Close Menu
Money 101
  • Business
  • Lifestyle
  • News
  • Wealth Creation

Newsletter

Get the financial tips, offers and more

What's Hot

Critical Questions About Funeral Cover

September 19, 2024

Mortality Benefits

September 19, 2024

How do You choose a Medical Plan?

October 2, 2023

3 increases in medical rates in 17 months = 27%!

Sponsor: Ubuntu CapitalUbuntu CapitalOctober 2, 2023
Friday, June 13
Facebook X (Twitter) Instagram
Money 101
  • Business
  • Lifestyle
  • News
  • Wealth Creation
Money 101
Home»Debt»SA’s Rising Personal Debt Crisis
Debt

SA’s Rising Personal Debt Crisis

EditorBy EditorSeptember 20, 2017Updated:September 20, 2017No Comments6 Mins Read
Facebook Twitter Pinterest LinkedIn Tumblr WhatsApp VKontakte Email
Share
Facebook Twitter LinkedIn Pinterest Email

Though debt counsellors have no shortage of customers, government is concerned about the stubbornly high level of debt delinquency in the country. 

A decade after the National Credit Act came into being, 16 000 consumers a month are seeking debt review.

SA’s debt distress industry is booming. Some 16 000 South Africans are signing up each month for debt review as allowed under the National Credit Act (NCA).

Whether this is a good or a bad thing depends on which side of the ledger you sit. The number of SA consumers in distress has grown 61% since the NCA became law in 2007, while the number of credit-active consumers has grown 44% to more than 24 million, according to figures from the National Credit Regulator’s Credit Bureau Monitor.

And of these 24 million credit-active consumers, more than 40% are in some form of financial distress, meaning at least one account is minimally three months in arrears, or there is some other form of default or court judgment.

Fees charged by debt counsellors are regulated and have not been increased since 2011, while inflation has climbed roughly 6% a year. That’s driving debt counsellors out of business. There is no shortage of financially-distressed customers to service – but with more than 2 000 of the 3 000 registered debt counsellors having left the industry in recent years due in part to the cap on fees, this has left thousands of consumers stranded without a debt counsellor.

A weeding out of shady counsellors was long overdue, as stories abound of customers paying fees and receiving nothing in return. Others advise against debt counselling on the grounds that it traps you in debt slavery for years. There are alternatives, such as invoking the Prescription Act, which in many cases makes it difficult for a credit provider to reclaim debts three years after the first default. Debt Admin also provides a DIY debt recovery programme, using the Magistrate’s Court Act.

In the decade since the NCA became law, some 800 000 South Africans have cycled through the debt review system. The NCA was introduced to promote stronger consumer protection in the credit market, and to outlaw reckless lending. In some respects, it has succeeded, and in others, it has failed miserably. Of the 800 000 who went under debt review, about 30% have exited debt counselling, though 350 000 are still under debt review.

The advantage of debt review is that credit providers cannot launch legal proceedings against you for 60 days. The debt counsellor takes over negotiations with credit providers on your behalf, and you pay one rather than multiple monthly instalments. But should you default on the debt review payments, credit providers can terminate the debt review and launch legal action for the recovery of loans.

Recent conversations that took place in parliament, where the National Credit Regulator (NCR) addressed the Portfolio Committee on Trade and Industry on proposals to offer lower income groups debt relief or exemption. This has alarmed the credit providers and many in the debt counselling industry, who argue that a debt forgiveness programme will perpetuate SA’s already poor culture of savings.

The majority of loans provided come with credit life insurance, a type of insurance that pays off the loan in the event of the death, disability or retrenchment of the borrower. Ian Wason, CEO of the Intelligent Debt Management Group and DebtBusters, says many of these products have been grossly overpriced and mis-sold.

“There needs to be more focus on ensuring more is done for consumers to be assisted in claiming against these policies.

“It should also be noted that the NCR currently has the power to clamp down on reckless lending through the affordability regulations, by increasing the minimum expense allocation, which is currently around 9%, to a more reasonable level in line with other countries of 40%. I certainly don’t know anyone who lives on 9% of their monthly income and hence has 91% to spend on debt repayments,” says Wason.

Chris van der Straaten, head of payment distribution agency Hyphen PDA, which is a division of financial technology service provider Hyphen Technology, points to the 25% annual growth in collections and distributions as evidence of the success of the debt review system. “This is an important indicator because a key measure of the success of debt counselling is how much money is actually being paid to the credit providers. Currently, there is no realistic alternative to debt counselling since the shine has been taken off Emolument Attachment Orders (EAOs) due to the recent exposure of wholesale abuse and exploitation of consumers by certain lenders.”

Rob Easton-Berry, CEO of Consumer Friend, states: “Prior to the adoption of the NCA, over-indebted consumers had few options to restructure their debt. This resulted in the legal process running its course with houses being foreclosed on and vehicles being repossessed. Debt counselling now provides such a platform whereby debt can be holistically viewed, negotiated and restructured, thereby providing consumers with a new affordability and protection over their household assets.”

During the discussions in parliament last month, the credit industry – in particular banks and credit providers – cautioned against legislated debt forgiveness measures and their unintended consequences. There was support for refining the current debt review process to make provision for low-income consumers and to provide an incentive for debt counsellors to provide assistance, through debt counselling, to low-income consumers.

Free personal budget planner go to www.mylifeplanner.co.za

Consumer Debt Help (CDH) provides debt counselling solutions to people with lower incomes. CDH offers financial and debt education to the poor, helping them make responsible decisions and improve their financial futures. Says Wason: “While we are proud of the consumers we have helped, the business has always been loss-making and is becoming more so every month due to the structure of the current debt counselling fees last issued by the NCR in 2011. As with any business, if fees are capped whilst inflation runs at over 6% per annum, there is only so long that an industry is viable. Unfortunately, this has led to over 2 000 out of the 3 000 registered debt counsellors leaving the industry, and more importantly has left thousands of consumers stranded without a debt counsellor.”

Though debt counsellors have no shortage of customers, government is concerned about the stubbornly high level of debt delinquency in the country. There are roughly ten million people out there behind on their bills. With an election looming, it’s not hard to imagine that government will opt for some form of a debt relief programme in the not-too-distant future.

Brought to you by Moneyweb

Are you working just to pay bills and debt?

Reduce Debt
Share. Facebook Twitter Pinterest LinkedIn Tumblr WhatsApp Email
Previous Article12 Negative Habits You Should Give Up If You Want to Be Successful
Next Article Discovery Health Price Increases for 2018
Editor

Related Posts

What is the Difference Between Compulsory and Discretionary Savings?

June 8, 2021

Debt is a Cancer

August 19, 2018

Work Ethic and Dedication is Everything – Student Walks 32 KM to New Job

July 26, 2018

BEE – What you need to know

May 13, 2018
Our Picks

How Do I Calculate My Tax

May 21, 2021

Discovery Medical Aid Increases 2022

October 28, 2021

Momentum Health Increases 2022

October 28, 2021

What is the Difference Between Compulsory and Discretionary Savings?

June 8, 2021

Subscribe to Updates

Get the financial tips, offers and more

Don't Miss
About Us
About Us

Money 101 is your source of Personal, Financial, Business and Lifestyle educational articles which is brought to you by Adarna.

Visit Adarna: Adarna.co.za
Privacy Policy: Click to View

Our Picks

What is the Difference Between Compulsory and Discretionary Savings?

June 8, 2021

How Do I Calculate My Tax

May 21, 2021

Who may and how do you apply for business rescue?

May 31, 2021
© 2025 Brought to you by Adarna.

Type above and press Enter to search. Press Esc to cancel.