Helping those drowning in debt 17 October 2005


Campaign aims to prevent vultures feeding on those opting for administration, writes Zweli Sukazi

THE GOVERNMENT and banks have launched a campaign aimed at educating the public about the consequences of over-indebtedness, and the risks and costs involved in opting for debt administration.

The focus of the drive, whose tag line is: Be Cash Clever — Don’t Overdo Debt, will be on “vulnerable members” of the public who are struggling to repay their debts, contemplating administration or are already under administration.

It comes at a time when evidence shows that lawyers and others operating within the rapidly growing and unregulated debt-administration industry are making a fortune, milking vulnerable debtors of millions of rands in legal, administration and other fees each year.

An administration order is a court ruling that places an individual in debt of up to R50 000 and who has no significant assets, under a temporary protection from claims by creditors. It enforces a repayment plan enabling the repayment of the debts and some money to live on.

Such orders aim to allow a structured process of rehabilitating the distressed debtors’ financial situation.

Alistair Ruiters, director-general of the Department of Trade and Industry, says the South African credit market (the micro credit market in particular) has become a zero-sum game, “almost a race to the bottom”.

Has this situation always been there, he asks before answering himself.

“While elements have been present for most of the 1990s, the credit bubble since the early 1990s resulted in very high levels of unsecured credit extension to large numbers of low-income borrowers in the retail and personal finance sectors,” he says.

Cas Coovadia, general manager for transformation at the Banking Council of South Africa, says all lenders must take responsibility for the situation.

But he points out that since 2002 the number of administration orders applied for and granted by the courts has dropped from an estimated 6 000 to 8 000 a month to between 3 000 and 3 800 a month during the past year.

Coovadia says there are about 17 million “credit-active” people in South Africa, 85% of whom have no default judgments or administration orders against them.

Figures from TransUnion ITC, one of the country’s largest providers of consumer and business risk management information show that the remaining 15% is made up of about 650 000 debtors who are currently under administration with debts to the value of R2.5-billion to R3-billion.

Coovadia says the undesirable activities of debt administrators include a lack of tangible improvement in the level of customer service and accountability.

“[Also] there is continued commercial solicitation of applications; legal fees for applications are far in excess of justifiable costs; and administration fees are over the legally permitted 12.5% plus VAT, with the average illegally pitched at 22.5% or more.”

Ruiters says the campaign is the start of a process of empowering debt consumers to make informed choices in accessing and servicing their debts.

It also aims, he says, to enable those in the trap of over-borrowing to take appropriate steps to avoid exploitation in the process of rehabilitating themselves.

The campaign is being backed by the Department of Justice and Constitutional Development, the SA Law Reform Commission, Johannesburg Magistrate’s Courts, National Community-Based Paralegal Association, the Micro Finance Regulatory Council, Black Sash, the National Consumer Forum and the SA Post Office.

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