The latest amendments to the National Credit Act, gazetted on Friday 13 March, carry far reaching implications for both consumers and unsecured credit providers. These amendments were made in response to the exorbitant growth of over-indebtedness among South Africa’s consumers. Currently standing at an incredible R1.57 trillion.
These amendments have taken us one step closer to eradicating the scourge of unsecured lending. We have seen reckless unsecured lending result in financial crisis for so many South Africans. Often leading to deep social tensions. The new legislation states that consumers who are already in debt and who turn to unsecured lending to supplement their income may not be as easily approved as before – or not at all – due to stricter affordability assessment rules.
While consumers now have easier access to a number of financial products, these stricter affordability structures require that individuals provide a lot more information when applying for credit. This ensures that people do not create further debt unnecessarily, or without providing the proper security. Credit providers will no longer be able to rely on a consumer’s credit profile for the information they require. But will now have to carry out a thorough affordability assessment. Government has recognised that consumers need to be educated about credit and the implications of getting into debt through credit provider services. In addition to this, individuals who give out loans to others must now be registered with the National Credit Regulator.
Additional relief has been brought to the consumer through amendments to the retention periods of credit information. Credit bureaus will now have to remove adverse information and judgement listings from a consumer’s credit profile, if the amount owed has been settled. Consumers no longer need to have their judgement rescinded to get it removed from their credit profile. Furthermore, the retention period for default listings has now been reduced to 12 months. In the same way, retention periods concerning administration and sequestration orders have been reduced to 5 years.
The new amendments may also present good news for consumers with regards to prescribed debt. According to the amendments, most debt that is older than three years will be considered expired, or as ‘old debt’. If there has been no acknowledgement of the debt by the consumer or any attempt from the credit provider to collect the debt, consumers are in no way obligated to settle it. Credit providers are now banned from collecting prescribed debt and are also prohibited from selling prescribed debt to any third party.
Furthermore, once a court date has been set for a consumer to go under debt review, credit providers will not be able to take legal action of any kind. This means that debt counsellors will now be placed in a more crucial position – effectively protecting clients from harassment or unfair pressure during the process of successfully paying off their debt.
Consumers who enter the debt review process and settle all their arrears, and are able to carry on with the original contractual terms, can now be issued with a clearance certificate to exit the debt review process and become rehabilitated. This serves as reassurance to many individuals that they will not remain under the cloud of indebtedness forever, and through the debt review process it is possible to be completely liberated from this circumstance.
While the amendments in the National Credit Act certainly present renewed hope in the journey toward minimising consumer debt in South Africa. It is still the responsibility of each individual to keep track of their credit. They have to fully understand their own credit profile and status, and what action may need to be taken – such as entering debt review. More responsibility will lead to more calculated and responsible decisions made by individuals.