The Banking Association South Africa Western Cape Provincial - PowerPoint PPT Presentation

The Banking Association South Africa Western Cape Provincial Legislature Presentation on the National Credit Amendment Bill B 30 of 2018 16 November 2018

Introduction The Banking Association South Africa (BASA) would like to thank the Honourable Chairperson and Committee for the opportunity to partake in the public hearing process in the Western Cape Provincial Legislature We have submitted detailed written comments on the National Credit Amendment Bill to the Committee Secretary. Our submission includes comments on our operational, legal and constitutional concerns and an Interim Impact Assessment We will focus on highlighting our proposed solutions as well as the unintended consequences to consumers, credit providers and the economy

Overview BASA supports implementation of measures to assist over-indebted consumers whose circumstances have changed for the worse, through no fault of their own, and who cannot access existing debt intervention mechanisms We are of the view that consumers can be better and sooner aided by enhancing the current debt review process and not introducing a completely new mechanism of debt intervention parallel to debt review

Current Debt Intervention Measures Prescribed Debt Expunged and Concessions by Banks are assisting consumers by Banks (Billions) voluntary concessions in Debt Review 40 (foregoing interest and fees) 35 R 3.4 Billion in 2016 30 R 4 Billion in 2017 25 20 32 30 Under the NCA in terms of prescription 15 of debt, banks expunged 10 R 9.6 Billion in March 2105 (once off) 5 9,6 4 3,4 R 32 Billion in 2016 0 R 30 Billion in 2017 2016 2017 Voluntary concessions Ongoing Prescribed debt NCA - prescription of debt

Key Concerns Consumers cannot access Broad scope of Debt intervention mechanism existing debt intervention consumers creates inequality mechanisms among consumers • • • The Memorandum to Bill states that Bill is The threshold for eligibility (gross A small number of consumers required as debt counsellors will not monthly income of R7 500 or less and will get access to better debt currently assist target consumers through total outstanding unsecured debt of intervention solution than debt review R50 000 or less) was arbitrarily chosen majority of consumers i.e. through debt expungement • • Credit Bureau information shows that 25% Broad scope of consumers can apply of consumers currently in debt review fall even those who receive relief from Debt within the target population of the Bill Review

Possible Number of Consumers Eligible For Debt Intervention 10.2 million 17.76 million 18.4 million 9.47 million And Outstanding Credit Active Market All Borrowers with And Gross Monthly Unsecured Debt less Open Unsecured Income is R7,500 or than R50,000 and Not Credit* less in Legal Note*: Includes consumers that have unsecured credit – unsecured loans, credit cards and facilities as well as retail accounts

Unintended Consequences to Consumers, Credit Providers and the Economy amount of The Bill provides NCT/Courts with power to credit order a credit provider to expunge debt granted extended in a responsible manner (available for 4 years to consumers after Bill comes into effect)  to mitigate uncertainty and significant impact of these orders, credit providers will most likely decrease amount of credit extended to consumers Uncertainty in Credit Industry Minister can adjust the income and total unsecured debt thresholds  uncertainty is exacerbated

Unintended Consequences to the Broader Economy The banking system has, as one of its foundations, an undertaking by borrowers to repay loans obtained from banks. Severe economic Any compromise to this principle will have consequences  severe consequences for depositors (consumers)  the industry and  economy, e.g. job losses. (One job loss could mean a whole family being without an income)

Unintended Consequences to Consumers Based on same number of Debt Intervention Officers being used as current number of Debt Consumer Counsellors financial distress  after 3 years, only 1 in 4 applications processed and over- due to broad scope and significant number of indebtedness consumers that could apply  debt intervention mechanism aimed at assisting consumers, could leave them frustrated and increase financial distress and over-indebtedness

Unintended Consequences to Consumers This will impact not only those consumers that apply for debt intervention, but all other consumers earning R 7 500 gross monthly income Struggle to access credit or less  Consumers who fall within these thresholds could Cost of credit struggle to access credit going forward and  if consumers do get access to credit, this may be very expensive for them

Unintended Consequences to Consumers From NCR quarterly figures, the proportion of credit granted to consumers within these thresholds has decreased from 16% in 2013 to 4% in Q2 Financial Exclusion of 2018 Unregulated  More of these consumers will be Credit excluded from a well-regulated credit market and  forced to obtain credit in an unregulated credit market

Other concerns – Shortcomings of Debt Intervention mechanism The Bill only deals with debts that All types of debt fall under the NCA  Consumer will not receive any Debt assistance with the repayment of Municipal fees, Intervention debts such as municipal fees, water water and only applies to and electricity, school fees, rent, etc. electricity, Credit school fees, agreements  By not including all types of debt, rent, etc. under the NCA debt intervention is not holistic and will therefore not achieve the goal of relieving over-indebtedness of target consumers

Proposed Solutions to address the Gaps that Currently Exist - Recommendations All unsecured Existing debt debt to be Scope to No legislated intervention included in be expungement Debt mechanisms reduced of debt Intervention be used solution by decreasing income to enable consumers that by reforming the by assisting over- threshold to a level that is fall within these thresholds Insolvency regime to indebted consumers – more appropriate and less to continue to access credit include all debt for debt review has proven subjective and arbitrary, in the regulated credit lower-income to work as 25% of for example, the minimum market at an affordable consumers consumers that are wage level price currently in debt review fall within thresholds prescribed in Bill

Conclusion We acknowledge that over-indebtedness is an economic and social problem that has far reaching consequences for the economy and society We support the introduction and implementation of a targeted and sustainable debt intervention mechanism/measure The Bill in its current format is, however, not practical or sustainable The Bill will have far reaching and unintended consequences that will impact negatively on the consumers that fall within the thresholds

Questions We thank the Committee again for the opportunity to present and are happy to assist you with any further information that you may require in respect of our position Ngiyathokoza Dankie Inkomu Ke a leboga Ngiyabonga Ke a leboha Enkosi Siyabonga Thank you Ro livhuwa