Debt Relief - The impact * Are we ready?

1. Debt Relief - The impact* Are we ready? Presented by: Paul Slot Date: 15 May 2019

2. Objectives of the Debt Intervention The objective of the Debt Intervention Bill is to provide debt relief to over-indebted Consumers who have no other effective or efficient option to extract themselves from over-indebtedness

3. Driving Forces 2015 Impact or not of the Affordable Assessment. Minimum spending norms (Criterial) Regulation 23A(10) Compulsory Credit Life Compulsory with term Debt exceeding 6 months Existing Debt Intervention Measures Not effective and as widely applied as anticipated Address Deficiencies in Reckless Credit Enforcement Cost of Debt Review To expensive for the poorNeed for free service Ignore current capacity and industry ability to fund Address Deficiencies related to debt relief measures Interest Rate Reckless (must check)

4. Impact of the Assessment Criteria approved in 2015 Minimum Spending Norms set out in Regulation 24(10) have become the de facto norm in affordability assessments used by Credit Providers

5. Effect of Existing Debt Intervention Measures • Changes approved in 2015 which are not implemented yet • Acceptance still low • Has traction but mostly used in Asset Based lending • Very low implementation in under R50 OOO debt market • 2010 DCRS. Potential to be very affective but usage well below potential • Voluntary assistance: • Assisted sale • Amended repayment terms, etc

6. Address Deficiencies in Reckless Credit • Legal clarity if Minimum Spending Norms = the Norm is urgently required • Reckless Credit Checking at scale is overdue • Reckless Credit at scale could change Credit Provider behavior • Interpretation of Affordability Guidelines resulted in increased approval of debt applications

7. Compulsory Credit Life • To be provided by Credit Provider (not third party) • Sourcing of policy that meets requirement may be problematic • May affect financial exclusion for Consumer to access debt in this segment Compulsory for unsecured credit with term exceeding 6 months Prescribed cap on cost of Credit Life

8. Address Deficiencies related to debt relief measures • In the absence of lack of progress in the implementation of DCRS (Debt Review) to reduce the cost of credit for Consumers is critical and long overdue and will play a major role in reducing the rescheduled debt repayment period Magistrate enabled to determine maximum rate of interest fees or other charges

9. Impact Classification Apart from the drivers it is also important to determine the possible implementation scenarios once the Debt Intervention Bill has been signed into law

10. Impact Classification Constitutional Challenge Still considered by some NCR Capacity Regulator & Operator? Process challenges Capacity Challenges Like Debt Review Annual review Manpower VS Applications Economic and social Impact How many will apply Access to need debt Impact on Debt Review Address Deficiencies related to debt relief measures Interest Rates Reckless Credit Enforcement

11. Impact Classification Probability Impact Constitutional Challenge Procedural unfairness Property Clause unconstitutional Intention for Consumers to extinguish debt – arbitrary Delegation of law making powers Credit Providers must provide Credit Life High Mod Low

12. Impact Classification Probability Impact • NCR Capacity • Process (Like Debt Review) • System (Not possible without system) • Capacity (Qualification & experience) • Practical Debt Review experience • Access by Consumers (Number of applications) • Interaction with Credit Providers • Collection of payments by Consumers • Regulator vs Operator (Conflict of interest) • Effect on normal Regulatory functions (Non Debt Intervention) High ? Mod Low

13. Impact Classification Probability Impact • Economic and social Impact • How many will apply • Access to new debt under threat • Impact on Debt Review High Mod Low Between 17 and 22% in Debt Review are in Debt Intervention definition. Impact on capacity reduction and Job losses

14. Probability Impact • Address Deficiencies related to debt relief measures • Interest Rate • Reckless Credit • Enforcement 👍 👍 High Mod Low

15. Future of Debt Intervention Impact Point Likely Impact Possible Impact Result Bill signed into Law Might well happen sooner than later Uncertainty, Legal positioning, Possible delay in implementation High uncertainty Possible Process Calamity Process implementation Create high legal certainty Immediate positive impact in Debt Relief and Reckless Credit Address deficiencies related to debt relief measures Use of service higher than anticipated Process calamity may lead to Consumer calamity Economic and social impact

16. Credit Industry Impact Consumers Credit Providers Debt Counsellors Debt extinguished if criteria with process compliance for some Increase in impairments (IFRSS9) Loss of Clients to Debt Intervention Increase in legal cost – Debt Intervention matters Excluded from the process Larger group does not qualify. What will reaction be? Increase capacity required to interact the Regulator on Debt Intervention matters Loss of Jobs Distraction from current measure to address over-indebtedness Possible negative impact on investor confidence Benefit from addressing deficiencies related to Debt Relief Benefit from addressing deficiencies related to Debt Relief

17. YOUDESIDEThank You * Are we Heading for a Calamity or Success? Impact Probability High Mod Low