Cosatu calls for consumer debt write-off

Cape Town – Cosatu wants government to cancel the debt of consumers who have been victims of reckless and exploiting lending practices. 

In a submission made to Parliament’s portfolio committee on trade and industry on Tuesday, Matthew Parks, Cosatu’s parliamentary coordinator, acknowledged that debt relief for “everyone” is neither practical nor possible. “Any debt relief needs to target the most vulnerable, impoverished and exploited.” 

Cosatu was one of six interest groups that made representations to Parliament about measures to provide debt relief to South Africans. 

In March this year, the committee proposed considerations of a possible debt forgiveness programme for lower income groups who are heavily indebted. 

Debt relief for who?

On Tuesday, Cosatu proposed that certain groups of people, such as retrenched workers, social grant recipients, those classified by municipalities as indigent, and highly indebted working and middle class students with study loans should be prioritised for debt relief. 

Families lose their homes and cars when they fall into a financial crisis, Cosatu said, despite having paid off the bulk of their loans equal to the value of these assets, Cosatu argued. 

“Often reports emerge of collusion between banks, auctioneers and persons buying the property who later sell it at a higher price for profit.” 

Cosatu was also of the view that people who fall victim to illegal and reckless lending should be considered for debt relief, “as they don’t always understand what they’re consenting to”. 

In addition, Cosatu recommended that government extend its interventions to ease the burden on over-indebted customers. 

“Debt cancellation should be pursued for consumers who have been victims of grossly negligent reckless and exploitative lending. In cases of criminal lending, reimbursements of excessive charges and fraudulent deductions should be provided and credit records cleared.” 

Debt relief, Cosatu argued, should be provided for people who are “not able to manage”. This should include possible debt write-offs, possible extensions to loan repayments and reduced interest and administrative charges. 

Debt relief programme 

In another submission, Paul Slot of the Debt Counsellors Association of South Africa, said in the typical reaction of consumers who are in financial trouble that 54% apply for more debt, 43% do nothing and wait for credit providers to take legal action, while only 5% seek help. 

“Of those consumers who seek help, the most will take a year to do so.” 

Slot suggested that a debt relief programme include steps to convince people not to consider more debt and rewarding good behaviour. 

“For example, when consumers repay 80% of their debt they qualify for a ‘good behaviour discount’ of 20%,” he said. 

The National Credit Act has had a profound and positive impact on the credit industry in South Africa, but that “out of court debt relief agreements should also be considered, Slot said. 

Such an “out of court debt relief” process can be based on the existing debt review frameworks and systems, and has the advantage of speeding up implementation and reducing cost as court orders won’t be needed. 

A successful out of court debt relief agreement will among other things reduce the cost of collecting debt, have a positive impact on the cost of credit and consumer spending which will in turn provide a stimulus to the economy.

Such a programme balances debt relief with consumer behaviour, Slot said.