Debtfree DIGI Magazine - May 2016

Though the credit industry and regulators for a long time denied any type of unsecured credit
‘bubble’ there has been a big move in these new calculations to reduce the profitability of this
section of the market. This may follow after seeing the crisis experienced by such organisations
as the former African Bank (not to be confused with the current African Bank) where consumers
defaulted in mass on short term credit. Combined with stricter affordability assessment
requirements the unsecured credit market is undergoing large changes and is no longer the
cash cow it was once seen as. Another significant change is also with regard to short term loans
(such as pay day loans) which see a reduction in maximum rates for follow up loans with in a
short time period. The first loan may be at 5% but follow up loans (which are very common) will
be at 3%/month. It is hoped this will protect consumers from becoming trapped in a cycle of
loans to pay loans.
R10s WORTH OF TROUBLE BREWING
The new rates are in effect and Debt Counsellors, Credit Providers and consumers need to
take these into account. One area of concern which has come up in, in regard to end balance
differences which may arise from accounts already loaded onto debt restructuring software
systems through the PDAs (at R50/month) vs credit provider systems that will now be using R60/
month going forward. Since Debt Counsellors are probably not able to ask their clients to find
an additional R10 per month, per account to add to their debt repayments, this means that the
PDA statement and calculation systems will slowly be opening a gap by R10 plus interest every
month on every account when compared to the creditors systems... which in the long term will
lead to a large end balance difference problems.