2. Debt Relief
17 November 2016

3. Table of Content Introduction Debt relief measures
Debt relief criteria
Impact, consequences and challenges of legislating debt relief measures and criteria
Proposals
Questions

4. Introduction

5. Introduction
Capitec Bank acknowledges that clients’ circumstances may change after taking up credit
These changes may lead to distress and create a need for debt relief
We therefore support the Committee’s intention to assist distressed consumers
Capitec Bank offers various debt relief measures to clients who are experiencing some form of distress or who experienced distress in the past
The type of debt relief depends on a consumer’s unique situation and hinges around the importance of the engagement with the client

6. Debt Relief Measures

7. Debt Relief Measures (not provided for in the NCA)
Debt Relief Measures applied by Capitec Bank (provided for in the NCA)
Debt Relief Measures applied by Capitec Bank (not provided for in the NCA)
Debt Review
Debt Counselling Rules System
Prescription of Debt
Rescheduling, including payment break rescheduling
Draft Credit Insurance Regulations
Retrenchment cover for full settlement of balance
Limitation of Fees and Interest Rates
Debt Consolidation (not available to arrears clients)
Affordability Assessment Regulations
Bespoke Arrangements
Settlement Campaigns

8. Debt Relief Measures (not provided for in the NCA)
Debt Counselling Rules System (DCRS)
Capitec supports DCRS, whereby concessions beyond what is required by the NCA were agreed by the Credit Industry
Due to the fact the rules were agreed to by the Credit Industry, the acceptance rate of proposals are high
We support transfer of ownership to the NCR and amendment of the conditions of registration by the NCR to enforce and increase utilisation of DCRS

9. Debt Relief Measures (not provided for in the NCA)
Rescheduling
Arrears clients who are not able to settle their arrears through a catch up arrangement, can reschedule their loan
Clients are offered rescheduling to overcome a temporary loss of income resulting from maternity leave, short time, strikes etc. or alternatively to assist with a temporary cash flow shortage resulting from an extraordinary large expenditure e.g. medical expense
Rescheduling is also offered to provide cash flow relief for the remainder of a loan where clients are struggling to meet the existing monthly obligations due to a change in income or expenditure
Rescheduling can take the form of a payment break, temporary lower instalment, or merely extending the term of the loan to reduce the client’s instalment for the remainder of the loan.
Capitec Bank also offers rescheduling to clients who pro-actively want to prevent falling behind on their instalments

10. Debt Relief Measures (not provided for in the NCA)
Rescheduling
The type of rescheduling that is offered is determined through considering each client’s unique circumstances
Rescheduling does not entail granting additional credit or an increase in the interest rate; it entails the amendment of the repayments on an existing loan
Where rescheduling does not bring sufficient relief to a client who is still earning an income, debt review becomes a feasible option

11. Debt Relief Measures (not provided for in the NCA)
Credit Insurance
The outstanding loan balance is settled in full if the client was retrenched or lost their job as a result of the employer being liquidated
The unsecured nature of Capitec’s loan products enable full settlement of the outstanding balance

12. Debt Relief Measures (not provided for in the NCA)
Debt Consolidations
Clients can qualify to consolidate their credit products if they are up to date with Capitec and pass the same rigorous affordability calculation and risk assessment that is applied for any other credit application
Consolidation of credit is beneficial for our clients if their credit with Capitec and other credit providers is settled with more favourable terms and where total repayment obligations are reduced

13. Debt Relief Measures (not provided for in the NCA)
Bespoke arrangements
Bespoke arrangements are entered into to accommodate clients temporarily until they are able to commit to a more structured repayment plan
Clients are also held back from being handed over to an external debt collector if there is propensity to make a minimum payment

14. Debt Relief Measures (not provided for in the NCA)
Settlement campaigns
Clients are provided with an opportunity to settle their outstanding credit at a discount. Cases are assessed on merit.

15. Debt Relief Criteria

16. Debt Relief Criteria
Capitec considers a client’s unique circumstances to determine the appropriate debt relief measure
By setting criteria for target groups, time frame, the type of debt and the manner in which the debt relief measure will be effected, flexibility to determine the appropriate measure is lost
For example: debt relief may become a need at any point during a client’s credit life cycle and life stage
Considerations should be given to the current as well as future circumstances, prospects and obligations

17. Debt Relief Criteria
By legislating criteria, credit providers will offset the increased expectation of loss given default by reducing access to credit to targeted groups
Paying customers could become dis-incentivised to pay their debt
Credit providers have a responsibility to grant credit responsibly and we support monitoring and supervision of legislation that was put in place to promote responsible lending

18. Impact, Consequences and Challenges of Legislating Debt Relief Measures and Criteria

19. Impact, Consequences and Challenges of Legislating Debt Relief Measures and Criteria
Consumer
Consumers could become dis-incentivised to pay their debt
Consumers who previously had access to credit may be denied due to credit providers hedging for the increased expectation of loss given default
Cost of credit will increase
Credit Providers
Credit providers will not be able to price adequately for the risk of individual consumers
Access to credit will decrease
Financial stability of the banking system could be impacted
Economy
This was also covered sufficiently in the BASA slide pack

20. Proposals

21. Proposals
DCRS
Transfer of ownership to the NCR
Amendment of conditions of registration by the NCR to enforce and increase utilisation of DCRS
VDMS
Revival of the proof of concept
Track, monitor and receive feedback on the implementation of legislative amendments which have been enacted or are yet to be enacted and support and/or enable debt relief
Policy on financial inclusion is a specific government programme as led by National Treasury and should be acknowledged within the context of debt relief proposal considerations

22. Questions