The SubCommittee on debt relief met briefly to receive the DA’s input on the debt relief policy as well as its recommendations. Members welcomed and agreed with the inputs, and the Chairperson suggested that the inputs and recommendations will be added to the Terms of Reference in the interim.
The Chairperson welcomed the Members and submitted that the purpose of the meeting is to receive the Democratic Alliance’s proposals on the debt relief policy; the presentation will be submitted by Mr D Macpherson (DA).
Recommendations by the Democratic Alliance
Mr Macpherson thanked the Chairperson for the opportunity, and stated that upon reading the Terms of Reference document that was briefly presented by Treasury in the previous meeting, and looking into previous documents that were provided, he believed that the following adjustments should be accounted for and considered to the scope of the research or study:
RQ1: Demographic profile of consumer who use unsecured credit
-It is useful to include income groups above R30k per month as these individuals are also in distress.
RQ2: Financial profile of consumers who use unsecured credit
-the questions related to debt counselling (proportions of borrowers in income groups have been under debt counselling once or more times, how long is average debt counselling period, how many drop out, profile of consumer who drop out etc.) should be confined to those consumers who entered debt counselling process after January 2011, and who exited after March 2015 with either a Form 19 (clearance certificate) or form 17.wa, 17w.c or 17.w.d. This is crucial for accuracy of information.
-There are a number of documented issues with debt counselling data reflected in credit bureaus. The National Credit Regulator’s (NCRs) debt help system is used to feed the credit bureaus with this information, and it is known that not all debt counsellors use this system accurately and timely. Therefore, what is the data source that is expected to be used for debt counselling related information as part of this research?
-The question on “what proportion of credit agreements under debt review are re-financed rather than restructured” is problematic. No agreements are refinanced under debt counselling as an individual under debt counselling does not qualify for financing.
-The impact of credit life insurance or credit insurance has been significant over the years in terms of increasing debt burden on consumers, and curtailing their ability to pay. Therefore, it is important that the impact of credit life insurance in terms of debt burden on consumers is quantified as part of this research question.
- Similarly, the awareness of consumers on whether they are paying for credit insurance is bad. Therefore, it would be important to quantify what percent of consumers who are paying for credit life insurance are actually aware that they are paying for it, and what percent of them know how to claim (if they get retrenched etc)
-This research question is meant to focus on consumers who use unsecured credit. While debt counselling would contain some sub-segment of consumers, it was not sure why so many of the sub-questions relate to debt counselling. The DA would rather suggest that there is a new research question that focuses on “Which are the successful parameters that need to be in place for successful rehabilitation under debt counselling?”
RQ4: Secured credit repayment patterns
-The DA believes there is scope within this research question to look into profiles of consumer who end up in debt counselling. Over 50% of consumers who end up in debt counselling have vehicle finance and/or mortgages, therefore, it is important to analyse these consumers as well.
The DA also believes the ever-more-popular balloon payments for vehicle finance have had a significant (negative) contribution to ability of consumers to repay. Currently, it is believed that almost two-thirds of all recently-financed vehicles include a balloon payment. Therefore, it is important to analyse the impact of balloon payments as part of RQ4.
RQ5: Lender behaviour
Within this research question, it would be important to quantify the impact of recent (2015) National Credit Amendment Act (NCAA), where consumers could use 9% of their net income as proxy for necessary expenditure. In particular, a survey on what percent of new credit granted (since 2015 NCAA) was done so on the grounds of using 9% of net income as acceptable amount to be spent on necessary expenses.
RQ6: As indicated above, RQ4 focuses on consumers who use unsecured credit. The DA suggest that there is a new research question that focuses on “Which are the successful parameters that need to be in place for successful rehabilitation under debt counselling?”
Ms P Mantashe (ANC) and Ms E Ntlangwini (EFF) both welcomed the submissions and fully supported them.
Ms Charmaine Van Der Merwe, Parliamentary Legal Advisor, stated that the recommendations may prolong the process; therefore these recommendations may be reconsidered after the legislation has been approved. Treasury indicated that the research can be done in phases, and adding these inputs would enrich the study that is being done. However, in the meantime Treasury can focus on the Bill Treasury can focus on the Bill to get approved by the Committee so long and take those recommendations into consideration when conducting the study or research.
Mr Macpherson suggested that perhaps timelines needs to be provided and he asked who will be doing this research and if Treasury is going to outsource the research, he would object to that because he believes that Treasury is well capacitated to carry the research with its personnel. In addition, if the research will be outsourced, how much will it cost Treasury?
The Acting Chairperson suggested that the research to be done in phases, but phase one must be completed within eight weeks, and the submission by Mr Macpherson will be included in the Terms of Reference in the interim.
The meeting was adjourned.