The debt industry portal, theDCI recently announced its support for initiatives by the authorities to address a ‘rising flood’ of unsecured debt that threatens to swamp embattled consumers.

 

Initial steps by Finance Minister Pravin Gordhan and National Treasury are welcome, but further action is required, theDCI lead a recent campaign that forced credit providers to suspend their Voluntary Debt Mediation Solution as it was judged to be in violation of the National Credit Act (NCA).

 

The recent meeting between the Minister, Treasury and banking leaders is the first implicit acknowledgement that unsecured lending is a problem and the scourge of millions of South Africans.

 

The authorities stopped short of calling it a ‘bubble’ and highlighted the rapid increase as a ‘concern’. Whether it’s a ‘bubble’ or a rising flood of unsecured debt depends on your choice of words.

 

Thankfully, the authorities are starting to listen to debt counsellors (DCs) and now acknowledge the distress we see daily. Millions are ensnared in debt and it is high time banks reviewed their lending practices. DCs know of numerous abuses and are eager to assist the authorities by providing details.

 

At the end of the banking indaba, Treasury said banks “could do more to ensure they lend responsibly”.

 

Reserve Bank statistics indicate unsecured loans rose 21% to R381 billion in the year to June. This category of lending includes personal loans, credit card debt and credit from retailers.

 

Ramped-up personal debt offsets weak corporate demand for credit while charges on unsecured loans can be five times higher than other categories.

 

Until the NCA’s introduction, banks drove up profits by giving multiple housing bonds to better-off customers. Then the economy hit trouble, higher earners became over-exposed and the NCA tightened up lending criteria on credit.

 

As a consequence banks then proceeded to aggressively market the lucrative unsecured loans sector. Millions of families now face the consequences. Reckless lending is a far bigger issue than what is currently being acknowledged.

 

Figures from the National Credit Regulator suggest 9.3 million South Africans are behind with credit instalments. The outstanding amount totals R1.36 trillion.

 

About 6400 consumers a month apply for debt counselling, the NCA-backed process that helps over-indebted people repay debt.

 

Demand for affordable ways of handling debt has risen so dramatically that theDCI, in collaboration with a leading broker and underwriter, recently launched its own group life insurance product, enabling debts owed by consumers to be provided for in the event of the death of the consumer, in a one cost-effective package.

 

The debt counselling industry works hard to assist debtors, but prevention is better than cure. We must combat reckless lending and credit extension abuses and there are many. We see cases where credit consultants don’t check application forms for obvious misstatements and lies. They focus solely on obtaining new business.

 

There are cases where instead of advising clients to get a bond at affordable rates a lender’s marketing staff encourage them to take out multiple unsecured loans. The reason? Banks make up to 32% and more in profit on these deals.

 

Contrary to misleading statements in the press of late, it is cheaper for consumers to go into debt review than to take out another loan. Debt review is a real solution that works.

Group life insurance specifically written for over-indebted consumers in debt review was launched this week by the DCI – the debt counselling industry portal.

 

It is the first and only insurance product designed for those under debt review and can only be obtained via the DCI or registered debt counsellors. 

 

Credit life insurance covers outstanding loans and credit obligations in the event of a credit-user’s death. Banks and retailers require this type of cover when they advance credit.

 

The DCI innovation comes at a time of mounting concern over the potentially high prices of credit life products sold by banks and retailers to a captive market of credit applicants. These products fall outside the National Credit Act that protects consumers from excessive interest rates and fees.

 

Now over-indebted consumers in debt review don’t need traditional products. They can use competitively priced, transparent DCI insurance instead.

 

Traditional credit life contracts are invariably tied to a repayment schedule. Cover is contingent on the creditor remaining up to date with payments. However, over-indebted individuals typically fall into arrears. This invalidates the cover and creditors can seek restitution of debts from bereaved family members.

 

Once a person under debt review joins the Debt Counselling Industry group life scheme, these insurance charges can be stripped out of debt repayments by sending a simple notification to all credit providers telling them about the new cover.

 

Our smart alternative has the potential to save debtors thousands of rands over the duration of these loans.