Mark Essey | June 2014
We’ve recently seen a great deal of media focus, debate and increased public interest surrounding the credit amnesty legislation that was recently implemented through amendments to the National Credit Act.
In my opinion, the amnesty will help to further cultivate an apathetic attitude towards debt repayment by South Africans. Perhaps it’s time to revisit the role and responsibility of the debtor in repaying their debt, as absurd as it sounds. The aim of new credit legislation that gets implemented should be to engender a culture of responsible borrowing where debtors enter into credit agreements with both the intention and the ability to repay the debt. The impression that is sometimes created is that there are prominent lenders in the SA market desperate to lend money to unsuspecting consumers at rates that are unaffordable and exploitative, and that they adopt collection methods that are unethical and mercenary. In reality this is seldom the case.
Debtors that recognise their responsibilities and obligations, and credit providers whose primary motivation is to be responsible lenders, should be the key components of any lending agreement. If these principles are adhered to, equitable protection is afforded both parties.
Providing an amnesty is not going to address the problem of desperate consumers scurrying to backyard micro-lenders or “mashonisa”. Why not put more focus and time into making sure that these unscrupulous characters are put out of business. Why not put more focus and time into educating consumers, so that they have the tools and knowledge necessary to ensure that they conduct their finances responsibly and sustainably.
The South African lending industry is well regulated and managed and I don’t believe that providing an amnesty or implementing further legislation to regulate lenders that are already complying with legislation is going to do anything to address the debt problems South African consumers are faced with. Only educating consumers to responsibly manage their finances will. Providing temporary “Band Aids” only addresses the symptoms not the causes.
Another effect of the amnesty is that credit providers will no longer have access to a complete picture of a potential debtor and will by default exercise more caution when making an assessment on whether to lend or not, and at what rate. Increased risk due to incomplete information will lead to increasing the interest rates at which credit is provided and in many cases not providing the credit at all. Some may argue that the positive spin here is that consumers will avoid being indebted beyond their means. And the bad news? It will mean that getting credit will be more difficult in future.
As with all new legislation the impact is always hard to assess in the short term; my fear is that in the long term what seemed like a good idea at the time will have negative consequences that were not anticipated.