Despite some opposition from the banking industry, the Credit Amnesty Act recently became law after a Cabinet ruling. The new legislation is designed to assist consumers who have successfully repaid their debts become creditworthy again in less time. Under the Credit Amnesty Act, major credit bureaus will be required to purge negative information from the credit histories of such individuals who have gone through the debt relief process and paid off their outstanding balances.
Details of the Amnesty Act
According to Business Day Live, the new law is a supplement to the National Credit Act, and its main purpose is to ensure the former is followed and applied fairly. For consumers who need to obtain credit and have no remaining debts, their ability to gain loan approval is a key element in upward mobility and in driving the economy forward. The Amnesty Act grants credit bureaus a time limit to remove the negative marks on qualified consumer credit, and the legislation is projected to make the current credit market more accessible to such borrowers.
Criticisms of the Credit Amnesty Act
The Banking Association of South Africa has been the most vocal opponent of the Credit Amnesty Act because its representatives believe the law will undermine banks’ current ability to determine applicants’ creditworthiness. Some financial experts predict that interest rates could increase as possible future consequences. Even with these oppositions, legislators who passed the act have expressed that the Amnesty Act will be an essential element of a growing economy as well as an affordable credit market.
What the Credit Amnesty Act Means for Consumers
For individuals who have undergone debt relief, debt consolidation or sequestration, this law will remove many of the barriers they face when trying to reestablish their creditworthiness. Even when old debts are completely paid off, up to two million South African citizens are currently blacklisted from loan approval at any given time. Forthcoming legislation will outline the exact process of having a blacklisting lifted and of consumers applying for credit amnesty. This process spells good news for people who have faced difficulties qualifying for home loans, education loans or even housing due to past debts.
Despite some media reports to the contrary, the Credit Amnesty Act will not allow loans to be granted to borrowers who would be unable to repay them. Instead, candidates for amnesty need to provide proof they are able to pay back premiums each month from their existing income. Removal of a blacklisting also will not discharge existing debts that individuals still need to repay according to the terms of their debt restructuring plan.
The removal of negative information on a credit report applies to debts totaling R 10 000 or less, and financial consultants estimate this process would benefit more than 80% of people earning less than R 15 000 per year. Individuals who meet all of the criteria for amnesty can find out more information by contacting their debt councellors and inquiring about the application process.