Consumer debt & liquidation statistics

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31 Dec 2012

The number of liquidations decreased by 18.0 percent in the first ten months of 2012 and a year-on-year (y/y) decrease of 35.3 percent was recorded in October 2012.

According to Summit Financial Services, in September 2012, between 10 and 15 percent of the total workforce of South Africa had a garnishee order in place for creditors to deduct repayments against their salaries, he says.

According to Statistics South Africa (Stats SA), the 35.3 percent decrease in the number of liquidations for October  was due to voluntary liquidations (which decreased by 88) and compulsory liquidations (which decreased by 40).

Close corporation liquidations decreased by 70 and company liquidations decreased by 58 over this period.

The largest (y/y) decreases in total liquidations in October related to businesses in financing, insurance, real estate and business services (52 fewer liquidations), wholesale and retail trade, catering and accommodation (49 fewer liquidations) and community, social and personal services (20 fewer liquidations).

The number of insolvencies decreased by 15.7 percent in the first nine months of 2012 and a 14.6 percent decrease was estimated in Q3 2012 while the number of insolvencies in September decreased by 15.8 percent y/y, according to Stats SA.

Meanwhile, the Credit Ombud has welcomed the announcement by National Treasury and the Banking Association of South Africa (BASA) that debt counselling provisions in the National Credit Act (NCA) will be reviewed.

Credit Ombud, Manie van Schalkwyk says they welcome this proactive behaviour to prevent more consumers from falling into a debt spiral, pointing out that currently, the debt counselling process has a number of weaknesses that need to be addressed.

Household debt to disposable income ratios remain high at 76.3 percent in Q2 2012, with just 53 percent of retail borrowers in good standing on their accounts, notes Van Schalkwyk.

 “A voluntary debt counselling process in which credit providers play a central role could provide redress more quickly and cheaply than legal remedies through court proceedings.”

It could be more affordable and accessible for over-indebted consumers because credit providers would bear the costs and share them at an industry level, he says.

Approximately 160 000 consumers have applied for debt counselling, with an average of 7 500 new applications being received per month.

Only 10 percent of the new applications are resolved through the courts.

Approximately 160 000 consumers have applied for debt counselling, with an average of 7 500 new applications being received per month. Only 10 percent of the new applications are resolved through the courts.

Van Schalkwyk says the National Treasury and BASA had recognised that amnesty measures for credit records would have perverse outcomes, because they did not lift the debt burdens of those who are affected.   

A task team investigation into improving the debt counselling process found that a lack of capacity and delays in the magistrate's courts, including uncertainty on the interpretation of the relevant sections of the NCA contributed to low levels of debt counselling applications being finalised. 

It also found inefficiency and non-compliance by debt counsellors who accepted applications which did not qualify for debt counselling. 

Van Schalkwyk says a standard to measure affordability, which could then be incorporated into regulations as minimum standards will be formulated.

This would help to reduce reckless lending and create more certainty, consistency and standardisation with regards to lending in the industry. 

Another key development was BASA and National Treasury’s engagement with the Department of Justice on the abuse of garnishee orders and the suggestion that their use be restricted to maintenance orders.

According to Summit Financial Services, in September 2012, between 10 and 15 percent of the total workforce of South Africa had a garnishee order in place for creditors to deduct repayments against their salaries, he says.

“This is not only a moral concern, but contributes to the wide-spread problem of over-indebtedness and must be investigated.

“There is currently no statutory cap on how much creditors can take from employees via a garnishee order and the creditor or attorney decides unilaterally on the amount.”

 He says the problem is exacerbated because consumers must incur legal costs if they try to apply for a reduction in the garnishee order and this is unsustainable, points Van Schalkwyk.   

 “Through continued constructive engagement between government, regulators and the credit industry, over-indebted consumers are likely to get a better deal,” he adds. –Denise Mhlanga

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