SA debt measures backfires


Cape Town- Only 21c in every rand is available to the average South African household to pay for living expenses, the rest is used to pay debt. Despite measures in the last two decades to curb levels of household indebtedness. Of the 20 million credit-active consumers in this country, 47% are in arrears on their accounts by three months or more, or had judgments against them, or had negative ratings on their credit record, according to the National Credit Regulator.





Three major measures have been taken in the last decade to try and better the financial position of the average South African consumer. The first was the National Credit Act (2005), which, according to the Banking Association of South African Comsumer, was intended to protect the consumer and make credit and banking services more accessible. The second was the consistent lowering of interest rates over the last seven years (with two small exceptions in 2008 and 2014 when it rose by 0.25%), and the third a credit amnesty, which in effect wiped the slate clean for 3.1 million South African consumers with poor credit records.





The National Credit Act did three major things to relive pressure on consumers. To monitor and prevent reckless lending, provide guidelines about interest rates and fees, and introducing debt counselling to over-indebted clients.





The more recent National Credit Amendment Act (2013) also prohibits credit providers from collecting certain prescribed debts, such as clothing accounts and cellphone debt. A prescribed debt is one that is older than three years, and if there has been no payment, no debt acknowledgement and no summons, it is written off. This does not apply to taxes, home loans and TV license debts as these have a lifespan of 30 years.





The first act also put the onus on the lender to explain the terms of the loan to the borrower and to do an affordability test. It is difficult to narrow it down to a single cause, but while South Africa's level of household debt is at 79% of disposable income, that in the UK is at 144% and that in Sweden at 170%. So while our household debt is high, it is lower than that in many other countries. The National Credit Act of 2007 is often held partially responsible for this.





The downside of making credit from financial institutions harder for pressurised consumers to access, is that it has forced many people with irregular incomes or bad credit records to make use of the services of unscrupulous lending agencies.





These so-called loan sharks often operate outside the law, charging crippling interest rates to their desperate customers, far in excess of that stipulated by the National Credit Regulator. These are often microloans, or so-called payday loans, where interest charged can be extremely high, and is sometimes calculated by day, not per week or per month. Vulnerable and poverty-stricken people get ruthlessly exploited and are seldom in a position to take legal action.





Once in this vicious cycle it is almost impossible to extriate oneself, as more money is loaned to pay for day-to-day expenses. Some loan sharks are also notorious for confiscating the ID books and bank cards (with pin) of their clients until the loan is fully paid up.