Credit amnesty no easy way to get out of debt or access more credit, says National Debt Mediation Association Government’s proposed credit amnesty is not an easy way out of debt or to access credit, warns CEO of the National Debt Mediation Association (NDMA) Magauta Mphahlele. The Department of Trade and Industry (dti) announced it will start implementing the process to remove adverse credit information from credit bureau records within the next three months. “Consumers need to be aware that this does not mean that they are not liable for the debt anymore,” says Mphahlele. Under the proposed credit amnesty, all paid up adverse information and judgments regardless of value will be removed from credit bureaus on an ongoing basis. For debts up to or less than R10 000 the proposal is to remove the information regardless of whether the debt is paid or not. Currently, in terms of the National Credit Act, adverse information relating to classifications, such as ‘delinquent’, ‘slow paying’, ‘absconded’ and ‘not contactable’ remain for one year on credit bureau listings. Those relating to ‘handed over for collection or recover’, ‘legal action’ and ‘write-off’ remain for two years. A judgment remains for five years. “If the amnesty is implemented as proposed it means that if a consumer has a judgment and pays off the judgment debt they will not need to wait for five years to have the information removed,” she adds. At present the judgment will remain with an update that the debt was paid, unless the consumer rescinds the judgment. The department hopes that the removal of the information will provide relief to consumers who have been listed at credit bureaus and enable them to access credit if they can afford it, pay less for credit and to obtain employment and rental accommodation. There is currently a general practice by many employers to exclude people from employment if they have a negative credit bureau record, especially judgments. “This practice is not fair to consumers who fell into hardship, are rehabilitated and want to become economically active” says Mphahlele. However consumers must note that there are also proposals to make access to credit stricter by introducing affordability assessments that require a credit bureau check, that set a limit on how much of a consumer’s disposable income can be used to repay their debt and that also require credit providers to only accept a specified limit for the applicant’s declared living expenses. “While these are still proposals, the indications are that if you take home R8 000 at the end of the month, your credit provider can only assess your affordability on R6 000,” explains Mphahlele. “This is to ensure that you do not borrow to the limit of your disposable income and can therefore have some extra money for emergencies or unexpected expenses. Where you claim other income you will have to provide documentary proof that you indeed receive that income, for example bank statements.” She adds that many consumers have been encouraged or known to under-declare their living expenses to increase their affordability and this has led to them being provided with more credit than they can afford. Others borrow from one creditor to pay another. With these proposed changes it will be difficult for consumers to access more credit due to the strict affordability guidelines. Those who are desperate for credit, will be forced to rely on underground lenders who charge interest rates above the legal limit and who use illegal debt collection methods such as retaining ID books and bank cards. NCR statistics for the quarter ending June 2013, show that more than 4 million consumers are more than three months behind with at least one of their accounts, 2.7 million have adverse listings and another 2.7 million have judgments or are under administration. “The amnesty will mainly benefit those consumers who have sufficient income to pay off their debt or those who make means to take control of their finances and manage their debt responsibly.” Where the information is removed even when the consumer has not paid the debt, this might encourage consumers to default as it will become difficult for the credit provider to force the consumer to pay. Many consumers who currently have adverse listings or judgments will have to find means to repay the debt in order to benefit from the amnesty. If this is not possible, they will have to wait for the expiry of the retention periods to kick in before they obtain relief. “For those consumers lucky enough to receive bonuses or large pay increases in December or January they should use the extra cash to settle their debts,” says Mphahlele. She concludes: “irrespective of the proposed amnesty consumers need to remain responsible users of credit by taking up less credit, sticking to a budget and managing cash flow problems that impact on debt repayments early. If this does not work, you can negotiate the restructuring of your debts or go under debt counselling. By doing this, you will be avoiding garnishee orders, repossession of assets and other detrimental processes like administration and sequestration.” If you are currently experiencing repayment difficulties the NDMA urges you to seek assistance from the National Responsible Debt Helpline at 086 111 6362 early enough – that is before credit providers take legal action against you. Even if judgments or adverse information may be removed from the bureaus in the future the cost of legal action taken against a consumer means that the consumer will have to fork out more than double the capital to settle the debt and this impacts negatively on the financial wellbeing and rehabilitation of the consumer. Call 086 111 6362 for help if you experience debt difficulties or sms “help” to 44238 WHAT THE PROPOSED CREDIT AMNESTY MEANS •If you have a judgment against you When a credit provider has obtained a judgment they can pursue you for non-payment of the debt for 30 years. Since a judgment is issued by a court, that judgment will remain valid even if the information is removed from the bureau. It is not clear in the proposals how the dti will deal with this issue as judgments are obtained in terms of the Magistrates Court Act which is under jurisdiction of the Department of Justice. “Consumers will therefore need to rescind the judgment once they have paid off the debt,” says Mphahlele. The Magistrates Court Act is very strict about the circumstances under which a judgment can be rescinded. The most acceptable reasons are when the judgment was obtained in error or when it has been paid off and the credit provider provides a consumer with a paid up letter and an indication that they will not oppose rescission. •If you have prescribed or expired debt Where the credit provider did not take judgment and three years has passed, the debt expires or becomes ‘prescribed’. But Mphahlele warns that many consumers do not understand how prescription works and inadvertently interrupt it when they get a call from a collector and acknowledge the debt. •If you are under administration, debt counselling or sequestration The amnesty as currently proposed will not apply to consumers under administration, debt counselling or sequestration. If you are under administration or sequestration, this information will remain on your bureau record for ten years, unless you get the court order rescinded or become rehabilitated. If you are under administration you will probably only benefit if you get out of administration, settle your debts directly and then have the negative information removed. Consumers can get out of administration if they can show that their circumstances have changed and they can manage to service their debt. For those under debt counselling, indications are that they will still need to be issued with a clearance certificate once they have paid off the debt in terms of the debt counselling court order before the information that they are under debt counselling is removed from the bureaus.
Posted on: Thu, 14 Nov 2013 10:42:07 +0000
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