5 questions on the 'debt relief bill' unpacked

Parliament announced on Thursday that President Cyril Ramaphosa signed the National Credit Amendment Bill into law earlier this week, ending a nearly two-year journey for the peace of legislation aimed at protecting low income earners from crippling debt.

The law – also referred to as the "Debt Relief Bill" - allows low-income workers to extract themselves from debt through debt restructuring if they earn a gross income of R7 500 or less per month, have unsecured debt of R50 000, or have been found to be critically indebted.

However, between the need for low income earners to be protected from what government considers reckless credit agreements and the banks' need collect on their lending from clients, questions abound regarding what this bill means for banks and borrowers.

How did we get here?

The bill was initiated by Parliament's portfolio committee on trade and industry in November of 2017. The legislature invited members of the public to submit comments on the bill to then-committee chair Joan Fubbs between January and February of 2018.

The bill sought to amend the 2005 National Credit Act to include evaluation and referral of debt intervention applications and the suspension of agreements that are found to be reckless which impact on low income earners struggling to honour their debt commitments.

While the bill did not have the most challenging path through the legislative precinct, it did face some opposition, largely from the banking sector and the Democratic Alliance.

In September last year the National Assembly agreed to the bill and it was referred to the National Council of Provinces for consideration and concurrence. The NCOP then concurred with the bill, which was sent to Ramaphosa's office for enactment.

What is South Africa's big debt picture?

The South African Reserve Bank said in its quarterly bulletin released in March that growth in households' real spending on services reverted from -2.0% in the third quarter of 2018 to 1.1% in the fourth quarter.

"The turnaround was broad-based, as real outlays in almost all the subcategories increased in the fourth quarter of 2018, including in medical services, transport and communication services, as well as recreational, entertainment and educational services," the bulletin said.

The bulletin said household debt increased at a faster pace in the fourth quarter of 2018 and that mortgage advances, which are the largest component of household debt, contributed the most to the increase.

"Household debt as a percentage of nominal disposable income edged higher from 71.8% in the third quarter of 2018 to 72.7% in the fourth quarter, as the quarter-to-quarter increase in household debt exceeded that in disposable income," the bulletin said.

General loans and advances at all monetary institutions also increased notably, suggesting that consumers borrowed to sustain spending, the SARB bulletin said.

What are the details?

The bill gives the National Credit Regulator significant powers to suspend reckless credit agreements if the credit provider suspects their credit agreement in an assessment constitutes a reckless agreement.

The bill also enjoins a debt councillor to report suspected reckless credit agreements to the National Credit Regulator or a magistrate's court.

The now-enacted bill makes provisions for a tribunal which may impose fines if a credit provider or debt counsellor fails to report a suspected reckless credit agreement.

The bill also allows that any court proceedings where a credit agreement is being considered may make a recommendation to the National Credit Regulator for an evaluation into whether the affected consumer would apply for debt intervention.

What do parties think?

The African National Congress has high hopes that the newly-passed bill will provide assistance to low income earners in South Africa who have been targeted by reckless credit agreements.

When she introduced the bill in the National Assembly last year, Fubbs said the party believed the bill would go a long way in strengthening the National Credit Act in a responsive and responsible manner.

"The National Credit Amendment Bill 2018 empowers the poor, low income worker, debt counsellors and the magistrates. Therefore, I appeal to all members of this House of Assembly, in the spirit of the Constitution and to adopt this National Credit amendment Bill," Fubbs said.

However, the Democratic Alliance and formations representing the banking sector has expressed their misgivings that the law will make it harder for South Africans to access credit and more expensive for banks to write debt off.

Any other considerations we should know about?

In its formal submission to Parliament on the National Credit Amendment Bill, the Banking Association of South Africa has said the banking sector has provided debt relief amounting to billions to indebted consumers, which causes banks to forfeit billions yearly.

A research survey into access to credit for poor households in South Africa by Francis Okurut found that poor South Africans were more likely to access informal credit in the absence of collateral requirements for such borrowing in the formal sector.

"These findings confirm that improving access to organised credit markets (i.e formal and semi-formal credit markets) by the poor and Blacks, remains important in the fight against poverty," the survey report said.