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Media Info
 Consumers give stores and banks a R1,7bn debt repayment gift
14 December 2009
This year debt counselling has ensured an estimated R1,7bn debt repayment gift to stores and banks and saved creditors millions normally spent on debt collection and lawyers.
Peter Setou of the NCR says growing numbers of consumers under debt review (not all of the 150 000 using debt counsellors) use one of five Payment Distribution Agencies each month to repay debt to creditors. Those agencies have distributed repayments totalling R834,8 million from May 2008 to October this year.
However, Andre Snyman, CEO of Consumer Assist, South Africa's largest debt counselling company, points out that the PDA's are still new, there were only two at the start of 2009 and so the amount paid back by consumers to creditors is far higher. "Only 40% of consumers under debt counselling pay through PDA's and the rest are paying cash to the credit providers, in all around R1,7bn was paid back to creditors this year with R125,84m in October alone."
Tracking figures just through the five Payment Distribution Agencies shows that debt counselling is rapidly injecting significant sums back to creditors and into the economy; in May 2008 it was just R8,96-million, by August this year payments from consumers under debt counselling had leapt to R97m, by September it grew another R10m a month to R107,7m and in October those receiving debt counselling paid R125,84m back to creditors in that month alone.
But Gabriel Davel, CEO of the National Credit Regulator would have liked to have seen a gift back from creditors: "In England debt counsellors convinced credit providers not to demand money from consumers at Christmas, I wish we could achieve that, but then again it took them 10 years to get that agreement."
Snyman would also like such goodwill extended to consumers from creditors at this time of year, but he, like Davel, points out that the National Credit Act is only just over two years old, "it's something we still have to work on.
"What debt counsellors have been able to achieve are massive gifts to creditors - retailers and banks - in terms of repayments made by consumers that amount to just over R1,7bn this year and have saved creditors millions that they don't have to spend using debt collectors and lawyers to chase money. "
Snyman said that there were still challenges with some creditors and some consumers trying to manipulate the system. "One of the top four banks is notorious about harassing consumers with phone calls, lawyers letters and threats even after they have been under debt review and reliably paying for months and even a year or more. It's unlawful psychological warfare.
"But we also find consumers who try to manipulate the system, last year we had consumers applying for debt review before Christmas to try and get 60 days grace from creditors while they continued spending. This year we are seeing a pattern of some consumers saying they will go on debt review after Christmas because they want to see if they can get loans to spend more at Christmas. Either way those consumers are digging a very deep debt grave for themselves.
"Those that default don't seem to realise that once they have done this, they have destroyed all their options for redeeming their credit record and stand to lose assets such as their car or home.
Despite this stores are registering concern that "good customers" are holding onto their wallets and not spending, while high risk consumers lack the money to spend as they did in the past. One retailers said that the "average utilisation of credit was well below the credit limits extended by the company and retail sales density was declining." Nonetheless they expressed confidence that sales figures would pick up in the next two weeks especially from those using credit.
Another retailer said: "Responsible consumers are being careful about incurring more debt; we think they will start spending more just before Christmas." He said, "Consumer behaviour towards credit and spending doesn't seem abnormal to us for where we are in the cycle." Stores are reporting that the highest level of credit applications are from those with monthly salaries in the R5 000 to R7 000 range.
Snyman said this would tend to indicate a new era of over indebtedness would be encountered in 2010, "in 2009, most of those in debt earned R8 000 to R15 000 a month, our research and that from the NCR shows that people in those categories are most at risk of job loss and very high debt stress. But if the scale below them is now incurring significant debt it could mean they are next in line to hit the credit skids."
Overall this year wages fell 0.3 percent in South Africa according to the International Labour Organisation and close to a million jobs were lost. However, Statistics South Africa said for the first nine months of this year nominal wages increases averaged 9.4 percent, while consumer inflation in September was 6.1 percent.
While better wages tend to lead to higher consumer spending - which in turn protects and creates jobs - this does not yet appear to be happening in South Africa, Snyman said.
He urged consumers to go for debt counselling help urgently if they felt stressed and for those who were still financially healthy to be more vigilant about spending, "the most important word we use to consumers is budget, budget, budget. And if you're in trouble, get help early."
Consumer Assist's national call centre 0861 21 22 23 will remain open 24 hours a day throughout the holiday season, or consumers can access help through www.consumerassist.co.za and debt counsellors will remain working at all its branches nationwide.
FOR FURTHER INFORMATION www.consumerassist.co.za 0861 21 22 23 debt counselling call centre
Andre Snyman - CEO - Consumer Assist
aurelia.espag@consumerassist.co.za / 011 654 6018 (Languages: English, Afrikaans)
Source: Charlene Smith Communications(CSC)
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