Fears of renewed debt clampdown
TWO of SA's largest debt counselling groups have reported that banks are stepping up their termination of debt agreements – which means that many clients may lose their homes - following the lifting of a debt moratorium.
The moratorium was instated in December after a crackdown on banking clients who were under debt counselling. Banks were attaching the property of many clients, even though they were under debt review and had a court date to approve new repayment terms.
The aim of the moratorium was to keep indebted home owners in their houses, while allowing time for new debt repayment plans to be agreed among the parties or approved by the courts.
A total of 6 400 mortgage terminations were not executed by the banks from the start of the December to the end of March, according to the National Credit Regulator (NCR). "There was also a significant increase in paying portfolios reported by banks," says Rajeen Devpruth, the NCR's manager: statistics.
But while many consumers and debt counsellors took advantage of this opportunity to reach consensual rearrangements with their credit providers, the moratorium provided only temporary relief to those consumers who were simply unable to increase their payments to the required levels, says Keith Fuller, chief risk officer of personal and business banking at Standard Bank.
The moratorium came with a number of conditions - including that clients needed to pay at least 80% of their mortgage instalments and 70% of vehicle payments by end-March. Debt counsellors and clients had until end-June to finalise debt repayment plans.
The National Debt Mediation Association (NDMA) approached the banks to extend this deadline, but this apparently fell on deaf ears.
There were problems with finalising debt agreements in time, says André Snyman, CEO of the major debt counselling group Consumer Assist, and vice-president of the Debt Counsellors Association of SA. At the end of last year, creditors and debt counsellors agreed on a new set of rules to restructure debt repayment plans.
According to the new rules, interest on secured loans (home loans) can be lowered to two percentage points above the repo rate, while interest on unsecured loans (personal loans) can be scrapped. There are also new rules about changing the length of a credit repayment period.
For vehicles, for example, it can only be stretched out to one-and-a-half times the original payment term. The new rules also determine how much of a person's income has to go towards debt repayments. For those earning between R5 001 and R10 000, for example, 35% to 49% of income after tax must be used to settle debt. If you earn more than R60 000, this goes up to 58%.
The calculations are done by a new "rules engine" – the Debt Counselling Rules Solution (DCRS). Debt counselling software vendors were supposed to integrate the new rules in their systems by January, but there have been delays. Snyman says the new process was only up and running – still with teething problems – in March.
Following the lifting of the moratorium, Devpruth does not expect banks to terminate where debt counsellors have made a reasonable effort for their clients to meet the thresholds and finalise the arrangements by end-June 2011.
"We believe that it is not in their best interest to simply terminate these agreements, as it may have serious repercussions for the property market in particular.
"We hope that banks will take a sensible approach and accommodate those consumers who have been unable to finalise the arrangements through a consent or court order by the aforesaid date."
Gavin Opperman, CEO of Absa Retail Bank, says it will restore its usual debt collecting processes post the moratorium.
"We will commence with legal enforcement of agreements under debt review eligible for such enforcement, unless the matter can be settled through a consensual arrangement or where a court order is obtained in time," said Keith Fuller, chief risk officer of personal and business banking, Standard Bank South Africa.
"Therefore, we will not pursue enforcement action against mortgage customers under debt review who complied with the moratorium requirements and who are making payments in terms of agreed rearrangement proposals."
An FNB spokesperson also says the bank will not act against customers who are compliant with rescheduled or moratorium conditions.
Snyman as well as Luke Hirst, managing director of another major debt counselling group, DebtBusters, confirm that terminations have started to increase following the lifting of the moratorium.
They say that a recent Supreme Court ruling - which allows creditors to take quicker action against the indebted – has further contributed to the clampdown. The court ruled that creditors can take action if there is no agreed repayment plan 60 days after a client applied for debt review – even if an application has been lodged with the courts to approve a plan.
But there are huge backlogs at the courts: while more than 250 000 people have applied for debt counselling, only 30 000 cases have been resolved through the courts. (Close to 10 000 clients have made informal agreements with creditors.)
However, it seems as if the new rules engine is making life much easier for new debt counselling clients.
Hirst says 78% of debt repayment proposals DebtBusters sent through were immediately approved by the new engine. This means that clients do not have to go through the courts to get their repayment plans approved, but that the creditors should accept the new terms without a fight.
Tic toc tic toc. This is the sound of the ticking timebomb called world economy. Watch the Keiser report on RT.
one bizarre issue that needs to be investigated is that if you default and the bank captures the information on a credit bureau it stays in place for 2 years. If you pay this debt up and close the accounts or carry on using them, the banks have decided not to uplift this information . If however you are taken to court and a judgement is awarded against you, once you pay up you can apply for a rescission of this judgement and then have the record expunged. This is rubbish and the issue of the defaults should be tackled by the ombudsman. If you rehabilitate yourself and pay the money back, the record should be removed. Either that or the judgement record should remain in place for the five years as well. This practice of leaving the data in place is unacceptable.
A law should be passed that if the debt has been repaid, the respective clients record should be cleared in full. Failure to do so will only add to the long term hassle of a fully rehabilitated individual not being able to get ahead in life because of their past. I agree with you that the record should be removed but it should be removed in all areas.
Wrong. In trouble once is a reasonable warning for other suppliers to beware of you. 2 years is a small price to pay to be prevented from taking up more credit. In fact it may do you the world of good.
Google "Freeman" to see how you can fight the banks on this.
Very sad for those who lose possessions such as cars and homes. BUT not taking effective action will simply lead to a similar crisis as there is in the USA and Europe. It is called "kicking the can down the road" which in delaying the inevitable also makes the ultimate solution more unpalatable for the broader population.
The greed of the SA banks is fuelled by false power. It is high time they are taken down from their ivory towers.
SA can learn a lot by the mistakes made in the USA and Europe. The days of easy credit has caused a massive headache here in the UK, with a lot of families struggling due to rising inflation making fuel and food more expensive by the day.
The "must have it now" days of consumerism have created a society living well beyond it's financial means, and although the banks are partially to blame for "easy credit", consumers are also responsible for allowing greed to cloud their better financial judgement.
In short, if you can't afford it, don't buy it!!!