That’s the finding of the latest TransUnion Consumer Pulse study for the fourth quarter (Q4), which shows household incomes are stagnant and rising inflation is overwhelming consumers — 67% of whom said they had spent less on non-essentials like travelling, dining out and entertainment in the three months leading up to November 2022. 

Even so, despite trimming the fat off their budgets, 38% of consumers are unable to pay their bills and loans in full and are likely to be more responsive to creditors who are vigorously collecting on debt.

The survey of 1,003 adults, conducted last year between 3 and 15 November by TransUnion and research provider Dynata, shows household incomes have remained flat, with 36% of consumers reporting an increase in household income — unchanged from the previous quarter. 

For 23% of households, Q4 effectively meant going backwards, as they reported a decrease in income (up four percentage points on the previous quarter), with unemployment (23%) and reduced salary and wages (20%) cited as the primary causes.

Consumers weathered many storms in 2022, with inflation at its highest levels in 13 years, peaking at 7.8% in July, the prices of consumables rising sharply from 9.8% to 14.4% in Q2, as well as sharp fuel and food price hikes. 

Early in November, the price of diesel (then R25.49/l) was up 48% year-on-year, with petrol up 17%. Meat increased by 9.4%, bread and cereal went up 13.7% and oils and fats by 36.2%, the report notes.

Civil judgments down

The strain on finances is evident in Stats SA’s latest data on civil cases for debt: On Friday 20 January, Stats SA said the number of civil summonses issued for debt had increased by 6.6% in the three months ended November, compared with the same period in 2021.

The largest positive contributors to this increase in civil summonses issued were: “other” debts (outstanding debt such as salaries and wages, medical fund debt, sponsored debt, class and tuition debt, tax, assessment rates and property levies contributing 9.4 percentage points); and other services (mostly municipal rates and taxes, but also plumbers, builders, mechanics, panelbeaters and electricians contributing 3.8 percentage points). 

The number of civil judgments recorded for debt, though — which follows what is usually a lengthy collection period — decreased by 10.7% in the three months ended November 2022 compared with the three months ended November 2021, with the largest contributors to the decrease being judgments relating to goods sold (contributing -4.8 percentage points); money lent (-3 percentage points); rent (-1.5 percentage points), and services (-1.3 percentage points).

In November 2022, 11,754 civil default and consent judgments for debt amounting to R314.5-million were recorded.

Default judgments are handed down in court against defendants who fail to appear in court or to defend a case brought by another party, after being properly served. They are the final step in a legal process which commences with a letter of demand, in which the creditor’s claim is outlined. 

If the debtor fails to satisfy that claim, the debtor’s attorney then proceeds to institute a summons. Should the defendant fail to file a notice of intention to defend after 10 working days, the plaintiff is entitled to approach the court for a default judgment.

Juggling act

Overall, the volumes of summonses appear to have reduced since 2017 (excluding the pandemic years of 202o and 2021), except for services and tuition, said Benay Sager from DebtBusters.

There were 25% more summonses in 2022 compared with 2019, for both businesses and individuals, while money owed to schools and tertiary institutions has gone up by about a third.

“I think a lot of creditors have probably realised that issuing summonses is not the most effective way of getting their money, so they probably scaled back. It doesn’t necessarily mean there isn’t a default,” Sager said.

“But what it’s also telling me is, I think consumers are prioritising those who shout the loudest, and often it would be business as opposed to, say, schools or municipal rates.”

For the debt counselling sector, municipal rates have long been a sticking point, as Sager said the National Credit Act (NCA), in its current form, does not allow debt counsellors to restructure debt owed to municipalities. 

With municipal debt increasing sharply compared with three years ago, Sager said a future amendment to the NCA should allow debt counsellors to include debt owed to municipalities, because it could be a big lever to help local government collect on the debt and ensure that consumers have sight of their total debt — and not to differentiate between who they choose to pay.

Holistic view

Judgments provide a partial view of SA’s debt situation because creditors cannot apply for court orders and judgments against consumers if the credit agreement is part of the debt review process, and the legal process can take years, whereas credit bureaus’ quarterly reports provide a more up-to-date view of consumers’ actual behaviour, observed Weihan Sun, director of research and consulting at TransUnion Africa.

“We can see how consumers are reacting to high inflation, for example when delinquency rates are increasing over three or four months, or a lot of origination: people are trying to take credit from wherever they can get it. That’s a good sign of financial distress.”

What they have observed is that consumers are paying back their debt faster, over the past two quarters.

“That’s largely a reactive result of the increases in interest rates, which are starting to chase people’s wallets.”

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TransUnion is seeing clear signs of financial stress emerging, particularly in the lower LSM segment of the market, which is more reliant on retail accounts.

These entry-level products — used as revolving facilities — are serving up to 15 million consumers who are often stuck in that category because they cannot progress on their credit journey.

It’s an issue for sustainable growth: an obvious lack of financial awareness, despite efforts by lenders to provide information on their websites.

Consumers can improve their financial lives by doing one simple thing: asking more questions. But they don’t.

“Sometimes they are afraid that they will be turned down, but, actually, lenders like customers asking questions because it demonstrates knowledge of the products and, for them, that’s a good consumer… somebody who actually wants to understand how the product works.” BM/DM