A lifeline for over-indebted Consumers – The National Credit Amendment Act

Gary Warne | Manager: Legal Services Division

Many South Africans falling within the lower income brackets of society are not only credit active but also heavily indebted. Government aims to alleviate this burden with the promulgation of The National Credit Amendment Act 7 of 2019 ("the Act") in terms of which the debts of heavily indebted consumers can now be extinguished either wholly or in part.

It is important to note that the proposed relief does not automatically apply to consumers. Firstly, a consumer has to specifically make application to the National Credit Regulator (“NCR”) for intervention in order to have their debts extinguished. This application is subject to approval by the NCR and might not necessarily be successful. In the event that a consumer’s application is not approved by the NCR they will remain liable to their creditors for the full value of their debts.

Secondly, not all consumers qualify. In terms of strict requirements, only consumers earning a gross monthly income of R 7 500,00 (Seven Thousand Five Hundred Rand) or less qualify.

Thirdly, the concession only applies to unsecured debt, i.e personal loans, credit cards and store cards, the total value of which does not exceed R 50 000,00 (Fifty Thousand Rand).

Accordingly, consumers earning in excess of R 7 500,00 (Seven Thousand Five Hundred Rand) (gross) per month or who have either secured debt (property & motor vehicle finance)mor unsecured debt in excess of R 50 000,00 (Fifty Thousand Rand)do not qualify to apply to the NCR for debt intervention.

 Practically the process will be as follows:

  • A consumer who qualifies can apply to the NCR for debt intervention;
  • The NCR will assess whether the applicant is overburdened with debt and whether any of the credit agreements amount to reckless lending;
  • It can then either deny the application, recommend voluntary debt restructuring or investigate whether any of the credit agreements amount to reckless lending;
  • If the NCR concludes that the applicant is unable to pay off their debt it can suspend repayments for a year;
  • After the aforesaid period the NCR will reassess the applicant’s position and if same has not improved it may suspend repayments for another year;
  • Thereafter, if the applicant’s position has not improved materially, the NCR can declare that the consumer’s debts be expunged partially or in full.

It is therefore important to note that the consumer’s application to the NCR, once approved, does not immediately result in their debt being expunged. The lengthy process set out above has to be followed first, after which if in the NCR‘s opinion the applicant still cannot repay their debt same might be expunged either wholly or in part.

A date for implementation of the Act has not yet been determined and it will only become effective upon such date.

In conclusion, over-indebted consumers now have an opportunity to apply for intervention by the NCR akin to debt counselling without having to incur the fees associated with formal debt counselling and the NCR can suspend re-payments to creditors to allow the consumer an opportunity to recover financially and eventually expunge a consumer’s debts fully or in part.