1. Debt Relief Measures To Deal With Over-Indebtedness
November 2016

2. Retail Credit Background
Credit offered by retailers is often the first line of credit that a consumer will take out.
The primary aim of retailers is to offer affordable credit to enable merchandise sales. Typically the profit margin will be in the sale of the merchandise, as opposed to the credit agreement. This clearly differentiates retail credit from other credit providers.
If a consumer doesn’t pay the retail credit account, there is a negative ‘Dual Impact’ for retailers, as they lose money on the credit that was granted as well as the loss of profit on the merchandise.
It’s in the retailers best interests to ensure that the debt is affordable, and typically consumers are initially granted low credit limits in order to establish a good payment record.
However, if consumers do become over-indebted the retailers will offer personalised and customised repayment options to assist in rehabilitation.
Some of the retailers also offer affordable optional insurance products which cover events such as death and retrenchment to ensure consumers are able to meet their credit obligations. For clothing retailers these products are optional and not a condition of the credit granted.
Profit for retailers is typically in the merchandise sales and not the credit product

3. Debt Relief Measures Not provided for in the NCA
Personalised & Customised Repayment Options
Each retailer will have different ways of dealing with consumers who become over –indebted, including solutions such as :
Customers who show, by their payment behaviour, that they are committed to pay back their debt but cannot afford to pay the full instalments may be rescheduled so that it is possible for them to pay back their debt over a longer period.
Extending repayment terms so the monthly repayment amount is permanently reduced
Highly delinquent accounts no longer attract fees in order to prevent the balance from increasing
Settlement campaigns for customers that have defaulted
Debt Counselling Rules System (DCRS)
The Retailers currently support the use of the DCRS (via Consumer Friend) as a way to assist consumers who are over-indebted. These rules calculate an affordable repayment plan across all of the consumer’s credit agreements for those credit providers who support DCRS.
The use of the DCRS is currently voluntary, and the Retailers support the principle of these rules being implemented in the Code of Conduct and used by the entire credit industry to assist with over-indebtedness.
It is noted that the Voluntary Debt Mediation Service (VDMS) offered by the Credit Industry, including NCR oversight, was ruled against.
Retailers support the rollout of DCRS across the entire Credit Industry

4. Debt Relief Considerations
With the implementation of any new measures
Responsible Credit
Responsible credit lending helps consumers and helps to grow the economy. Any debt relief measures that are implemented should not inadvertently prevent credit providers from being able to lend to certain segments of the market. Standardised debt relief measures to certain customer groups is at risk of changing the behaviour of all people that fall in that group, creating a culture of non-payment as the group knows that they will not have to honour their debt commitments.
Voluntary Process
There are different reasons for consumers becoming over indebted and the legislation needs to allow for customised and personalised repayment solutions to be implemented, as opposed to a prescriptive set of measures. The individual circumstances of each consumer are different and need to be handled appropriately.
Credit Bureaus
Credit providers, including 3rd parties which work on behalf of credit providers, should have the ability to list any consumer who is under statutory debt counselling or part of a voluntary debt relief program at a credit bureau. This will prevent these consumers becoming further indebted.
Consumer Obligations
With the introduction of any potential debt relief measures it is necessary that the principle of a consumer’s obligation to honour their repayments should not be compromised in any way, as this would impact fair commercial principles. The measures should take into account the rights of both the consumer and credit provider.
Any debt relief measures must reinforce responsible credit lending practices

5. NINA Debt Relief concept is not appropriate for South African market
Not Currently Provided For In The NCA
No Income and No Asset (NINA debtors)
According to the research paper circulated by the NCR, the concept of Debt Relief for NINA debtors has been implemented in England, Wales and New Zealand.
At a high level, the criteria for eligibility is for those debtors where:
Liabilities < certain threshold
Income < threshold
Value of assets < certain threshold
In South Africa, retailers have an active role in the lending of credit to both the formal and informal markets, which is a very different market to where NINA is currently applied. In South Africa the size of the informal market, would make it difficult for consumers and credit providers to prove who would be eligible for NINA.
This program could also have unintended consequences such as the following :
Consumers are essentially incentivised not to find employment to avoid honour their credit agreements. This could lead to a culture of non payment being acceptable and not being regarded as an issue.
If the cost of a NINA program is expected to be carried by the retailers, this would significantly increase the cost of doing business, which in turn could increase the cost of credit to consumers or possibly prevent retailers offering credit to certain segments of the economy.
NINA Debt Relief concept is not appropriate for South African market

6. Conclusion
The National Credit Act covers all aspects of responsible credit lending; legislated remedies exist for customers if they become over-indebted
Standardised, Government Funded, Debt relief programs, that offer relief to a predetermined group of customers have shown to have the unintended consequences of changing the behaviour of the group affected. NINA, Student Debt Relief and Farmers Debt relief have all driven the cost of credit up and the viability of the credit lending market to those customers has been compromised. Analysts have reflected that the Credit Information Amnesties were similarly negative in market impact.
Need to be careful we don’t create a culture where the non payment of credit is acceptable and even rewarded.
Customised debt relief solutions are required at an individual customer level
The NCRF does not support standardised (one size fits all) debt relief programs that are applied unilaterally to poorly defined groups of customers.
The NCRF fully supports the Debt Review process that is currently legislated. The Debt Review process and the Debt Counselling Rules System provides a robust framework for any consumer to seek voluntary debt relief measures
The NCRF supports the rollout of DCRS across the industry as part of the code of conduct and enforced by the NCR
The NCRF fully supports Project Evolution which will, inter alia, allow the immediate reflection / update of credit information at the credit bureaus

7. Thank You
foschini