Cape Town – The
Banking Association of South Africa (BASA) is concerned about the
constitutionality of aspects of the proposed National Credit Amendment Bill, it
told Parliament’s portfolio committee on trade and industry on Wednesday.
BASA represents 35 local and international banks. It
believes over-indebtedness is a social and economic challenge with far reaching
consequences. Banks grant about 73% of the credit in SA and, according to BASA,
they support sustainable debt interventions.
BASA informed the committee that over-indebtedness has
actually decreased due to improved processes put in place by banks on a
voluntary basis. The number of consumers with impaired records also decreased
BASA cautioned the committee that the proposed bill should
not unnecessarily constrain credit provision, as that will impact financial
inclusion in the country.
In BASA’s view, the current draft of the bill does not
balance the rights of credit suppliers and consumers.
Advocate Alfred Cockrell SC, an independent counsellor at the
Johannesburg Bar, presented part of BASA’s feedback on the bill to the
He said although BASA is questioning the constitutionality
of the bill, it is doing so in a “constructive way” and with the understanding
that the committee would not want to pass legislation what could later be set
aside in court as being unconstitutional.
He explained that when a bank lends money to a consumer,
that amount remains on the bank’s balance sheet as a claim against the client.
This claim is regarded as an asset owned by the bank – its “property” in other
The proposed bill, on the other hand, makes provision for a
debt intervention application by which a consumer’s debt could in fact be
“extinguished” – written off – completely. This will cause the asset of the
bank (the claim against the consumer in terms of the loan) to stop existing.
For the BASA members this boils down to interference with
its property rights as guaranteed by the Constitution.
Cockrell argued that the proposed bill makes arbitrary
interferences with these constitutional property rights.
The debt intervention parts of the bill, for instance, do
not state that a consumer must be over-indebted to use the process provided for
the extinction (writing off) of debt.
BASA is concerned about the economic reality of the impact
if debt is wiped off the balance sheets of banks in terms of the processes
provided by the bill.
The banks would be forced to recover these lost debts by
pricing it in elsewhere. In practice that would likely mean other consumers
would end up paying more.
It could also lead to banks refusing to give loans to the
very class of people the bill aims to help.
Cockrell described the bill’s intervention process for
writing off debt as a “sledge hammer used to kill a mosquito”. BASA feels there
are less intrusive ways available, like debt review.
An example Cockrell gave was where there could be a natural
disaster and consumers are unable to pay their debts because of its impact. In
terms of the bill, the minister could then decide to write off these debts.
Cockrell argued that this would once again amount to the
arbitrary extinction of property rights and, therefore, contrary to the
He argued that the bill stipulating that credit life
insurance in the case of certain loans must be between the credit provider and
the consumer is also not constitutional.
It deprives the consumer of the opportunity to shop around
for a better deal. On top of that, the credit provider might not be in the business
of providing insurance.
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