In South Africa, banks are the leading credit providers, ranging from credit cards to home loans and credit cards. They also provide debt consolidation loans, overdrafts and vehicle finance. Because of this the promulgation of the National Credit Act in 2007 had a marked effect on their credit practices. The advent of debt counseling has lead to a more empowered consumer and the increasing awareness of the banks when it comes to granting credit.
South African banks are made aware of debt counseling, and can in turn assess the credit worth of a prospective credit applicant. Debt counseling will inform a bank that the consumer can no longer cover monthly expenses and the banks have to comply with the regulations set in place by both the National Credit Act and The Debt Counselors’ Code of Conduct regarding consumers who are under debt review.
The banks are striving for better debt collection processes, as these processes evolve, the relationship between South African banks and indebted consumers is improving. There have been incidents of banks not agreeing to a debt counselors’ proposal, but these are declining.
A bank may not collect outstanding funds from consumer who has applied for debt counseling for 90 days following the application. This is to ensure that the consumer has time to arrange their new payment plan and set it in motion.
As the main credit providers in South Africa, the banks have an obligation to work hand in hand with debt collection agencies and ensure the successful recovery of outstanding debts in a fair manner. Because of debt counseling and the bank’s increasing awareness of possible over-indebtedness recent years have seen a decline in bad debts occurring as the banks are now far more stringent when approving credit.
Article written by: Andrea van Tonder 02-2013