Debt review under credit act ‘needs restructuring'

The National Credit Act, which came into force two-and-a-half years ago, left much unclear about how the process of renegotiating problem consumer debt works.

In addition, the global economic crisis that has since hit SA increases the urgency for the creation of uniform and smooth processes.

About 150000 people have applied for debt counselling and a whole new category of debtors not catered for at all under legislation has emerged. These are the so-called Nina debtors, people with no income and no assets, Johannesburg lawyer and debt counsellor Stephen Logan said on Friday.

Magistrate's courts, which hear debt review applications and rule on them, have no guidance to deal with the growing number of highly indebted people with no income. One possibility would be for magistrates to grant an interim order halting all repayments for a period such as six months, but there was no provision for this, Logan said.

“I can't offer debt counselling, I can't offer sequestration, but what do I do with these poorest of the poor? I need something like that to cater for a huge number of people who've been retrenched.”

Despite a high court ruling in August that gave some clarity, there is still no uniform set of rules governing how magistrates rule on debt restructuring agreements.

Aside from the foot-dragging and disputes over procedure that debt counsellors say hold up the process, getting creditors to agree to restructured payments became difficult when they had to wait months for a court to endorse an agreement, said Tony Richards, president of the Debt Counsellors Association of SA.

While a client might typically need to restructure as many as 13 credit agreements, creditors often insisted on receiving scheduled payments until an agreement became enforced, which could take as long as nine months, Richards said. “You can understand the process is very frustrating when you're trying to pay other credit providers and you've got one who's not playing ball.”

The National Credit Regulator, the agency charged with upholding the act, is also keen to see a raft of changes that will make the laws work as they should.

The Department of Trade and Industry is sitting on amendments to the National Credit Act, as well as proposed legislation governing how processes such as court debt-review applications should take place.

“It's fairly urgent to have these changes amended,” said Peter Setou, the regulator's senior manager for education and strategy.

The department did not respond to requests for comment on Friday, 27 November 2009.

One change the regulator wants to see, through an amendment to the act, is for credit providers to bear part of the cost of debt counselling, instead of debtors bearing it all.

Source: Business Day

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