Afrikan Heroes

Good news for South African businesses and individuals. Bad news for banks and other credit lending institutions. A new law that will allow South Africans go away with their indebtedness has been signed into law by South Africa’s President Cyril Ramaphosa. Another unofficial name of the new law is ‘debt relief Act’ and it aims, among other things, to provide relief to over-indebted South Africans who have no other means of paying their way out of their over-indebtedness.

Here Is All You Need To Know Under The Law

• Under the new Act, certain applicants can now have their debt suspended in part or in full for up to 24 months.
• This debt may then be extinguished altogether if the financial circumstances of the applicant do not improve.

To have your debt completely written off, the following conditions, however, must be met: 

• The unsecured debt must not be more than R50,000 ( about $3276.90);
• The unsecured debt accrued through unsecured credit agreements, unsecured short term credit transactions or unsecured credit facilities only (i.e in all cases, the debts are backed with no collateral);
• You must have earned no more than R7,500 a month over the last six months;

The National Credit Regulator, South African agency responsible for this new arrangement, must then assist you (the debt intervention applicant):

• With the process of being declared over-indebted; 
• To your debt obligations, or the obligations of your joint estate, re-arranged;
• To have your debt intervention application considered for an order of a Tribunal, set up to that effect, to be made. 

A debt intervention applicant whose debts have been rearranged must then be issued with a clearance certificate by the National Credit Regulator within seven business days after the debt intervention applicant has — (a) satisfied all the obligations under every credit agreement that was subject to that debt re-arrangement order or agreement, in accordance with that order or agreement; or (b) demonstrated as prescribed — 

(i) financial ability to satisfy the future obligations in terms of the re-arrangement order; or 

(ii) that there are no arrears on the re-arranged agreements contemplated in subparagraph (i); and 

(iii) that all obligations under every credit agreement included in the re-arrangement order or agreement, other than those contemplated in subparagraph (i), have been settled in full. 

The National Credit Regulator must then submit a copy of the clearance certificate to all registered credit bureaux.

Prospective Applicants Under The New Credit Amendment Act Can Commit Any Of The Following Offences

Under the new law, it will now be an offence for a person to intentionally submit false information related to debt intervention.

Again, any person who intentionally alters his or her financial circumstances, or persons who intentionally alter their joint financial circumstances, to qualify for debt intervention, will also be guilty of an offence.

However, it is not yet clear whether the law will come into effect from the date of its signing or whether it will go back in time to cover old debts. 

Bad News For South African Banks

South Africa’s banking industry has previously raised concerns with the bill after it proposed writing off billions of rands worth of debt from every-day South Africans.

The Banking Association of South Africa (Basa) has made it clear that it does not support the principle of debt forgiveness — for very obvious financial reasons, but also for what it would do to the lending and credit industry.

Aside from the costs banks would incur writing off the debt, the most likely reaction from banks would be to make lending conditions much tighter which would make it more difficult for the poor to secure credit, Basa said,

A figure on how much the bill would cost local lenders has not been nailed down, but according to Intellidex analyst, Peter Attard Montalto, the bill could force losses at local banks in the region of R25 billion.

“This bill is of serious concern to the banking sector and could, through the imposition of a new income-based personal insolvency and debt affordability regime, force losses on the banking sector of around R25 billion,” he said.

You can find the full Act below:

National Credit Amendment Bill