Amendments to the National Credit Act could help municipalities and schools recover billions

Including municipal rates and school fees as part of debt restructuring would be a win-win for consumers, schools, municipalities

Municipalities, schools and body corporates, amongst others, could see improvements in outstanding payments if adjustments were made to the National Credit Act to allow the restructuring of these debts in debt counselling.

Municipal rates, levies, school fees, money owed to medical practices and attorneys and other similar debts fall outside of the National Credit Act as it currently stands. According to the National Debt Counsellors’ Association (NDCA), this means debt counsellors cannot renegotiate these debts.

A Statistics SA report on civil cases for debt shows that consumers are increasingly tending not to repay this kind of debt.

Summonses issued for debt relating to services, which comprise mainly municipal rates, increased by around 25% in November 2022 both for businesses and individuals, compared to the same month in 2019^[1].

Comparative data for school fees and tuition, for the same periods, show increases of up to 33% for judgements.

At the same time the volume of overall summonses have decreased.

“It’s likely that some creditors are realising that getting a summons isn’t the most effective way of recovering what’s owed and financially stretched consumers are prioritising debtors who shout the loudest. Typically, these are businesses rather than schools and municipalities, which is why a lot more people are behind on repaying this kind of debt,” Benay Sager, NDCA chairman, explains.

It’s fair to assume that if summonses have increased by 25% over the past three years that the value of what’s owed has grown by the same proportion, he says.

Debt counselling is a tried, tested and effective tool for consumers dealing with high debt levels. Evidence of this is the number of people to successfully complete debt counselling and get their clearance certificates, which has increased five-fold over the past six years.

“We also know from experience that when different debts are consolidated into a single monthly repayment, as they are in debt counselling, consumers have a higher repayment ratio because they don’t pick and choose which debt to repay.”

The NDCA’s view is that including particularly rates and school fees when amendments to the National Credit Act are considered would be a win-win, both for consumers struggling with high debt burdens and debtors currently excluded such as schools and municipalities.

“Expanding the NCA to allow debt counsellors to renegotiate municipal rates and similar kinds of debt would be a more effective way for municipalities and others to recover the billions they’re currently owed,” says Sager.

[1] The 2022 data was compared to 2019 as this is the first pre-Covid years. Data for 2020 and 2021 is not typical because of Covid-19.