There's a little bit of bad news for those who have been rubbing their hands in glee at the idea that the recently introduced Credit Amnesty Act will magically make their bad debts disappear – it won't.
Quite frankly, it's more than a little naive to assume that the government would provide its citizens with a “get out of jail free” card allowing them to walk away from their responsibilities. And let's get real here, those who have accumulated the debt need to settle it in full if they want to create more debt by buying a home.
However, reports have started coming in regarding the small flood of enquiries bond originators are receiving regarding the Act and its implications.
Mike van Alphen, National Manager of the Rawson Property Group’s bond origination division, Rawson Finance, says that the Act has been misunderstood by some people: "They appear to think that it exonerates them from paying any debt incurred before 1st April 2014. Such debts, they somehow assume, have miraculously been “written off”.
“It is extremely naïve to think that any government anywhere in the world could enact such a law,” says Van Alphen. “In fact, it would be the height of irresponsibility to do so.”
Pay your debt in full
While the Act will not wipe out bad debt, it will assist anyone who has a black mark (a negative report) on their credit record, if this was incurred before 1 April, and who has since paid the debt in full. In such cases, the new Act stipulates the misdemeanour has to be expunged from all South African credit records.
Similarly, says Van Alphen, anyone who has a court judgment against them dating from before 1 April on account of a debt, and who has since paid the amount in full, must have the record of the judgment with the credit bureau cleared completely.
In addition, it is important to remember that in terms of the Act, the paid-up former debtor is also entitled to have all negative comment on his credit performance deleted from the credit records. In other words phrases such as “slow payer”, “delinquent”, “not contactable” or “absconded” have to be removed and any negative action taken against the debtor, for example “handed over”, “repossessed” or “legal action taken”, also has to be deleted from the credit records – provided that full payment has been made.
May not help with bond finance
In November last year Fitch Ratings, a global rating corporation, stated that the Act would have a greater impact on the non-bank lending sector than on banks, because non-bank lenders are more reliant on credit bureaux, whereas banks can perform more of their credit assessment in-house.
In other words, while the amnesty may help customers open up a new clothing or chemist account, it won't necessarily help those who have a bad credit history obtain mortgage finance from a bank.
Remember too that any negative classifications of repayment behaviour or enforcement actions after 1 April 2014 may and will be reflected on the credit report into the future as the amnesty only covers behaviour and actions prior to 1 April 2014.
Five years is a long time
While in the past judgments were reflected on the credit record for a period of five years and/or until such time as the client had the judgment rescinded by a court, from 1 June 2014 the Credit Bureau must remove the record of the judgment within seven days of the client supplying proof that the debt has been paid in full. The client no longer needs to incur legal costs to bring a court application to have the judgment rescinded and/or removed from his credit record.
“It is therefore still important,” says Van Alphen, “for all credit consumers to maintain regular payments on outstanding debts to avoid any legal action being taken against them as this may well nullify the assistance the amnesty may have afforded him or her into the future.”
Van Alphen reminds debtors that all South African citizens are entitled to one free credit record per annum. This can be obtained from TransUnion or by calling 0861 482 482.