Borrowing money has become easy in today’s society. Many consumers are over-indebted in that they are unable to pay their financial obligations timeously. Many consumers over-commit themselves and repayments of debt become significantly difficult for consumers, largely affecting their credit rating adversely.
Just as a consumer has the responsibility to repay debt, similarly banks and other financial institutions have the responsibility to conduct the necessary investigations into the financial affairs of the consumer to ascertain whether the consumer is, in fact, over-indebted and to ensure that any extension of credit is not reckless.
Entering into a credit agreement where the consumer cannot pay back the amount loaned in good time, based on his/her income and expenses, could certainly constitute reckless lending on the part of the credit provider. In South Africa, our lending system is largely creditor-friendly. The National Assembly has recently given the Trade and Industry Portfolio the go-ahead to develop a Bill amending the National Credit Act to provide relief for over-indebted consumers.
The Bill will seek to cap debt relief in the form of debt forgiveness to assist heavily indebted consumers and to promote a change in borrowing and spending habits of consumers, while imposing significant consequences for non-abiding credit providers.
The Bill will also make provision for the National Credit Regulator (NCR) to conduct proactive investigations and impose administrative fines on perpetrators as well as empowering the Trade and Industry Minister to provide debt relief mechanisms through regulations. Although this may seem beneficial for over indebted consumers, where credit providers are compelled to write off debts, it may very well lead to financial institutions charging exorbitant amounts of interest as a consequence.
Although it has not been confirmed when the Bill will be promulgated, for now, consumers and credit providers should be aware of their rights and obligations when entering into new credit agreements and plan ahead accordingly.