The National Credit Amendment Bill, known as the Debt Relief Bill, was recently signed into law by President Cyril Ramaphosa. At face value, given the debt rates in South Africa, the new Bill seems to be a welcome relief to the thousands of people with seemingly unending debt.

The Debt Relief Bill, as its name suggests, aims to provide relief to over-indebted South Africans by restructuring their debt if they meet certain requirements.

Requirements to qualify for relief are as follows:

    • Where the unsecured debt is not more than R50,000;
    • Where the unsecured debt was accrued through unsecured credit agreements, unsecured short term credit transactions or unsecured credit facilities only; and
    • Where the person earned no more than R7,500 a month over the last six months.

Those who qualify will have their debt suspended for a certain amount of time to allow them to improve their financial position. If after this suspended period their financial prospects do not improve, they may qualify to have their debt written off.

The implementation of this Bill will result in around R20bn worth of debt being written off. “The economic impact this Bill will have is severe” says Cas Coovadia, Managing Director – Banking Association South Africa.

One of the problems which have been identified by Cas Coovadia is that it will make lending to low-income families more expensive and to others, inaccessible.

According to Peter Attard Montalto, Director and head of capital markets research at Intellidex, “This bill is of serious concern to the banking sector and could, through the imposition of a new income-based personal insolvency and debt affordability regime, force losses on the banking sector of around R25 billion”.

Despite the negativity surrounding this Bill, it could have a positive effect in that it may curb the ‘reckless extension of credit’ by authorised financial services providers.

For the time being, there is still a cloud of uncertainty hanging over this Bill specifically concerning when it will come into effect and whether it will apply retrospectively.

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