The government should amend the National Credit Act (NCA) to give debt counsellors the power to restructure more categories of debt, including unpaid bills for municipalities and fee-paying schools.
This could unlock R25bn in value for the South African economy, Benay Sager, chair of the National Debt Counsellors Association, told Business Times.
“Some consumers have money owed to lawyers, small businesses and municipalities. Currently, debt counsellors are not able to restructure these types of debts. We believe the inclusion of other types of debt could increase debt repayments to R25bn per annum,” Sager said.
Under the act, the national credit regulator regulates the consumer credit industry by registering credit providers, credit bureaus and debt counsellors. Debt counsellors cannot offer or engage in services that fall outside the scope of the NCA.
Sager said debt counsellors play a significant role in the optimal operation of the credit system, and there was enormous potential to release back into the economy more of the R2.5-trillion in personal debt owed by South Africans.
“There are probably a total of around 270,000 consumers who are actively in debt counselling and paying back their credit providers.
There are probably a total of around 270,000 consumers who are actively in debt counselling and paying back their credit providers. We are talking about R15bn being returned annually to creditors.
— Benay Sager
“We are talking about R15bn being returned annually to creditors. This is how lending works and it is quite essential that it works. We sit in the middle of trying to collect this money for creditors by restructuring consumers’ debt repayments.”
Of the R2.5-trillion total formal debt, consumers who were in debt counselling accounted for about R100bn. Five years was the average time it took to fully pay a debt.
“We are [already] part of asset management in the sense that we are managing distressed assets,” Sager said. “Some assets are lost if not managed. We are trying to encourage people to think of what we do in a different light.”
He said allowing debt counsellors to restructure broader categories of debt would unlock more value as creditors such as struggling municipalities and schools would experience higher recoveries and debtors who have paid back would have more money in their pockets to circulate back to the economy.
Sager said the NCA came into being in 2006 and almost two decades later it has not been amended or updated outside of the minimum expense guidelines of 2015. He said debt counsellors, credit bureaus and other lenders were eager for significant changes to the legislation.
“We hope in the next parliament there will be more appetite to make changes to credit and in the NCA. There was little appetite in the last parliament, and the last time we saw any interest in that was in 2015, with the minimum expense guidelines by the department of trade, industry & competition. And guess what? Those minimum expense guidelines are already outdated.”
FNB chief collections officer Denise Hartley said the bank was always willing to work with regulators and legislators where amendments to legislation would support a more sustainable credit market.
“We continuously prioritise educating customers and helping them to better understand what debt counselling entails.”
She said the cost of living had increased significantly since the pandemic and the pressure on consumers was immense, prompting some to resort to using credit facilities to make ends meet or sustain their lifestyles.
“FNB has taken the liberty to support indebted customers with payment holiday breaks on their home loans or vehicle loans, on condition they inform the bank prior to defaulting on their monthly instalments; especially when they can foresee their financial situations becoming more challenging.”
FNB was committed to the act and strove to lend money responsibly to ensure customers avoided loans they could not afford, Hartley said.
Thabani Ndwandwe, chief risk officer at Standard Bank South Africa, said unsecured debt was repaid at fixed interest rates. But recent hikes in interest rates affected secured debt.
“We have seen some pressure due to the increased instalment on secured [debt] and inflationary pressure. We have around a tenth of our unsecured portfolio classified as non-performing.”
Asked about the NDCA proposal to amend legislation, he said Standard Bank was “receptive to ideas and proposals that seek to improve the effectiveness of the debt counselling industry in assisting consumers to manage their debt repayments”.
“We do believe there is a need to review regulations to achieve this. Debt counselling is critical in resolving indebtedness as prescribed in the NCA, and professionalising that role and ensuring minimum standards exist for those who provide it will assist in providing further credibility in this process.”
Ndwandwe said inflation was pushing up consumers’ debt obligations for consumers. Combined with higher interest rates, this meant indebted bank clients were taking longer to repay outstanding balances.
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