Although a rate cut Thursday was expected to give some relief to cash-strapped consumers, it is unlikely to significantly help an expected 66,000 people per month who join a list of those who cannot pay their debts.
National Credit Regulator (NCR) chief operations officer Nomsa Motshegare said there had been an increase of “impaired records” – those accounts that are slow paying, are defaulted on or are written off or result in court action.
This was a result of high interest rates and inflation since 2006, said Motshegare.
“It will take a long time before we see the light at the end of the tunnel,” she said.
According to the NCR’s 2008 fourth quarter Credit Bureau Monitor, as at the end of December 2008, the Credit Bureau held records for more than 37 million individuals, of which 17,56 million or 46,8% were credit-active.
Out of the 17,56 million, 41.6%, or 7.3 million, had impaired debt records. Those in good standing amounted to 58,4%, or 10.2 million, in December 2008.
However, this was down by 1.1% compared to the third quarter of 2008 and by 4% year on year.
This means that on a quarterly basis 200,000 more consumers had an impaired record. On a year-on-year basis, the figure was 850,000.
Consumers are classified as having an impaired record if any of their accounts are in arrears for three or more payments or if the have a judgment or an administration order against their names.
The report said the “substantial increase” in adverse listings confirmed the argument that credit providers were taking action to recover money.
Motshegare said although credit providers were renegotiating payment of debt, consumers who had been blacklisted needed to prove that they were worthy of getting credit again by “showing they have rehabilitated”.
“It’s about changing lifestyles and compromising. Therefore we hope that consumers will use the extra cash that comes their way from interest cuts to pay off their debt instead of spending more,” said Motshegare.
Reserve Bank governor Tito Mboweni lowered the interest rate by 1% on Thursday, taking the rate down to 8.5%.
Jessica Rhind, a counselor at Debt Therapy, a company that provides counselling to over-indebted consumers, said the number of people needing debt counseling had grown despite interest rate cuts. She said their clients had doubled since September 2008.
She said they counselled an average of 50 clients every month, but figures for March had increased to 80.
High interest rates had caused people to fall behind on bond, credit card and personal loan payments.
Rhind said after debt therapy, clients would eventually be issued with a clearance certificate and their name removed from credit watch lists.
Clients needed to be educated on how to budget and communicate with their credit providers, she said.
– West Cape News