A proposed plan by government to introduce credit amnesty has been criticised by the country’s banking community as they believe it sends the wrong message to consumers who are in deep levels of debt.
The proposed credit amnesty plan will see the once-off removal of all adverse credit information listings with a value equal to or less than 10,000 rand, irrespective of non-payment.
“The most important message, and we’re going to have it given over and over again, is that this is not a debt forgiveness. The debt is not going to go away. What they’re talking about in parliament is removing the information that’s reflecting on the credit bureau,” The Credit Ombudsman deputy ombudsman Reana Steyn told CNBC Africa on Wednesday.
“So other people will not be able to see that you’ve got this bad debt, which is of course not necessarily a good thing. They’re going to think you’re squeaky clean and they’re going to give you more credit. In the meantime, they’re debts that you have not paid.”
Credit amnesty could however be beneficial to those who struggle to find jobs because of their poor credit history. Communication between the consumer and credit regulators is therefore crucial to credit and debt regulation.
“From the NCR side, we do have an education and communication department and we do try and go to the level of consumers when we communicate with them,” said Mpho Ramapala, acting manager of education and communication at the National Credit Regulator (NCR).
“Let’s say we want to communicate with consumers in terms of the interest charged, when we communicate with consumers we’re not going to communicate the legal terms. We’ll drill down to the level that they can understand.”
At the end of the first quarter of the year, credit bureaus held records for 20.8 million credit-active South African consumers.
Currently 9.3 million out of 19 million credit-worthy South Africans are behind on their bills by three months or more.
The combination of debt, high food petrol and utility prices pressurise the consumer into taking more than one loan to make ends meet.
“Half our consumers are in arrears. Those same people are still applying for credit, and they sometimes get it, because consumers became used to credit, they need it to survive. This is not just for luxuries but others need this credit on a monthly basis to survive and to pay off the previous credit,” Steyn explained.
“The economy, the downturn and the loss of jobs, together with this additional lending, has sort of snowballed because people took out credit then they lost income.”