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Debt write-off Bill constitutionality in question

Publish date: 06 August 2018
Issue Number: 785
Diary: IBA Legalbrief Africa
Category: South Africa

A proposed Bill providing for extinguishing the debt of some overburdened consumers is broadly, but not entirely, constitutional, even though it would amount to a deprivation of property, a senior advocate has advised – but, along with others, he also raised concern about the powers accorded to the Minister in the National Credit Amendment Bill (see report below), notes Legalbrief. The opinion of Advocate Wim Trengove SC was sought by Parliament’s Trade and Industry Committee on the constitutionality of the Bill, which the committee itself has developed rather than the Department of Trade and Industry, notes a BusinessLIVE report. The Bill will allow for the debt of a specified category of over-indebted consumers to be extinguished in certain circumstances. These consumers must have a monthly income of less than R7 500, have debt of no more than R50 000 and be determined as over-indebted by the National Credit Regulator. One of the grounds for the banking industry’s opposition to the Bill was that extinguishing debt would deprive banks of their property – the debt owed by borrowers. It was therefore unconstitutional, the industry submitted. While acknowledging that extinguishing debt was a deprivation of property, Trengove said it was ‘permissible and lawful’ under section 25 (1) of the Constitution as it would occur within a law of general application. It was also not arbitrary as the Bill ensured it was procedurally fair and that there was sufficient reason for the deprivation. However, the debt would only be cancelled, Trengove noted in his opinion, ‘if there is no real prospect that the debtor will be able to pay the debt and, accordingly, only when the credit provider’s claim has become irrecoverable and worthless or worth very little’.

Full BusinessLIVE report

Treasury meanwhile, is concerned about the wide and unfettered powers granted to the Minister of Trade and Industry to prescribe debt intervention measures in the proposed Bill. Business Day notes the proposed relief could result in the write-off of between R13.2bn and R20bn, which is the total debt falling under the debt-extinguishing provisions of the Bill. Treasury’s concern about provisions in the Bill is shared by the Banking Association SA as well as Trengove. In terms of the Bill, the Minister would have the power to extend the Bill’s provisions on debt extinguishment beyond the 48-month implementation period provided for; he would be able to prescribe a debt intervention measure – including the extinguishment of debt – to alleviate household debt and address economic circumstances that constituted a significant exogenous shock that caused widespread job losses or was caused by a natural disaster' and he would be empowered to adjust the maximum gross monthly income of a debt relief applicant and adjust the total qualifying unsecured debt. Treasury deputy DG Ismail Momoniat warned that the ‘unfettered power’ to prescribe debt intervention measures ‘will not only lead to great uncertainty and constitutional objections but will likely lead to a tightening of credit’. The Banking Association warned that if the unsecured debt level was increased ‘credit providers may be forced to reconsider their involvement in this market’. Trengove said he believed that this delegation of Parliament’s power to introduce debt intervention measures was unconstitutional. It would be at the expense of credit providers and would deprive them of their constitutionally protected property rights, he said, noting the 'cost of the provision of social assistance should normally be borne by government and not by private credit providers'.

Full Business Day report

The ANC has denied IFP claims it has introduced the Bill to woo voters ahead of next year’s elections. Chairperson of the committee, Joanmariae Fubbs, said the Bill has been in the making for years, and its intention was not to attract voters to the ANC. A Cape Times report says she was backed by ANC MPs Thozama Mantashe and Adrian Williams who said the ruling party had no intention of using the Bill to win the voters. Jan Esterhuizen, of the IFP, said it was suspicious the ANC would table the Bill just a few months before South Africans went to the elections. Mantashe said she disagreed with the IFP MP. ‘I want to correct Esterhuizen that we (tabled) the Bill because we are going to the elections. We tabled it long before we knew there will be elections. We tabled it because our people are being retrenched and they are given loans by loan sharks,’ said Mantashe. Dean Macpherson, of the DA, warned that the committee must be careful not to create a Bill that would collapse the formal credit market. He said they need strong measures to deal with consumer debt, but should tread carefully.

Full Cape Times report (subscription needed)