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Ramaphosa signs controversial debt-relief bill into law

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President Cyril Ramaphosa has signed into law the controversial debt-relief bill which contains provisions strongly opposed by the banking industry and the DA, reports Business Day.

In a formal announcement published in parliament on Thursday, the national legislature revealed that the president approved the National Credit Amendment Bill earlier this week.

The bill provides for the extinguishing of the debt of heavily indebted consumers who earn a gross monthly income of no more than R7,500; have unsecured debt amounting to R50,000; and who have been found to be critically indebted by the National Credit Regulator.

The Treasury estimates that the debt-relief proposals could result in the write-off of R13.2bn to R20bn of debt, which is the total amount of debt falling under the debt-extinguishing provisions of the bill.

The banking industry opposed the proposals on the grounds that they would result in a restriction of credit to the low-income section of the market and that the extinguishing of debt represents an unconstitutional deprivation of property. It would also mean that credit providers would have to price in the additional risk.

DA MP and spokesperson on trade and industry Dean Macpherson said on Thursday the party is dismayed that Ramaphosa has signed into law the “deeply flawed and possibly unconstitutional” bill, drawn up by the portfolio committee on trade and industry in the fifth Parliament.

“The amendment bill, will increase the cost of credit for low income earners, weaken the fight against illegal lenders and negatively disrupt the credit market while posing a financial risk to the state, when SA consumers are already under enormous financial strain,” said Macpherson

“This is why I petitioned the president in April 2019 to give due consideration to the very real issues related to this Act as well as its constitutionality.”

Macpherson said to make matters worse, the state has no idea what the cost to the economy and credit market will be, and has been unable to clarify the cost implications for the country in implementing the bill, including where the R100m will come from to fund the National Credit Regulator and National Consumer Tribunal to support their new mandates to process debt-relief applications.

“The DA is concerned that this act will increase, instead of decrease, the appetite among low-income earners to incur more debt with no intention of ever paying it back, creating a massive moral hazard, as long as they remained within the legislated threshold of indebtedness.”

Macpherson said the act in its current form fails to make adequate provision to deal with illegal and unregistered rogue lenders who take advantage of consumers who have no recourse or protection from the state.

“The weakness of this approach is such that an illegal lender only becomes guilty of the offence if reported by consumers and if he or she is located and found guilty. The probability of someone reporting a loan shark is next to zero. It appears that President Ramaphosa has buckled to pressure from groups like Cosatu who have very little regard for the damage this act will do to the poor.”

Macpherson said the DA advocates for credit legislation that protects consumers from debt traps and illegal lending whilst ensuring the sustainability of the credit markets.

“In contrast, the president has signed into law legislation in an information vacuum which will have disastrous consequences for consumers, the cost of credit and the restriction of credit for low income South Africans,” he said.