New Law about Debt in South Africa
Debt collection occurs when a lawyer, a person who is a lawyer`s representative, or a registered debt collector collects an unpaid amount on behalf of the lender, plus legal interest, administrative fees, and collection fees that are limited by law to certain amounts. “Without appropriate alternative insolvency measures for individuals available to over-indebted people, especially in low-income groups, who cannot afford these other measures, escaping the debt trap is an unbeatable challenge,” the government noted. It is only after about 16 months, after the stay order, that the court may consider extinguishing all or part of the consumer`s unsecured debts to its creditors. The consumer cannot apply for credit within 12 months of the court order. Consumers who participate in the debt intervention process cannot intentionally provide the regulator with false information related to debt interventions or change their financial situation in order to be eligible for debt intervention, as this is a criminal offence under the Amending Act. The minister also has the right to change the gross income and total unsecured debt thresholds, which has caused a huge outcry in the credit market. This risks pushing some into the informal sector, which is dominated by a vast network of illegal usurers known as Mashonisas, Coovadia, bank managers and some debt advisers. “Based on our more than 10 years of experience helping thousands of South Africans [in this low-income class] get out of debt, the hardest part is `active` advice from debt counselling, and this aspect should not be overlooked.” The Differential Capital report says two-thirds of the 7.8 million consumers, typically low-income consumers with unsecured loans, spend more than a quarter of their net income on debt service, while about half are in default. The South African President signed the National Credit Amendment Act (Amendment Act) on Thursday 15 August 2019. The date of entry into force of the amending law has not yet been set. The amending law provides additional protection against over-indebtedness for low-income consumers by reorganizing, suspending or cancelling (partially or completely) their unsecured credit debt for a period of four years from the beginning, which can be extended. The main objective of the amending law is to provide an alternative insolvency measure to a specific group of low-income consumers who do not have sufficient income or assets to justify a seizure and to avoid the prohibitive costs that a low-income consumer must incur when applying for an administrative mandate or a review of his debt.
The amending law applies to all credit agreements concluded before the start date, with the exception of the cost of credit life insurance and the criminal offences and provisions contained in the amending law, which apply after the date of entry into force. Both Mashonisas and Dani, 31, who works in and around Northam, a mining town in the northern province of Limpopo, often charge interest rates of up to 50 percent and sometimes use force to get their money back, according to debt activists. It is important to first check all claims from debt collection agencies. For consumer credit claims, including personal loans, credit cards and credit cards, you have the legal right to explain the amount due and how it was calculated. If a collection agency refuses to send you copies of loan documents or explanations of an alleged debt, you have the right to file a complaint with the Council of Debt Collectors. They also have the right to refuse payment of anything until they provide you with written and supporting documents regarding their application. It will allow their debts to be suspended in whole or in part for up to 24 months and cancelled completely in certain circumstances, for example. B if they lose their jobs. The implementation of this law will result in the cancellation of a debt worth about R20 billion. “The economic impact of this law is serious,” says Cas Coovadia, chief executive of the South African Banking Association. According to Peter Attard Montalto, Director and Head of Capital Markets Research at Intellidex, “this bill is of serious importance to the banking sector and could impose losses of around R25 billion on the banking sector through the introduction of a new system of personal insolvency and income-based debt sustainability.” If your bills outweigh your income and collection agencies don`t stop harassing you, what do you do? Estimates vary, but the National Treasury Department predicted in October 2017 that up to R20 billion ($1.3 billion) of consumer debt could be eligible for a rebate. That`s little with a total consumer debt of R1.9 trillion.
The amending act also strengthened enforcement provisions to curb consumer abuse by unscrupulous lenders and imposed mandatory credit life insurance on all credit agreements for more than six months, but not more than R50,000 in value to prevent low-income consumers from becoming over-indebted due to changes in their financial situation that can be insured. It is important to know exactly what the role of the debt collection agency is. You have the task of raising funds and usually have no interest in your situation. It`s simple; Your account has been given to them to get back the money you owe to the loan provider. They receive a percentage of the amount collected while charging a service fee for it. If you have received letters and calls from your creditors or debt collection agencies, talk to a debtcare qualified collection advisor. We assess your current financial situation to see if debt counselling is right for you. Although details of its implementation have not yet been finalised, it is estimated that around 9.5 million South Africans may have fully cancelled their debts. The National Credit Amendment (NCA) comes as some lenders make good profits from loans, while many of the country`s poorest people spend much of their income on repayments.
This could lead some South Africans to suspend or fully repay their debts and force more responsible loans. The concept of debt intervention is not bad in principle, but there are many consequences for what is being proposed. For example, the amending legislation may (i) restrict lending to low-income consumers, (ii) give low-income consumers the impression that they can spend as much as possible in the hope that their unsecured credit debt will be suspended and cancelled, (iii) be considered a substitute for the current debt review process, and (v) it applies to existing credit agreements, which were concluded without taking into account the intervention on the debt. Credit providers must take active steps in the debt intervention process, carefully assess the risk of loan forgiveness if the debt intervention process is initiated by a low-income consumer, and consider whether the amending legislation amounts to an unconstitutional withdrawal of their property or whether the powers of the National Consumer Court (court) and the Minister are unconstitutional. It is not clear why the current debt review process has not been improved to protect low-income consumers, and whether the national credit regulator and the court have the resources to deal with a significant influx of debt intervention requests. .