Part three of my Pound of Flesh series of data-driven articles on SA consumer debt. This was the cover package of the Financial Mail on 22 March 2018.
HOW RECKLESS LENDING IS KILLING THE ECONOMY
Reckless lending is back in the dock as another consumer takes on Capitec over possible contravention of the national credit act. It’s one of many such challenges against credit providers that highlight the dire state of overindebtedness in a country where those who owe money outnumber those who earn it…
Credit extension is growing faster than job creation, and the moribund economy cannot carry that burden forever. In 2017, Pound of Flesh took a deep dive into the credit consumer numbers for Business Day. Below is an extract of the story. Read the rest of this at Business Live.
A 2014-15 World Bank report declared that South Africans were the world’s “biggest borrowers”. Consumer credit-use statistics — a comparison of employment and credit consumer numbers — suggest that South Africans are failing to manage their debt responsibly and that some credit providers might be missing the mark regarding their criteria in affordability assessments.
Despite tougher affordability requirements and large-scale efforts to educate consumers, credit use is outpacing employment growth, and the over-indebted gap is widening.
There were 16.9-million credit-active consumers in 2007, the national credit regulator’s Credit Bureau Report reads. At the time, 6.38-million (or 37.7%) had an impaired credit record. In 2013, there were 20.21-million credit-active consumers, of whom 9.69-million (47.9%) had impaired records.
A record is declared impaired if a debtor is three or more months in arrears on an account, if the debtor is under administration or if there are judgments against the debtor.
In the fourth quarter of 2016, there were 24.31-million credit-active consumers, 9.76-million of whom had impaired records — 40%, or two out of every five credit-active consumers.
While employment has increased by only 18% since 2007-08, the number of credit consumers has grown by almost 44%. The percentage of consumers in bad standing grew from 37.75%, to 40.15%. There are now 24.31-million credit consumers — more than 8-million more people than the total number of employed people in SA. Even allowing for the fact that some people such as financially supported students may not need a job to qualify for certain credit accounts and not all SA’s employed people will be credit active, there is a huge difference in the numbers.
Despite a landmark ruling from South Africa’s Constitutional Court (on the legality of certain elements of garnishees), and the laws being amended accordingly, the issue of aggressive and unethical collections is not “job done”. Pound of Flesh spoke to consumers and looked at the legal status of garnishees for Business Day in 2017. Below is an extract of the story. Read the rest of this at Business Live.
Emolument attachment orders (EAOs) are sanctioned by courts as a solution to the “problem” of debtor default. Most of what is called “garnishees” in SA are actually EAOs.
EAOs are court-issued documents served on employers of debtors, compelling them to garnish the debtor’s wages and submit these payments to the creditor who secured a judgment. EAOs are administered by the Magistrates’ Court Act, the National Credit Act, the Debt Collectors Act and other legislation such as the Basic Conditions of Employment Act.
Garnishees are supposed to be the nuclear option when all other attempts to compel repayment have failed. The fallout is nuclear too.
In 2012, garnishee orders and overindebtedness were closely linked with the Marikana massacre. Garnishees and loans from registered credit providers and unregistered loan sharks were a significant contributing factor to the Marikana wage dispute and strike.
In 2015 and 2016, the Stellenbosch Law Clinic, 15 consumers (mostly workers from the winelands) and their advocates took on 13 creditors, the law firm Flemix & Associates, the justice minister, the minister of correctional services, the trade and industry minister and the national credit regulator.