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Concerns of reckless lending by financial service providers as well as lack of household financial literacy, came up a some of the contributing factors to over-indebtedness by South Africans, during this week’s public hearings on the draft National Credit Amendment Bill.

The Portfolio Committee on Trade and Industry this week held public hearings on the draft legislation which seeks to bring relief from millions of highly indebted consumers who are struggling to service their debts.

The Committee listened to submissions from several institutions in the financial sector, among them the Debt Counsellors Association of South Africa, Association of Debt Recovery Agency, Credit Bureau Association, Microfinance South Africa, Nedbank, Agbiz (Agriculture Business Chamber) and the South African Institute of Professional Accountants.

Mr Paul Scott from the Debt Counsellors Association of South Africa, told the Committee that just under 10 million consumers have impaired records, struggling to make repayments on time or use 54% of their monthly income to pay off debts.

“Over-indebtedness was caused by lack of consumer protection legislation in the past and lack of financial literacy, the country lacks a well-developed considered national financial household education plan, maybe we need to introduce such at school to teach financial discipline and household budgeting,” said Mr Scott.

The need for financial literacy was supported by the Association of Debt Recovery Agents, with Chief Executive Officer Mr Marius Jonker adding that financial literacy should be extended to all consumers and just those in distress.

“We don’t need more laws but enforcement of existing laws and to meet our statutory mandate of educating our consumers, we really need to address the financial literacy of all consumers, not just those in distress,” Mr Scot told the Committee.

Committee member Ms Priscilla Mantashe the said the bill must not be seen as an attack on financial sector but a move to save the country.

“We are here to save South Africa South Africa including credit providers, people suffering with the burden of indebtedness and through this bill we want to rescue those households,” said Ms Mantashe.

Committee members agreed that there was clear indication that financial literacy and reckless lending need attention.

“It is clear that reckless credit needs to be addressed, over-indebtedness has far-reaching social and economic consequences in our society. Responsible lending and responsible borrowing go hand in hand,” said Committee member Mr Ghaleb Cachalia.

“Why do you think that some banks would want somebody who has paid off their loan, immediately offer further loan as a reward for being a good client – that’s criminal if you don’t ask the client if they would like some money instead of imposing it,” said Committee Chairperson Ms Joanmariae Fubbs

Officials from the National Treasury and the Department of Trade Industry (DTI) supported the call for financial education and the need to change consumer behaviour.

“Financial literacy is very important, we need to develop plans to our children and instil the culture of saving and budgeting at early school level,” said Mr McDonald Netshitenzhe from the DTI.

By Sakhile Mokoena

2 February 2018