What is credit amnesty?

The CEO of DebtBusters speaks to Africa Melane on 567 Cape Talk, about credit Amnesty. To listen to the following soundbite click here.

Africa Melane: A very good afternoon and a warm welcome to the show. I imagine there’s some measure of excitement about the credit amnesty that the government is proposing?

DebtBusters CEO: Hi, Africa. Yes I think there is, I think it’s a very well-intended idea, you just never quite sure what unintended consequences is gona come from it. But the principal, it sounds, originally the Regulator was pushing to take off all negative information of the credit bureaus, and that’s now been watered down, so it’s just that if you have a judgement against your name, you’ve paid off your debt, then that judgement will then be removed at the credit bureaus. As it stands at the moment, if you’ve paid off that debt, you have to employ a lawyer to remove that judgement from the credit bureaus and get it rescinded in court at an additional expense.

Africa Melane: Lets imagine for a moment that I owe money to a fashion retailer because I didn’t pay them in time, I then went on to pay them the outstanding amount, how long will my name then be on that credit listing, even though I have settled the debt?

DebtBusters CEO: If you have a judgement taken against you by that retailer or the debt collector or attorney working for the retailer, your name will be on there for 5 years. You miss one monthly payment; you might well stay on there for 12 months.

Africa Melane: For 12 months? And the only way, if there’s a judgement against me and I have settled that debt as a result, in part I suppose, of that judgement, the only way for me currently to take my name off that listing, and therefor allow me access to future credit, is if I employ the services of a lawyer.

DebtBusters CEO: Yes, so you can imagine there are a lot of unhappy lawyers out there at the moment. Africa Melane: And how would this credit amnesty process work? A judgement has been taken out against me, I have settled the debt, what will happen once the “window period” , if you like, comes into play?

DebtBusters CEO: the credit providers have to update the credit bureaus every 30 days, at the moment. So if your debts has been repaid, then it’s their responsibility to update the credit bureaus that that debt has been paid. How they going to do this have not quite been mapped out, but im assuming that is going to be the process. So, you pay up your debt, your credit provider notifies the credit bureaus that that debt has been repaid, the credit bureaus removes you from it. They’re also looking at shortening the time frame that credit providers have to update the credit bureaus to 48 hours, which will make a substantial difference because you see a lot of clients going out and getting a lot of debt within a 30 day period because they know that credit bureaus are only updated once a month.

Africa Melane: Ian, why don’t we have a practice in South Africa where once that payment or debt has been settled following a judgement, that the provider of the credit, in the first place, then updates the bureaus saying that this amount has been paid off, therefore have my name taken off and not having to wait for 5 years and employing the services of a lawyer.

DebtBusters CEO: I don’t know, I think it would just be given from historic, it’s always been in place, that’s the way it’s always been done. So, I think it’s very good of the government to be proactive and this and sort it out. There are rumoured, that it could affect anyone/anything between a million and 1.4 million people in South Africa. But of course, don’t necessarily think that there is going to be 1.4 million people who have suddenly had their name cleared and can go out and borrow money. There are a lot of credit providers who already lent to people who already have judgements on their names.

Africa Melane: For those people who have not settled their debt and this credit amnesty is in play, can they go and settle their debts to whomever provided them with the credit in the first place, and then have their names cleared?

DebtBusters CEO: Yes, they just need to wait for it to go through Parliament, which I believe would be before the 31st of March 2014, that will then go through and it will be done automatically. So, unless you have to get your name cleared quickly, I wouldn’t employ the services of a lawyer right now, I’ll just wait 6 months. Africa Melane: I think the first time the government did this was back in 2006, and in that period about 600 000 consumers names was taken off the credit bureau. What are some of the unintended consequences that we should be alert to?

DebtBusters CEO: I don’t have the stats to hand, but the stats from the 2006 amnesty are not looking good. A lot of those 600 000 people who were removed, then went and borrowed more money and then defaulted again. It was something astonishing, like 78 % of the clients then defaulted again. Africa Melane: But that almost is to be expected, if you got yourself into the situation in the first place the likelihood of you repeating that exercise is high.

DebtBusters CEO: I suppose so. You lose a sort of sense of gravity of money and you do have a higher chance of defaulting, but remember that a lot of people default for reasons beyond their control. They may have lost their job, or out of a husband and wife one of them may have lost their job or your child may have become sick and they have racked up big hospital bills, something like that may have caused them to get the judgement. They simply were not able to repay rather than they just didn’t want to repay.

Africa Melane: We are talking to the CEO of Debtbusters; certainly have a few more moments with him. Taking your calls on 021 4460567, you can sms to 31567, emails africa@capetalk.co.za concerns that you may or may not have about this credit amnesty that government is looking to introduce probably before the 21st of March 2014. Ian I was wondering if I could get your thought on this garnishee orders saga that everybody is talking about. Is it the former head of Anglo American I think who said, that if he could would say nonsense to garnishee orders and whoever was a person who the company who extended the credit in the first place, it’s their duty and job to try get that money out of the people they extended the credit to in the first place.

DebtBusters CEO: Yes and no, you do need some mechanism to be able to collect debt that you have borrowed in good faith from a credit provider. There needs to be some sort of legal mechanism after the credit provider has tried calling you and negotiating with you, everything like that to collect the money. I don’t necessarily have a problem with, what I have a problem with is thee industry where huge fees are being charged, clients are being massively overcharged on these garnishee orders because they’re not removed after the debt has been repaid. They done with excessive interest rates up to 60 per cent, that’s what I have a problem with; it just hasn’t been done correctly.

Africa Melane: Is this something that government should be looking at and looking too fine tune I suppose and make more efficient.

DebtBusters CEO: I think they are, I think they looking to try and fix it rather than just do away with it. Certainly in terms of the numbers of garnishee orders that are happening every month or have been taken out every month, I think it’s reduced from about 60 000 a month, 3 or so years ago to about 30 000 or slightly under 30 000 a month. So now you see a big decrease in the number of garnishee orders that being granted, and that’s probably due to credit providers being a little wary of going that route, magistrate courts are asking for more information and getting better at checking these things, and hopefully employers are checking the documentation before they put on a garnishee order as well.

Africa Melane: Is it not a simple case of “we still are in some economic hardships and wherever we can we will grab as much credit as possible, even though we know we cant afford it and even though we know we probably can’t pay it back, because that’s just in the nature of who we are.

DebtBusters CEO: There’s a famous Charles Dickens quote in his book David Copperfield, which basically says “don’t spend more than you earn”. If you earn 20 pounds a month and your expenditure is 19 pounds a month then that equals happiness. If you earn 20 pounds a month and your expenditure is 21 pounds a month that equals misery. And I think people are just spending more money than they earn, and hence they’re borrowing to consume, and that’s why you got nearly 10 million South African consumers who is in arrears on their debt, that’s nearly half of the credit active consumers in arrears on their debt.