R7 500 or less a month, have unsecured debt of R50 000, or have been found to be critically indebted.

However, fears have been raised that it could in fact drive up the cost of loans and limit access to credit.

One of the clauses on the Bill requires debt counsellors to report suspected reckless lending, in an attempt to discourage registered financial service providers from engaging in reckless extension of credit. In September, the chairperson of Parliament’s Trade & Industry Committee Joan Fubbs, explained that debt will only be extinguished for those seeking relief after all other measures have been exhausted.

Full Fin24 report

The Treasury estimates that the debt-relief proposals could result in the write-off of R13.2bn to R20bn of debt, which is the total amount of debt falling under the debt-extinguishing provisions of the Bill, says a Business Day report.

The banking industry opposed the proposals on the grounds that they would result in a restriction of credit to the low-income section of the market and that the extinguishing of debt represents an unconstitutional deprivation of property.

It would also mean that credit providers would have to price in the additional risk. DA MP Dean Macpherson said his party is dismayed that Ramaphosa has signed into law the ‘deeply flawed and possibly unconstitutional’ Bill.

‘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.

‘This is why I petitioned the President in April 2019 to give due consideration to the very real issues related to this Act as well as its constitutionality.’

Macpherson said to make matters worse, the state has no idea what the cost to the economy and credit market will be, and has been unable to clarify the cost implications for the country in implementing the Bill, including where the R100m will come from to fund the National Credit Regulator and National Consumer Tribunal to support their new mandates to process debt-relief applications.

‘The DA is concerned that this Act 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.’

Full Business Day report