Banks chasing debtors in court

BANKS and lenders are more eager than ever to get court judgments against cash-strapped consumers - no matter how unjustifiable it is.

Under the National Credit Act (NCA), consumers can ask for debt counselling and debt review to allow them to draw up a payment plan for their debts, rather than get a court judgment which effectively shuts them out of the credit system.

However, Statistics SA figures released yesterday show that the value of civil judgments for debts in the courts has leapt 32,4percent in the year to August. In all, this brings debt judgments to R656,3million.

This should sound a loud warning bell for policy makers, who believed the NCA would expand - not diminish - the ability of all South Africans to get credit.

Altogether, 17,6million South Africans have credit at either banks or retailers, but the concern is that 44percent now have "impaired records" at credit bureaus, thanks to judgments or late payments.

"There is an ongoing increase in consumers with impaired records, [rising] from 36percent in June 2007 to 44percent in June 2009," said Peter Setou, senior manager at the National Credit Regulator (NCR).

"More than 50000 people a month are being added to the impaired category [consumers in arrears for more than three months or with judgments]."

"The ability of people to pay existing debt is diminishing," said Mel da Silva, of Octogen, which helps people restructure their debts.

According to Da Silva a large portion of this debt is a hangover from what he refers to as an "orgy of lending" from credit providers prior to June 2007 when the NCA came into force.

At the time, low interest rates and a chase for market share saw banks offer cheap credit to just about anyone.

But when the tide turned in late 2007 and interest rates began rising, consumers began to feel the pinch.