No plans by National Credit Regulator to remove home loans from debt review

Any attempt to remove bonds from the debt counselling process would be against the spirit and the letter of the National Credit Act ( NCA), according to Unisa Professor Michelle Kelly- Louw, who assisted with the drafting of the legislation.

Claims that the National Credit Regulator ( NCR) was about to accept a researcher's recommendations that bonds be removed from the process of debt counselling were vigorously denied by the regulator.

Kelly- Louw said South Africans did not enjoy much in the line of protection against over- indebtedness, and the NCA was an attempt to change that. Any attempt to remove protective measures for individuals should be vigorously opposed.

"I have no reason to believe that the government will bow to pressure to change any aspect of the NCA, and to my knowledge there is absolutely no effort under way to remove bonds from the protection of the act.

"There are also no plans to remove or in any way change the protection granted to consumers under the so-called in duplum rule."

Under the rule, a creditor may not claim an amount of interest and fees that exceeds the outstanding capital sum under a loan or credit transaction.

Interest stops running when the unpaid interest equals the outstanding capital. This includes initiation fees, service fees, credit insurance, default administration charges and any collection costs.
All of these fees combined should not exceed the principal debt, she says.

"The in duplum rule prevents interest from running only on a temporary basis. The rule stops arrear interest from running when that interest has reached the outstanding capital amount."
Many banks have become deeply involved in unsecured micro loans, many of which have gone bad. African Bank reported recently that one in four of its micro loans were in default and experts say other banks are not far behind.

Neil Roets, chief executive of Debt Rescue, a national debt counselling firm, says the firm is experiencing major problems with credit granters who try to circumvent the in duplum rule, as well as getting individuals under debt review to renounce the process of debt counselling and, in so doing, enabling credit granters to repossess their homes and other possessions.

"Attempts by the banking industry to revive the so-called voluntary debt mediation system, that has already been declared illegal by the National Credit Regulator, are (intended) to strip indebted individuals of the rights they enjoy under the NCR's debt counselling system and the in duplum rule," said Roets.
"Because the in duplum rule as it is set out in the National Credit Act puts a stop to credit granters adding endless fees and interest upon interest to outstanding debts, the banks in particular are fighting it tooth and nail, trying to circumvent the protective measures debtors enjoy under the rule," Roets said.
As an example he quoted the case of a client who took out a bond for R1 million.

"Under normal circumstances he would have paid the bank close on R3m over the 20 year term of the bond.

"Because he fell on hard times and we got a court order invoking the in duplum rule, all interest and fees were pegged at twice the value of the original loan, which means he saves a whopping R1m.

"The in duplum rule has far-reaching consequences for banks in particular, because as it stands in the National Credit Act, anyone can invoke the rule.

"If a bondholder defaults on a single payment, technically the rule can be invoked and banks would stand to lose millions in fees and interest that would be stripped out of the bond."

Kedilatile Malakalaka, acting manager of debt counselling at the NCR, confirmed that a Dr Penelope Hawkins had conducted research on the cost of credit, access to credit and associated market practices for the NCR.

"It was one of her recommendations that the NCR examine what can be done to address the inclusion and/or exclusion of home loans on debt review.

"Please note that the NCR has not accepted her recommendation," Malakalaka said.

"The NCR's position is that all credit agreements, including home loans where legal steps have not been taken, should be included under debt review.

"The act is clear that all credit agreements - except where legal action has been taken - must be included under debt review.

"If home loans are excluded, consumers will not have the protection of the act and they will be susceptible to legal action and repossession by credit providers."

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