Everything you need to know about the New Debt Cancelling law and what It means for you

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Noloyiso Lombo (46) is a domestic worker, earning up to R4 000 when all is well, but
the money is not enough for her, with debt grinding wheel hung around her neck, she is
sinking into the economic abyss.

Being a single mom, she has to make sure her 28 year daughter, and her two
grandchildren are provided for. Her two part time jobs one as a domestic worker, and
the other as a general hand at a cleaning company are not that paying either.
Her commission based income fluctuates depending on how often she got called.
Her debts which have been accumulating for more than five years, stood at around R20
000, and her debtors include clothing retailers, and the other on her daughter’s college
fees.

“It’s a real stress for me because I don’t have enough to pay what I owe,” she told
DRUM magazine. “And I can’t buy anything because if I do, my debtors are after me.”
Noloyiso’s situation is just a tip of the iceberg, as she is just one of millions of South
Africans who have tightened their belts, but still struggle to improve their lives, with a
rope of debt well set around their necks.
However, that quagmire could soon be a thing of the past for people like Noloyiso. A
new law, that would see low earners like her have their debts written off is in the
crafting.
The National Credit Amendment Act 7 of 2019, recently approved by President Cyril
Ramaphosa, though won’t apply to everyone or to all debts, it would be a reprieve to
those eligible.
The clause of the act that provides for debt cancellation is aimed at households within a
certain income threshold. It only applies to people earning a gross amount of R7 500 a
month.
And before someone qualify, there will be a number of considerations to be taken into
account. Some modalities have also to be looked into before the new act can be put to
use.
Meanwhile, financial experts have warned that in the long run, the move may backfire
and harm the same people, it is supposed to help. According to them, the cost of
borrowing could be more expensive in the outlook. Yet others say it will make a huge
difference in the lives of many poor South Africans who are failing to find their feet
because of debt.

Unpacking the bolts and nuts
The new amendment act, also called the Debt Relief Bill, is aimed at helping the poorest
and most indebted South Africans. Its purpose is to strengthen the Credit Act and
prevent exploitation of especially lower-income households.
The new law is specifically aimed at helping debt-ridden consumers who earn less than
R7 500 a month and have unsecured debt, such as credit and store cards or personal
loans, of a maximum of R50 000.
If you owe more than R50 000 you may not apply to the National Credit Regulator
(NCR) for debt intervention. But after considering factors such as inflation, the relevant
minister may adjust this total debt amount once a year.
The amendment won’t apply to those who are in debt counselling, sequestrated or in
court-ordered debt administration. And it doesn’t include home and car loans.
NO FREE PASSES
Once the legislation is put into effect one will have to apply to the NCR for the process
to start.
The NCR will then assess each application and decide whether the situation is dire
enough to warrant the debt being written off.
It would act as debt advisor, and decide that the applicant is capable of getting
themselves out of debt with the necessary guidance and debt restructuring.
Details about implementation still need to be worked out but for the time being the
process and time frame look something like this:
The NCR assesses if the applicant is overburdened, and whether any of the credit
agreements constitute reckless lending.
The NCR then has several routes it could deny your application in its entirety,
recommend voluntary debt restructuring, or investigate reckless lending agreements to
see if the lenders are liable.
If the NCR finds the applicant is unable to pay off their debt, it might suspend
repayments for a year.
The NCR will reassess the situation at the end of this period. If the applicant is then in a

better position and able to pay off their debt within five years, the NCR can negotiate
new repayment terms and interest rates on the applicant’s behalf.
But if it’s found that the situation hasn’t improved, the NCR may suspend repayments
for another year.
Then, if the applicant is once again found to be unable to repay their debt, the debt
might be expunged, either fully or in part.
This will be a long process and critics say the NCR doesn’t have the necessary
resources to help the many debt-ridden consumers who’ll apply.
THE SITUATION NOW
Under the new amendment act, an estimated 9,5 million indebted South Africans could
be eligible to have their debt written off.
But applications can only be made once a start date has been advertised in the
Government Gazette.
“It’ll take some time – possibly up to two years – for regulations to be finalised so the
law can be implemented,” said Benay Sager, COO of debt-counselling firm
DebtBusters.
Meanwhile he warned that consumers should be very careful not to get into more debt.
“Taking out more credit than you can afford isn’t a good idea and could have long-term
implications for your credit record,” Sager added.
A ‘NO’ VOTE
The banking sector hasn’t been positive about the changes. The amendment act in its
current form “doesn’t achieve the intended objective of helping over indebted
consumers”, said Cas Coovadia, managing director of the Banking Association South
Africa (Basa).
He said banks have been voluntarily helping embattled consumers through interest rate
cuts.
“Debt intervention measures shouldn’t introduce uncertainty and instability into the
credit market, as this will have a further negative effect on consumers and the SA
economy,” Coovadia explained.

“The banking sector absolutely supports debt-relief measures to over-indebted
consumers whose income circumstances have been weakened beyond their control,”
he added.
He is of the notion that the new amendment will disrupt the credit system, facilities by
banks.
“By making provision for the arbitrary expunging of debt, the act in effect prevents banks
from extending responsible credit, particularly to those in low-income households who
often need it most.”
He said no bank would want to lend someone money knowing fully well that the sent will just be struck off.
Others have also said that the reluctance by credit providers to lend to those under the R7 500 bracket will expose them to loan sharks.
“An unintended consequence of the new act could be that credit providers will have to review their lending criteria for the category of consumers involved as they’ll be
perceived as a higher risk,” said Neil Roets, CEO of debt counselling firm Debt Rescue.
“And if such consumers don’t meet the criteria, they’ll be left with little option but to turn to unregulated lenders – which will have a detrimental impact on their rights and their financial circumstances in the long term,” Roets added.
Be that as it may, the Democratic Alliance (DA) expressed concern saying the new law will encourage South Africans into more debts.
“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 paying it back,” said Dean Macpherson, DA shadow minister for trade and industry.
“The act in its current form fails to make adequate provision for dealing with illegal and
unregistered rogue lenders who take advantage of consumers who have no recourse or protection from the state.”

The National Clothing Retail Federation has also expressed reservations over the
outlook of the retail sector.
Michael Lawrence, the federation’s executive director, emphasised that many clients in the retail are in the category the Debt Relief Bill applies to. And as such credit providers in the industry will be hesitant to extend credit.
Meanwhile, Roets acknowledged that consumers, especially in the below R7 500 income bracket, can’t always afford the legal fees often associated with debt
counselling.
“Since 2007 debt counselling has proved to be a successful solution to assist
consumers who are over-indebted. “This might have been a better route to follow instead of writing off the debt, Roets
believes. “A much better solution would’ve been for government to subsidise the legal
fees for consumers within the defined criteria, thus enabling them to make use of debt
counselling.” Roets said SA’s consumer debt problem is largely a consequence of poor financial literacy.

A ‘YES’ VOTE
Trade federation Cosatu praised Ramaphosa for signing “one of the most pro-poor and pro-worker laws”, and reckoned that the banks are overreacting.
“It will provide badly needed debt relief to millions of over-indebted and exploited
workers and their families,” said Matthew Parks, Cosatu’s parliamentary coordinator.
“It’s a helping hand to those who need it most.” But he urged South Africans not to take it as a licence to shop. “It’s critical for consumers not to mistake it for a green light to engage in reckless borrowing or financial behaviour.”


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