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 since 2015.
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 committee.
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 words.
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 Constitution.
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.
“We are confident that the committee would not want to fall foul to the constitutional principles and would be willing to look at the issues addressed by BASA today,” concluded Cockrell.
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