Proposed Debt Amnesty a Reality?

Almost 90% of all low income earners have an adverse credit record with such “esteemed” credit information bureaus like TPN or ITC. This owed to defaults, mostly on credit cards and shop cards, but prevents them mostly from going on with their lives, to rent a flat, get a job or simply to qualify for average contracts like cell phone or internet.

The proposal by the Department of Trade and Industry (DTI) and the National Credit Regulator is to remove adverse credit information on debt under R10 000. The DTI stated that the intention of the amnesty is not to encourage consumers to make more debt by simply wiping their credit record, but rather to create a clean slate for consumers to improve access to jobs and housing. Consumers would still be expected to repay their outstanding debt (although it seems that it would not appear on their credit record). The proposal has obviously met with some resistance from the major culprits of this situation, the ill-willing oligopoly of local banks as well as some “independent” credit industry experts. They alleged concern is that it will merely encourage and enable consumers who are already struggling to make even more debt.

Banks claim it may also result in higher interest rates on unsecured debt, even for consumers with legitimately clean credit records, as banks will no longer be able to accurately assess a consumer’s risk profile… this is the real reason behind what seems to be the result of the massive scolding the banks received from Finance Minister Pravin Gordhan during and after the last Budget Speech end of February.

The 2007 debt amnesty was generally considered to be ineffective (research suggests that 64% of consumers who benefited from the 2007 amnesty subsequently applied for more debt and 74% of those ended up with three or more accounts in arrears – i e more adverse credit records). However, the NCR is continuing research to consider alternatives, estimate the effect of the amnesty and fill the gaps that prevented the 2007 amnesty from being effective….. this is the moment, where the revered reader may chuckle or cry, depending on his current state of debt! Ever been refused a loan with the bank’s comment: “Sorry….but you do not have enough debt to qualify!”?

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