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

Western Cape Provincial Legislature Presentation on the National Credit Amendment Bill B 30 of 2018 16 November 2018

The Banking Association South Africa

Introduction

The Banking Association South Africa (BASA) would like to thank the Honourable Chairperson and Committee for the

• pportunity 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

• ver-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

Banks are assisting consumers by voluntary concessions in Debt Review (foregoing interest and fees)

R 3.4 Billion in 2016 R 4 Billion in 2017

Under the NCA in terms of prescription

• f debt, banks expunged

R 9.6 Billion in March 2105 (once off) R 32 Billion in 2016 R 30 Billion in 2017

3,4 4 32 30 9,6 5 10 15 20 25 30 35 40 2016 2017

Prescribed Debt Expunged and Concessions by Banks (Billions)

Voluntary concessions Ongoing Prescribed debt NCA - prescription of debt

Key Concerns

Consumers cannot access existing debt intervention mechanisms

• The Memorandum to Bill states that Bill is

required as debt counsellors will not currently assist target consumers through debt review

• Credit Bureau information shows that 25%
• f consumers currently in debt review fall

within the target population of the Bill

• The threshold for eligibility (gross

monthly income of R7 500 or less and total outstanding unsecured debt of R50 000 or less) was arbitrarily chosen

• Broad scope of consumers can apply

even those who receive relief from Debt Review

• A small number of consumers

will get access to better debt intervention solution than majority of consumers i.e. through debt expungement

Broad scope of consumers Debt intervention mechanism creates inequality among consumers

Possible Number of Consumers Eligible For Debt Intervention

Credit Active Market All Borrowers with Open Unsecured Credit* And Gross Monthly Income is R7,500 or less And Outstanding Unsecured Debt less than R50,000 and Not in Legal

Note*: Includes consumers that have unsecured credit – unsecured loans, credit cards and facilities as well as retail accounts

18.4 million 17.76 million 10.2 million 9.47 million

Unintended Consequences to Consumers, Credit Providers and the Economy

The Bill provides NCT/Courts with power to

• rder a credit provider to expunge debt granted

in a responsible manner (available for 4 years 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

Minister can adjust the income and total unsecured debt thresholds

 uncertainty is exacerbated

amount of credit extended to consumers Uncertainty in Credit Industry

The banking system has, as one of its foundations, an undertaking by borrowers to repay loans obtained from banks. Any compromise to this principle will have

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) Severe economic consequences

Unintended Consequences to the Broader Economy

Unintended Consequences to Consumers

Based on same number of Debt Intervention Officers being used as current number of Debt Counsellors

 after 3 years, only 1 in 4 applications processed due to broad scope and significant number of consumers that could apply  debt intervention mechanism aimed at assisting consumers, could leave them frustrated and increase financial distress and over-indebtedness

Consumer financial distress and

• ver-

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

• r less

Consumers who fall within these thresholds could struggle to access credit going forward and if consumers do get access to credit, this may be very expensive for them

Struggle to access credit Cost of credit

From NCR quarterly figures, the proportion of credit granted to consumers within these thresholds has decreased from 16% in 2013 to 4% in Q2

• f 2018

More of these consumers will be excluded from a well-regulated credit market and  forced to obtain credit in an unregulated credit market

Financial Exclusion Unregulated Credit

Unintended Consequences to Consumers

Other concerns – Shortcomings of Debt Intervention mechanism

The Bill only deals with debts that fall under the NCA

Consumer will not receive any assistance with the repayment of debts such as municipal fees, water and electricity, school fees, rent, etc. By not including all types of debt, debt intervention is not holistic and will therefore not achieve the goal of relieving over-indebtedness of target consumers Municipal fees, water and electricity, school fees, rent, etc. All types of debt Debt Intervention

• nly applies to

Credit agreements under the NCA

Existing debt intervention mechanisms be used Scope to be reduced No legislated expungement

• f debt

All unsecured debt to be included in Debt Intervention solution

Proposed Solutions to address the Gaps that Currently Exist - Recommendations

by assisting

• ver-

indebted consumers – debt review has proven to work as 25%

• f

consumers that are currently in debt review fall within thresholds prescribed in Bill by decreasing income threshold to a level that is more appropriate and less subjective and arbitrary, for example, the minimum wage level to enable consumers that fall within these thresholds to continue to access credit in the regulated credit market at an affordable price by reforming the Insolvency regime to include all debt for lower-income consumers

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

• pportunity to present and are happy to

assist you with any further information that you may require in respect of our position

Ngiyabonga Thank you Dankie Ngiyathokoza Ke a leboha Ke a leboga Siyabonga Inkomu Ro livhuwa Enkosi