Department’s Legislative Programme for 2003; Usury Amendment Bill: hearings

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Trade and Industry

03 February 2003
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Meeting Summary

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Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
4 February 2003
DEPARTMENT’S LEGISLATIVE PROGRAMME FOR 2003; USURY AMENDMENT BILL: HEARINGS


Chairperson: Dr R Davies (ANC)

Documents handed out:
Usury Amendment Bill [B1-2003]

Presentation on 2003 Legislative Programme
Committee Programme 2003
Briefing Notes on the Usury Amendment Bill (Appendix 1)
SAMLAC submission (Appendix 2)
Emerald Van Zyl Financial Consultants submission (Appendix 3)
 
SUMMARY
The Committee was briefed by the Department on its legislative programme for 2003, and the nine Bills were explained briefly.

The Department then briefed Members on the Bill, which aims to allow the Micro Finance Regulatory Council (MFRC) to appoint inspectors to control the micro-lending industry. The primary concerns raised during the discussion on the briefing were the reasons for the introduction of inspectors independent of the Department, when these officials could be included within the Department. Concern was also raised with the possible duplication of functions here, the unnecessary funds spent by the MFRC to introduce these inspectors, and the viability of the MFRC itself to perform this function.

The broader principles of consumer protection, in view of the predatory practices engaged by the micro-lenders, was discussed and flagged for further consideration.

MINUTES
Department of Trade and Industry 2003 Legislative Programme
Mr Lionel October: Deputy Director-General, Department of Trade and Industry dealt with the following three Bills.

National Small Business Amendment Bill
This Bill seeks to delete all references to the National Small Business Council (NSBC) which was liquidated in 1998, and to insert alternative means of achieving the aims of the now defunct NSBC.

Black Economic Empowerment Bill
This Bill allows the Minister of Trade and Industry (the Minister) to issue Codes of Practice for Black Economic Empowerment, and also clearly defines the relevant policy objectives.

Co-operatives Bill
This Bill provides for the formation, registration and winding-up of co-operatives.

Ms Astrid Ludin, the Department’s Deputy Director-General: Consumer and Corporate Regulations Division, dealt with the following six Bills.

Liquor Bill
This is one of the two more substantial Bills to be dealt with by the Department during 2003, as it seeks to create a national licensing function for the manufacture and wholesale of liquor, in line with the Constitutional Court judgment. It also sets out national norms and standards. It does not seek to regulate matters within the exclusive jurisdiction of the provinces, and provides for the formation of a Policy Council which will give expression to the concept of co-operative governance.

National Gambling Amendment Bill
Gambling falls within the concurrent jurisdiction of both the national and provincial structures, and this Bill seeks to clarify the respective roles of each structure. It also to give expression to the principle of co-operative government, especially with regard to concurrence. The Bill also contains protective measures for minors. Although it is an amendment Bill, it does present a holistic view of the gambling regulatory environment, and proposes substantive alterations.

Manufacturing Development Amendment Bill
This Bill reviews the necessity of the Board accommodating the new industrial needs in terms of incentives.

Usury Amendment Bill
This Bill seeks to widen considerably the scope for inspectors  to regulate the unregistered micro-lending industry.

Lotteries Amendment Bill
This Bill makes provision for natural persons to be entitled to receive lottery funds.

Intellectual Property Laws Amendment Bill
This Bill deals primarily with two issues: firstly, the policy on the state emblem and the pursuant amendments to the Trade Mark and Designs Act with regard to the use of the national flag, and the registration of the state emblem. Secondly, the Bill seeks to address issues with regard to biodiversity. It will take into account the Biodiversity Bill to be handled by the Department of Environmental Affairs and Tourism and the protection of indigenous knowledge systems, dealt with by the Department of Arts and Culture.

Discussion
The Chair stated that the Co-operatives Bill is one of the most important pieces of legislation before the Department, and has to be dealt with in 2003.

Mr D Lockey (ANC) asked the Department to explain which of the Bills outlined would be Section 76 Bills.

Ms Ludin replied that both the Liquor and Gambling Bills would be Section 76 Bills, especially the Gambling Bill.

Mr Lockey asked whether Members would be provided with draft copies of these Bills.

Mr October responded that draft copies of the Black Economic Empowerment Bill are available, draft copies of the National Small Business Amendment Bill should be available as well, and the Co-operatives Bill is still being drafted.

The Chair stated that the Liquor Bill was a Section 76 Bill but it then allowed intervention by the national government, which complicated the process.

Ms C September (ANC) stated that the Industrial Development Amendment Bill was supposed to be dealt with by this Committee during 2002, but this did not happen.

Mr October replied that he has not brought copies of that piece of legislation with him on the understanding that the new mandate had been finalised, and that the process has been completed.

The Chair reminded Members that the Committee passed a limited amendment to the Industrial Development Corporation (IDC) founding legislation, which allows it to operate outside South Africa. It was then requested that this Bill be entertained by the Department. This matter has to be considered further.

Ms Ludin responded that Department of Arts, Science, Culture and Technology has devised a policy on the protection of indigenous knowledge systems, and from this stemmed the need to have two separate draft Bills aimed at amending the current legislation impacting on it. The Department of Science and Technology is currently drafting the Bill dealing with indigenous knowledge systems, as the current Trade Marks Act does not provide for the disclosure of the origins of the invention. The Department of Environmental Affairs and Tourism is dealing with the Biodiversity Bill which deals with the protection of resources.

Usury Amendment Bill
Briefing by the Department
Ms Ludin informed Members that in 1999 the Minister exempted a certain category of money lending transactions from the provisions of the Usury Act (the Act), subject to certain conditions. The main condition being that these lenders would have to register with the Micro Finance Regulatory Council (MFRC). Since 1999 there has been a marked decrease in the number of registered lenders, and there are thus either less micro-lenders or fewer are complying with the conditions of the law.

The MFRC does not currently have the powers to inspect the businesses of unregistered lenders, and this type of power only lies with the Department. The Bill therefore attempts to grant these powers to the MFRC in an attempt to increase the resources and capacity needed to properly control the sector. These inspectors would then possess these powers which are independent from those exercised by the Department’s inspectors, and the Chief Executive Officer of the MFRC (the CEO) would have powers similar to the Registrar as granted by the Act.

It could be argued that there are alternative means by which to achieve effective control of the micro-lending sector. However, it is the view of the Department and its legal counsel that the framework proposed by the Bill is the best, for the following reasons. Firstly, the CEO must be able to acquire the necessary information directly from the lender and, if this is not possible, it would be difficult to conduct inspections. This would also result in delays, which would frustrate the importance of the need for the consumer to receive redress. Secondly, it might also be argued that the framework proposed by the Bill would be difficult to implement, but the Department has concluded an Memorandum of Understanding with the MFRC which clarifies their respective roles and ensures that the inspections or investigations are not duplicated.

Ms Lana van Zyl (Department) went through the Bill clause by clause.

Clause 1
This clause introduces the three definitions “Chief Executive Officer”, “regulatory institution” and “inspector”, and amends the current definition of “Registrar”.

Clause 2
This clause deals with the delegation and assignment of powers and duties to both genders, and deletes the current reference to “public service”.

Clause 3
This clause seeks to delete the references to the Public Service Act and a “particular” inspection, so that such inspections can now be conducted on a continuous basis.

Clause 4
This clause amends Section 18A of the Act to provide that the CEO has the authority to approach a court of law for a declaratory order, and also replaces the references to the “Supreme Court” to the “High Court”.

Discussion
Mr Rasmeni stated that he welcomed the introduction of this Bill, but sought further clarity on the decision to set up separate inspectors outside the Department. A possible problem created here is that these two institutions might then not communicate with each other. What are the problems currently experienced in the system?

Ms September stated that she also fails to understand the reason for venturing outside the public service to appoint privatised persons. Perhaps the Department of Labour has to be consulted as it has a large pool of inspectors in the public service. What does the Department of Public Service and Administration have to say about this?

Ms Ludin assured Members that the Department is not abdicating its responsibility in any way, but the Bill instead seeks to establish an enabling environment to create resources. Therefore the current powers and tasks to be performed by Department officials will not be reduced or affected.

Micro-lending is a huge industry and all available resources are needed to address the problems. The Bill seeks to achieve this by introducing independent inspectors to assist in the regulation of this industry. The Department will remain responsible for the area, with the MFRC only being allowed to inspect unregistered micro-lenders.

Mr Rasmeni stated that Cabinet had decided that there is a need for the integration of inspectorates.

The Chair stated that he understands that the current powers of the inspectors is the same, but the Bill aims to enable the MFRC “to have teeth” to appoint these inspectors. The concern here lies with the level of compliance with the exemption notice.

Ms Ludin responded that she does not believe that there has been a decline in the overall level of compliance with the exemption notice, but does recognise that the use of the card and pin system remains an ongoing issue. Micro-lenders could contend that they have no other alternatives to using this system, to which both the Department and the MFRC would reply “that’s not our problem”. Discussions have to be entered into with the Banking Council of South Africa (BCSA) to identify alternative collection methods.

Should cases involving the use of the card and pin system be discovered by the MFRC, it would be able to initiate the relevant disciplinary procedure. There is a need to compile a holistic review of the system, because approximately 60% of the complaints received in this regard involve micro-lenders. This is not where the policy focus of this Bill should lie.

Ms Van Zyl added that the decrease in the number of licences renewed could be due to the current lack of capacity within the Department to register unregistered micro-lenders, and the purpose of this Bill is precisely to grant the needed capacity.

Ms F Hajaij (ANC) requested the percentage of unregistered micro-lenders currently operating in South Africa, as well as the demographic breakdown and the areas affected.

Ms M Ntuli (ANC) sought clarity on the amount of individuals engaged in micro-lending operations from their homes, especially in the rural areas, how this impacts the current situation and the Department’s plans to deal with them?

Ms Ludin responded to these two questions by stating that these detailed figures would be provided to Members at the next meeting. There are approximately 2000 registered micro-lenders and about 500 have not renewed their licence, with the result that about 25% are not complying with the conditions. There are approximately 4500 branches nationally, and a large number of these are unregistered lenders. Some are tying to find legal ways to circumvent the exemption notice, and legal action is currently pending involving just such a case.

These unregistered micro-lenders are not only active in the rural areas, but often operate in the city centres as well. These operate for two reasons: firstly, they were closed down and secondly, they have moved to a less visible location. There are currently several inspectors operating in the rural areas, but a large capacity is needed to inspect this sector effectively. This is the very aim of this Bill.

Ms Ntuli asked whether the Bill would regulate interest rates as well.

Ms Ludin replied that this will not be dealt with in the Bill. Micro-lenders that did not want to register challenged the imposition of the ceiling rate in court. The courts held that the ceiling cannot be imposed until proper research has been conducted on the matter to motivate it. This study was duly done but the problem was that the recommendations from the report stated that the ceiling should be set at 30% per month, as this amount was thought sufficient to allow them to continue. The matter which now has to be considered is how to enact these recommendations in a manner consistent with the broader performance framework.

The Chair requested that some figures be provided for clarity. The Usury Act currently sets the ceiling at 38% and the exemption notice stipulates that loans up to R10 000 may be exempted from this cap. The original proposal was ten times prime, yet the current recommendation is 30% per month.

Ms Ludin replied that prime currently stands at 29% and the study conducted proposed a rate of 30% per month, with the Usury Act setting a rate of 29%. The rate could therefore be more than 10% and the study indicated that it should have to be at least 15% of the usury rate.

Ms Ntuli informed Members that a case had been brought to her attention in which an individual who was earning R900 per month was making loan repayments of up to R500 per month. Within the space of just one year, the amount payable on that loan increased from R3 000 to R9 000. How could this be? If this is the current state of affairs, is the micro-lending industry and its present regime really assisting the poorer sectors of society?

Ms Ludin replied that the Department does share the concerns raised, and this issue is a key concern which has to be addressed in the new policy framework. This sort of practice is currently being addressed via the National Loan Regulatory body and the Reckless Lending Rules, which provides that a certain percentage of the loan cannot exceed the total amount due on the loan. This is aimed at preventing the lender from granting loans which the debtor cannot afford to pay back because of reckless lending. This essentially amounts to entrapping the vulnerable individual.

Ms Ntuli suggested that the practice referred to in her factual scenario actually amounts to the charging of compound interest, because the individual was being charged interest on the balance as well.

The Chair stated that these broader policy debates can be engaged with NEDLAC.

Ms Ludin responded that significant headway is being made on this process, and this Committee can be briefed on the policy framework in the next three months.

Mr Lockey stated that he agrees that the scope of the Bill actually deals with peripheral issues, instead of the actual predatory practices. It does not ensure protection for the poorest of the poor, and makes no difference whatsover. A sustainable interest rate has to be fixed.

Ms Ludin assured Members that the Bill will make a difference with regard to the incidences of fraud by granting more enforcement powers to address the issues. These issues are not being addressed in the current legislative framework, as it is biased towards the higher and middle income earners.

Mr Rasmeni sought clarity on the manner in which the matter is currently being dealt with by inspectors.

Ms Van Zyl replied that those micro-lenders that are not registered do not currently contravene the Usury Act, and for this reason the legislation has to be amended. It is only the Department that presently has the authority to inspect these micro-lenders, and the proposed amendment thus seeks to ensure compliance with the Usury Act and not necessarily the exemption notice.

Ms Hajaij asked whether this would then allow those micro-lenders an option.

Ms Ludin responded that it is not really an option because the Usury Act does not currently provide for registration, and this is part of the broader issue.

The Chair stated that the concerns being raised by Members are that the Bill does not solve all the problems facing the poor, but it does take steps towards addressing the problem.

Emerald Van Zyl Business Consultants (submission)
Mr Emerald Van Zyl: Emerald Van Zyl Businesss Consultants, submitted that the current problems facing the micro-lending industry are caused by both the Department and the MFRC themselves, because neither is properly administering the Usury Act. The inspectors are not executing their functions properly, files have gone astray and the Department “seems to be averse to the proper application of the Usury Act”, with the result that it wishes to delegate powers to the MFRC. The efficiency of the MFRC is also in doubt, as it will not act against its own Board Members, namely the commercial banks who constitute 80% of micro-lenders, and its financial viability is also questionable. (please see submission attached)

Discussion
Ms September contended that the submission does not reflect Mr Van Zyl’s view on the Bill, and he should indicate whether he supports it or not. Furthermore, many of the factual cases he refers to in the submission can be referred to the Public Protector.

The Chair stated that Mr Van Zyl is essentially an “interest rate checker”, and his concern is that the Department is not focusing on interest rates but more on the micro-lending industry. Should such matters instead be dealt with in a particular Bill?

Mr Van Zyl replied that he does not support the Bill because the Department currently has a sufficient number of inspectors to conduct proactive inspections, but they are blocked from doing so for some reason. Why delegate these powers to the MFRC when there are sufficient resources available within the Department to conduct these inspections? Some inspectors do not even handle complaints.

Ms Ludin responded that Mr Van Zyl’s submission stated that there are 28 officials within the Department’s Licensing and Inspections Directorate, which used to be the National Inspectorate. Yet this is not the case, as the Licensing and Inspections Directorate was not formerly National Inspectorate. The directorate now deals primarily with the Usury Act, and will also be dealing with the Liquor Act in future. There are currently seven inspectors responsible here, with tow operating in the Western Cape and one each in both Kwazulu-Natal and Gauteng. These inspectors have a broad spectrum of responsibilities, and do not deal with the Usury Act alone.

With regard to the statements regarding the failure of the Department and the MFRC to conduct regular proactive inspections, a sufficiently large number of complaints have not yet been received to justify such inspections.

As concerns the statements regarding the resources available to the Department, all efforts are being made to employ the services of the inspectors as efficiently as possible to accommodate all the legislative mandates. The Usury Act is just one piece of legislation within the competence of these inspectors, and the Department is thus not currently dedicated exclusively to the administration of the Usury Act. The Bill seeks to effect such administration to cure the insufficient resources available to the Department, so that it may deal effectively with the micro-lending industry, especially in the rural areas. The approach of the Department, from a policy perspective, is to be proactive.

With regard to the statements made by Mr Van Zyl regarding the role played by the Department in the fate of Saambou Bank, both the Department and the MFRC were, and the matter is being concluded at the moment.

Mr Van Zyl replied that the curator of Saambou found huge errors on the Saambou books, including overcharging on rates. Yet not one was rectified or referred to the Director of Public Prosecutions.

The Chair proposed that this matter be referred to the Public Protector, because the matter cannot be investigated further in this Committee.

Ms Ntuli referred to Mr Van Zyl’s statement that 80% of the micro-lenders are commercial banks and asked how legal the current situation is, if this is in fact the case. If the commercial banks refuse to grant loans to the poorer sector of society but then also exercise control over the micro-lending industry, this matter has to be resolved.

Mr Lockey contended that if large scale contravention is involved Parliament would have to take an active role, and cannot merely refer the matter to the Public Protector.

Ms Hajaij sought clarity on the actual number of inspectors involved here, because Mr Van Zyl indicated that 21 are tasked with this mandate, whereas the Department contends that only 7 have been appointed.

Mr Van Zyl responded that he received those figures from the Minister himself via Mr Farouk Cassim (MP). The letter from the Minister, contained in the submission, indicates that these inspectors have been mandated to conduct inspections, and R40m has been spent by the MFRC over the last few years on such operations. Why can the Department not stretch its current resources to include these inspectors, instead of spending R40m to inspect the remaining 20% of the micro-lending market. There does not seem to be any reason to delegate its powers.

Southern African Money Lending Affairs Council (SAMLAC) submission
The SAMLAC submission was presented by Mr C van Rensburg, Managing Director: SAMLAC, whose main concerns are the following:
-The MFRC wishes to receive more power which it will then abuse by forcing moneylenders to register with the MFRC
-The MFRC is not able to exercise its current functions and it is not financially viable.
(please see submission attached)

Discussion
The Chair requested Mr van Rensburg to indicate who SAMLAC represents, and whether it contends that there is no need for the exemption notice.

Mr van Rensburg replied that SAMLAC represents difference categories of micro-lenders operating within the complex micro-lending industry, and the majority of its members are involved in the 30-day lending area. It is SAMLAC’s contention that the Section 713 notice should never have been promulgated. As indicated in the submission, R40 million has been spent by the MFRC on inspectors, and this matter is even the subject of a current court case in an attempt to arrive at a solution. There is however an easy solution: the Usury Act itself is a beautiful law, there is no need for the exemption notice or regulatory institutions. Simply use the Usury Act to create a licensing system with the Registrar and increase the current number of inspectors via the Usury Act.

The Chair asked Mr van Rensburg to indicate whether the micro-lenders SAMLAC represents are happy with the current position in the Usury Act.

Mr van Rensburg replied in the affirmative, and informed Members that SAMLAC foresaw the current problems facing the micro-lending industry as far back as 1999 when the Section 713 notice was introduced. SAMLAC has since been evaluating the problems and identifying solutions to prepare itself for precisely an occasion such as this, when the problems caused have to be resolved.

Ms Ludin reponded to SAMLAC’s statement regarding the protection granted by the Usury Act by stating that only 2% of the finance charges are interest rates, and the MFRC does not take an upfront fee. The exemption notice aimed to ensure that a proper disclosure of all charges.

With regard to the statement concerning the effectiveness of the MFRC, it has to be remembered that the Bill does not directly affect the MFRC, but is instead aimed at the regulatory institution approved in terms of the exemption notice. The two are thus not related. The Department would be happy to engage SAMLAC on these issues.

As regards the figure of “R40 million”, the MFRC budget currently stands at R12 million per annum, which the Department funds for the purposes of education, debt counseling and for proactive inspections.

There were no further questions or comments and the meeting was adjourned.

Appendix 1:
BRIEFING NOTES ON THE USURY AMENDMENT BILL, 2003
INTRODUCTION

1.         The purpose of the Bill is to introduce certain amendments to the Usury Act, 1968 (Act No 73 of 1968) (the Act) so as to:

S                    provide for persons other than public service officials to be appointed to inspect the activities of a moneylender, credit grantor or lessor and 

S                    define, for clarity purposes, the chief executive officer, inspector and regulatory institution.  

2.                   In June 1999, in Government Gazette No 20145, Notice No 713, the Minister of Trade and Industry exempted a category of money lending transactions from the provisions of the Act with the exception of sections 13, 14 and 17A of the Act on certain conditions. The main condition of the Exemption Regulation being that a money lender has to be registered with the Micro Finance Regulatory Council (MFRC) to utilize the Exemption Regulation. A large number of money lenders have opted not to register with the MFRC or have not renewed their annual registration. It appears therefore that non-compliance with the provisions of the Usury Act has increased requiring decisive enforcement action.

3.                   The proposed amendments in the Bill are aimed at addressing the lack of capacity that presently exists to conduct inspections on the large number of unregistered micro-lenders that probably contravene the provisions of the Usury Act. The proposed amendments will enhance the enforcement capacity and protect consumers from unscrupulous moneylenders.

CONSULTATIONS

4.                   The Bill was discussed with the MFRC as it is, at this point in time, the only regulatory institution that will be effected by the amendments to the Act. The MFRC supports the proposed amendments.

CLAUSE 1

5.                   The Usury Amendment Bill, 2002, provides for persons other than public service officials to be appointed as inspectors to inspect the activities of moneylenders, credit grantors and lessors. To give effect thereto, it is necessary to include and  amend definitions in the Act.

6.                   The Bill defines a chief executive officer, an inspector and a regulatory institution and amends the definition of the Registrar. A chief executive officer means the person having the executive authority within an approved regulatory institution.

S                    A regulatory institution in turn means a legal entity approved by the Minister of Trade and Industry in terms of any regulation or notice promulgated under the Usury Act.

S                    An inspector means any person appointed in terms of the Act.

7.                   The definition of the Registrar has been amended to include the chief executive officer. Persons to be appointed by the Registrar and the chief executive officer as inspectors, need to have the same powers to carry out inspections. For this purpose, the chief executive officer has to have the same power and authority as that of the Registrar. To give effect to this, the definition of the Registrar has been amended to include the chief executive officer and it is made clear that the chief executive officer will for the purposes of sections 12, 13, 14, 17A and 18A of the Act have the same power as the Registrar. Amendments are proposed under sections 12 and 13 and are discussed under clauses 2 and 3. The amendment proposed to section 18A is discussed under clause 4.

8.                   Sections 14 and 17A of the Act allow the Registrar to request any information from any moneylender, credit grantor or lessor and if any of them fail to submit the requested information, a penalty may be imposed. The chief executive officer will in terms of the proposed amendment to the definition of the Registrar also be empowered to impose a penalty.

CLAUSE 2

9.                   Section 12 of the Act allows the Registrar to conditionally delegate or assign any power or duty conferred upon him or her to any officer or employee and this provision should be extended to the chief executive officer to ensure effective management.  The inclusion of the chief executive in the definition  of the Registrar, will allow the chief executive to also delegate or assign any duty conferred upon him or her, thereby ensuring effectiveness.

10.               The specific amendment of section 12 is to replace “officer or employee in the public service” with “person”, thereby giving effect to the aim of the Bill by providing that persons other than public service officials can be appointed as inspectors and that duties can be delegated or assigned to such inspectors.   

CLAUSE 3

11.               Presently, in terms of the Act, the Registrar may appoint a person who is not in the full-time employment of the State as a temporary inspector for a particular inspection.  With the proposed amendments, the Registrar as well as the chief executive officer of a regulatory institution approved by the Minister of Trade and Industry will have the ability to appoint persons other than civil servants to carry out inspections on a continuous basis and not only as temporary inspectors for particular inspections.

12.               Section 13 of the Act allows the Registrar to appoint inspectors and to issue them with appointment certificates. To effectively manage inspections performed in terms of the Act, the chief executive officer must be allowed to appoint his or her own inspectors, hence the proposed amendment to the definition of the Registrar. Subsection (1) (b) is amended to delete the specific reference to officers as defined in the Public Service Act and to replace it with just “persons”.

13.        The deletion of subsections (2) and (3) and amendment of subsection (4) are consequential as it refers to the procedures for appointment of a person that is not in the employment of the State.

CLAUSE 4

14.        In terms of section 18A of the Act, the Registrar has the right to approach a court of law for a declaration order. The same right should be extended to the chief executive officer should he or she require such declaration to ensure proper compliance with the Act. The inclusion of the chief executive in the definition of the Registrar, will allow the chief executive to also approach a court of law for an order. 

15.        The specific amendment to section 18A of the Act is to replace the references to the “Supreme Court” to the “High Court”.   

MEMORANDUM ON THE OBJECTS OF THE USURY AMENDMENT BILL, 2003

The purpose of the Bill is to provide for persons other than public service officials to be appointed as inspectors to inspect the activities of moneylenders, credit grantors and lessors. It has consequently become necessary to define an inspector, a chief executive officer and a regulatory institution and to amend the definition of the Registrar. A chief executive officer means the person having the executive authority within an approved regulatory institution.  A regulatory institution in turn means a legal entity approved by the Minister in terms of any regulation or notice promulgated under the Usury Act.  An inspector means any person appointed in terms of section 13 of the Act.

To ensure effectiveness, provision has been made for the delegation and assignment of powers and duties by the chief executive officer to any person.  The Registrar as well as the chief executive officer have been given the power to appoint persons other than civil servants to carry out inspections on a continuous basis and not only as temporary inspectors for particular inspections.  All persons appointed by the Registrar and the chief executive officer as inspectors will have the same powers to carry out inspections. For this purpose, the chief executive officer has to have the same power and authority as that of the Registrar.  To give effect to this, the definition of the Registrar has been amended to include the chief executive officer and it is made clear that the chief executive officer will for the purposes of sections 12, 13, 14, 17A and 18A have the same power as the Registrar. Section 12 will allow the chief executive officer to delegate any power or duty conferred upon the chief executive officer and section 13 will allow the chief executive officer to appoint inspectors and to issue them with appointment certificates.  Sections 14 and 17A will allow the chief executive officer to request any information from any moneylender, credit grantor or lessor and if any moneylender, credit grantor or lessor fail to submit the requested information, the chief executive officer may impose a penalty.  In terms of section 18A, the chief executive officer will have the right to approach a court of law for a declaration order. 

Parties consulted

            The Micro Finance Regulatory Council.

Financial implications for state

            Revenue obtained from the licence fees paid by regulatory institutions will be utilized to fund the inspectors

Parliamentary procedure

The State Law Advisors and the Department of Trade and Industry are of the view that this Bill must be dealt with in accordance with the procedure established by section 75 of the Constitution since it contains no provision to which the procedures set out in section 74 or section 76 of the Constitution apply.

 

Appendix 2


USURY AMENDMENT ACT, 2003
PORTFOLIO COMMITTEE
TRADE AND INDUSTRY
4 FEBRUARY 2003

1. I, on behalf of SAMLAC (Southern African Money Lending Affairs Council) appreciate the opportunity granted to the SAMLAC to submit this memorandum to the Portfolio Committee containing our view on the Usury Amendment Act, 2003 attach as annexure “A”(1-4)

R40 000 000.00 (FOURTY MILLION RAND). Please remember this figure.

2. Since we can’t find any motivation for this bill I want to draw the Portfolio Committee’s attention to annexure  “A (4)”, the MEMORANDUM ON THE OBJECTS OF THE USURY AMENDMENT BILL, 2003.

3. SAMLAC’s interpretation of the objects are:
3.1) To make use of the Usury Act (ACT 73 of 1968) to:

A) Define: i) Inspector
 ii) Chief Executive officer
iii) Regulatory institution

B) To change the definition of the Registrar in order to give a Chief Executive Officer of a non-governmental Regulatory Institution the power to inspect, prosecute and fine offending moneylenders, credit grantors and lessors and even delegate his powers to a third party.

C) To give the Chief Executive Officer of a non-governmental Regulatory Institution the authority to approach a court of law for a declaratory order.            
                                                                                     
4. Before I continue I just want to draw the Portfolio Committee’s attention to annexure “A”(4) paragraph 3 “PARTIES CONSULTED”
As can be seen from this paragraph the only entity consulted was the Micro Finance Regulatory Council.
 
4.1 The Micro Finance Regulatory Council is a Regulatory Institution, promulgated under section 15A of the Usury Act, and regulates registered lenders that have been exempted from the stringent conditions of the Usury Act.

 4.2 The consumers borrowing from these lenders are also exempted from the protection measures of the Usury Act.

4.3 Furthermore, I want to draw the Portfolio Committees attention to the fact that the MFRC is the only regulatory institution promulgated under a notice of this Act, an Exemption Notice for that matter. Therefore we must assume that this Bill was drafted specifically for them. Our conclusion is confirmed by annexure “F” which will be discussed later.

4.4  I now draw the Portfolio Committee attention to annexure “A” 4 paragraph 4 “FINANCIAL IMPLICATIONS FOR THE STATE”                                                    
It is promised that there are no financial implications to the state
Mr. Chairman and Portfolio Committee Members don’t be fooled!  With the establishment of the MFRC the same tactics was used and today government is bailing them out by contributing 12% of their income as can be seen in Annexure “J” that will be discuss later.

5. Before we discuss the Bill let us look at the following:
As you are aware, when altering a law consideration must be given to at least the following:
5.1 What is the real purpose or motivation for the change?
5.2 What is the impact on consumer’s rights?
5.3 What is the impact on the constitution?                                             
                                                        
6 In order to prove our point, let us look at the following scenario:                                                                                 

“The Bill on Public Protection’                                                            

Government delegates all the power of the whole Police Services as well as the Scorpions to security companies.

OBJECTIVE IS TO EXPAND PUBLIC PROTECTION WITHOUT ANY FINANCIAL IMPLICATION TO THE STATE                                
A simple bill in one sentence but let us look at the results;
 
6.1 Big security companies will hire the top police officers at
better salaries than what the state offer them causing a brain drain and leave only low ranking officials in the force. These companies can afford this because they have rich customers that have contracts with them to protect them and inspect or investigate complaints. These companies can even hire their officers out for specific tasks or investigations to the rich. It can even be malicious investigations to give a customer a business advantage over a competitor.

6.2 The low ranking officials left in the Police Force will be unable to fill these positions and perform their duties resulting in chaos.

6.3 Also knowing that they are underpaid these officials will simply do as little as possible and use excuses like “we are understaffed” and refer complaints to the security companies. They can even do deals with the security companies for commission on references.

6.4 The poor will have nowhere to turn for help because they do not have money to pay the expensive security companies.

6.5 Crimes committed to the poor will not be reported any more, leaving them vulnerable.
                                                              
6.6 From now on if a citizen of this country needs protection, he will have to pay for it, that is to say if he can afford it.

6.7 If a woman report a rape offence, she will have to pay the bill.

6.8 Any citizen who wants to report a murder case must pay.

6.9 If something goes wrong the government is protected and
they could just blame it on the Head of the Police. Remember his power was never taken away.

7 By now this Portfolio Committee must have realize that this is madness. Well, it is and somebody is trying to make you part of this. Please don’t be shocked.

8 The Usury Amendment Bill, 2003 is asking this Portfolio Committee exactly the above. The author of this bill is asking this Portfolio Committee to delegate the powers of the “police force” of the Usury Act, which is the registrar and the inspectors to a “legal” entity, known as a Regulatory Institution. 

9 In support of our submission and because of time limits, SAMLAC will now concentrate on Section 1 (d) – “Regulatory institution”

9.1 The author asked this Portfolio Committee to delegate the Powers of the “police force” of the Usury Act, which is the registrar and the inspectors to a “legal” entity, known as a Regulatory Institution. 
           
9.2 This institution charge moneylenders to “police” them.
 
9.3 The moneylender in turn charge the poor borrower extra interest in order to pay the regulatory institution.
                                               
9.4 If a borrower has a complaint, the Registrar will refer him to the Regulatory Institution who will use it’s new found “Registrar powers” to inspect and prosecute the offending moneylender in-house in a “kangaroo” style court according to its own rules.

9.5 In this way the regulatory institution retains the fine’s (annexure "D") he lay on the moneylender and allows the moneylender to continue with his business.

9.6 Should the regulatory institution de-register the offending moneylender, he will loose income. This is clearly a conflict of interest.

10 Mr. Chairman, Members of the Portfolio Committee, don’t be shocked. It is happening already and I refer you conveniently to annexure “B”(1-6) and “C”(1) paragraph 3, an extract of a report by the MFRC on unregistered moneylenders. I further draw the Committees attention to annexure ”C” paragraph 4 where lenders do not register anymore as a result of “Kangaroo” style courts. It is evident from annexure “D” that such courts has taken place and fines has been paid in contravention of the Exemption Notice 713.

11. You have been made believe that there is a huge problem in the industry and that moneylenders refuse to register, therefore the Regulatory Institution needs this powers. Please do not forget that this is a Regulatory Institution regulating moneylenders exempted from the Usury Act.  

12. The facts are and will be verified by a Commission of Enquiry that: -
12.1 Registered moneylenders that do not comply with Exemption Notice No. 713 is just as illegal as unregistered moneylenders that charge interest rates in excess of the limits of the Usury Act.

12.2 The mere fact that a registered moneylender has paid the regulatory institution a registration fee doesn’t make him legal. He must comply fully with the conditions of the exemption notice.
 
12.3 The regulatory institution that is aware of contraventions of a registered moneylender, and does not de-register him, is in contravention of the Exemption Notice himself and is defeating the ends of justice and must be de-registered by the Minister as per annexure “E”(2) paragraph 3 General 3.3
 
12.4 It appears that the MFRC cannot interpret the Exemption Notice 713 correctly, otherwise they would not have asked for such powers. The reason for this is simple. Government cannot allow a regulatory institution to have the privilege of being exempted from the Usury Act, and then continue with his business under his own supervision without overseeing of the Registrar. I refer you to annexure “E”(2) paragraph 1.It is evident that even if this bill is passed the M.F.R.C. cannot apply for this power. Not withstanding the above SAMLAC put on record that if this bill is passed the Minister will change Exemption Notice 713 on request of the M.F.R.C. to give the M.F.R.C. this power illegally.

12.5 There is no doubt that the MFRC is “power crazy” and that they will abuse their power. I refer the Committee to annexure “F”, a letter that was circled by one of their directors one day after it was published in Die Burger date 22 January 2003. A copy of the article is attached as annexure “G”.

12.5.1 From the aforementioned letter it’s very clear that without the Bill even being passed by Parliament non- exiting powers has already been delegated  to forensic auditors, Gobodo to harass and intimidate moneylenders that comply with the strict measures of the Usury Act to force them to register with the MFRC.

12.5.2 What is frightening about this letter is that the MLA (Micro-lenders Association), of which most of their directors and members contravene Exemption Notice 713 while being registered with the M.F.R.C., instigate their members to take part in this process.  These Directors must be charged for defeating the end of justice and their members should be charged for contraventions of the Usury Act.
                                   
12.5.3 It seems further from evidence in annexure “H”(1-6) that the MFRC is only interested in money. Here are three moneylenders that were automatically deregistered from the MFRC almost two years ago. Without bothering if they have ever complied with the exemption notice during this period, the MFRC just send a letter of demand for two years subscription fees. How many more have received this demands?
 
12.6 Three questions arise from the aforementioned: -                
                        1) Is the MFRC competent ?
                        2) Are the MFRC in financial trouble?
                        3) How many moneylenders did not re-register with the MFRC?

12.6.1 This Committee can obtain the prove on the third question from requesting the MFRC files from Moodie & Robertson Attorneys. We estimate that there are probably less than 900 registered.
                                                           
12.6.2 The second question is apparent from annexure “I” an extract from the financial reports of the MFRC and annexure “J” an extract from an affidavit of Mr. Gabriel Davel in which he acknowledge that in contravention of the Exemption Notice the Government has contributed 12% of the MFRC income. I further draw the Committees attention to the last paragraph of annexure “K”.

12.6.3 In public interest we request the Committee to institute a Commission of Enquiry into the affairs of the MFRC  before any further attention can be given to this Bill    

REMEMBER THE R40 000 000.00 (FOURTY MILLION RAND) WE REFERED YOU TO? 

THAT IS THE AMOUNT SPEND SO FAR TO KEEP THE REGULATORY INSTITUTION IN EXISTENCE: 12 % OF THIS WAS TAX PAYERS MONEY = R4 800 000.00 (FOUR POINT EIGHT MILLION RAND.) AND WAS NOT SUPPOSE TO COME FROM GOVERNMENT (Refer to annexure “E”(1) SCHEDULE 1.6. (e)) 

HOW MANY INSPECTORS CAN GOVERNMENT EMPLOY FOR THIS AMOUNT ?                                               
IT IS SAMLAC’S SUBMISSION, AND WE PUT IT ON RECORD, THAT THIS BILL (USURY AMENDMENT BILL, 2003) AS WELL AS EXEMPTION NOTICE 713 MIGHT BE UNCONSTITUTIONAL.

BECAUSE SAMLAC IS COMMITTED TO FIND SOLUTIONS FOR THE PROBLEMS IN THE MONEYLENDING INDUSTRIES WE LIKE TO BRING TO YOUR ATTENTION  THAT THERE IS ENOUGH SCOPE WITHIN THE USURY ACT ITSELF TO CATER FOR ALL DIFFERENT CATEGORIES OF MONEYLENDING TRANSACTIONS IN SOUTH-AFRICA WITHOUT AN EXEMPTION NOTICE THAT INFRINGE ON CONSUMER’S RIGHTS.

 LET US GIVE THE CONSUMERS AS WELL AS THE MONEYLENDERS THEIR RIGHTS BACK UNDER THE PROTECTION OF THE USURY ACT (ACT 73 OF 1968.)

FACT: THE AUTHORITY OF PROSECUTION VEST IN THE MINISTER OF JUSTICE, WHO BY LAW HAS THE POWER TO APPOINT PEACE OFFICERS. D.T.I’S POWER VEST IN THE CRIMINAL PROCEDURE ACT AND VARIOUS DEPARTMENTAL ACTS THAT CAN NOT BE DELIGATED TO ANY PERSON OR LEGAL ENTITY WHETHER FOR GAIN OR NOT

I THANK YOU

Yours Faithfully
…………………
C. van Rensburg

Appendix 3

USURY AMENDMENT BILL, 2003

1. I thank you for the Opportunity to submit this memorandum containing mv views on the application of Usury Act No 73 of 1968, as amended and the Usury Amendment Act, 2003.

2. It is common knowledge that the Usury Act was promulgated, inter alia, to protect the consumer from exploitation by financial institutions

3. Mr. Bob Tucker, Chief Executive Officer of the Banking Council, commented as far back as 1980 in an article titled “Limitation and Disclosure of Finance Charges Act [Usury Act] in De Rebus as follows:-

The more one studies the legislation, the more apparent it becomes how fertile a field this had been for a cultivation of “usurious" practices, and the more impressed one becomes with the way in which the legislation has been pieced together, to bring these practices under control"

4. In May 1997, Mr. A. Erwin, the Minister of Trade and Industry, in Parliament commented as follow on the Usury Act:-

“I would urge the members to listen to this because it concerns their rights. If they were more familiar with their rights, they might not be charged so heavily by the financial institutions".
F&T Weekly, 23 May 1997

5. In the past eight years the need for the protection of the public has grown tremendously and will continue to grow as more and more people in our country become creditworthy and able to afford their own houses, and more luxuries such as motor cars, television sets, electrical appliances, etc.

6. With the high cost of education, very few of us can afford to send our children to universities and other tertiary institutions of higher education, unless we can obtain cash loans or other forms of credit.

7. It is common knowledge that certain banks charge incorrect fees and interest in excess of the rates permitted in terms of the Usury act. Some banks even have separate departments to recalculate interest charges on loans and overdraft in cases where complaints are received. More that R 400 million has been refunded to clients by banks during the past 9 years, as one can see by visiting the website www.bankgate.co.za.  This website reflects a poor picture of the banking industry in South Africa.

8. Many home-owners have or are in the process of losing their homes by way of sales in execution for alleged arrears with monthly payments on loans. During the past 12 months approximately 40 such sales were stopped in Court. The recalculating of the accounts in accordance with the provisions of the Usury Act showed that the majority of these bondholders were in fact not in arrears. In a particular case Mr. Andreas April, a pensioner, was summonsed by Saambou Bank for allegedly being in arrears for the amount of R 46 000 on his mortgage bond. Recalculating the monthly payments in terms of the Usury Act, showed that Mr. April's bond had in fact been settled, and the Bank actually owed him R 8 000,00.

9. At this stage, before I comment on the Usury Amendment Bill, 2003, please allow me to bring the following disturbing facts in connection with the application of the Usury Act, by the Department of Trade and Industry under the attention of the Portfolio Committee.

9.1 1. One of the Directorate:- Licensing and Inspections (formerly National Inspectorates) major functions in the application of the Usury Act is to undertake pro-active inspections of financial institutions, promulgated under section 13 of the Act - Powers of Inspection. During the past 7 years not a single pro-active inspection was conducted.

9.1.2. In a letter No ITM/3/2/1/2 dated 8 March 2002, addressed to me, the Minister of Trade and Industry states that because of limit resources “the Department is still concentrating on complaints lodged about alleged contraventions of the Usury Act rather than pro-active inspections”

9.1.3. This statement contradicts Mr. Irwin’s written reply in the National Assembly to Mr. M.F. Cassim (Question 709) that the officials in the National Inspectorate are tasked with the responsibility to inspect compliance with legislation where there is a statutory requirement on government to perform inspections. I attach a copy of the written reply as annexure “B”

9.1.4. In the afore-mentioned letter he states that the complement, of the Directorate: Licensing and Inspections consists of 28 officials, 21 of whom are tasked with the responsibility of inspection. Two of these 21 inspectors are tasked with the administration of the Usury Act. One of these inspectors has lodged a grievance with the Director-General Complaining that the Registrar of the Usury Act, Ms Lana van Zyl, had failed to do pro-active inspections of financial institutions. See paragraph 9.1 .3.

9. 1.5. In Parliament Mr. A. Erwin confirmed that approximately 100 cases were being investigated by the National Inspectorate against financial institutions. Mr. M.F. Cassim (IFP NIP) used the formal parliamentary procedures (question No.1 267) to ask the Minister about the progress in the investigation of the 100 cases and whether any of the relevant files had been lost.

The minister replied as follows on the question:-

 

“Yes, some of the files have gone astray. According to a list of files submitted in a court matter against the Department, it became clear that not all files appearing on the list, are still in the possession of the Department"
“The staff of the National Inspectorate is in the process of working through the files, and will forward new requests to the financial institutions".

 

9.1.6. In an article in the Sunday newspaper “Rapport” of 6 May 2001, titled "Van Zvl omseil moeilike vrae”  (copy attached as annexure “C”) it was reported that when questioned by Rapport on the progress of the 100 cases, the Registrar of the Usury Act (who is also Director of the National Inspectorate), Ms. Lana van Zyl, stated she had no knowledge of the files referred to.

Whenever concerns such as these are raised in Parliament the excuse is that the Department is being re-organized. It appears to have been in a constant state of reorganisational flux since shortly after 1994 -efficiency appears elusive.

9.1.7. The Director-General of the Department of Trade & Industry, Dr Alistair Ruiters, in a letter dated 11 May 2000 to Dr Fanus Gouws, Editor of Rapport, wrote the following:


­The fact that the majority of the South African population still does not have access to the formal banking sector played a contributing role in the decision not to prioritise alleged contraventions by large financial institutions towards a small, well-educated minority group".

 

I attach a copy of this letter as annexure “D”

 
This could be interpreted as if you were a member of a small, educated minority group, you are in fact actually classified as second-class citizen, and the government will take its time protecting you, if at all. What Dr. Ruiters does not explain in the aforementioned letter that 80% of the micro loan industry is controlled by the registered commercial banks.

9.1.8. As the Department is now apparently concentrating on complaints of clients from “small, well-educated minority group” I wish to inform the Committee that the majority of complaints submitted to the Department were unsatisfactorily handled. As far as I am aware 5 complainants lodged complaints regarding the poor service they received from the Registrar of the Usury Act with the Public Protector. One client has laid charges against Ms. Lana Van Zyl with the S.A. Police Services for defeating the ends of justice (See article in Rapport attached as annexure “C”)

9.1.9. If this is the result of investigation into complaint by “small well -educated minority group”,   I shudder to think what the results will be when complaints are received from those who deserve pro-active investigation by the Department. This is, the poorest of the poor, who do not have access to the formal banking sector. On 27 November 2003 a letter signed by Mr. D. Skippers. a representative of NUMSA. was sent to the Registrar of the Usury Act in connection with 23 workers at TRW, Atlantis, regarding contraventions of the Act. These 23 complainants signed a memorandum that was attached to the letter, and of which I attach a copy as annexure “E”. To date the Registrar has not even had the courtesy to acknowledge receipt thereof.

9.1.10.In the light of what I have said above. it would appear that the Department of Trade and Industry seems to be averse to the proper application of the prescriptions of the USury Act and it is for this reason that one could conclude that the Registrar wants to delegate powers to the MIFRC, or any other appropriate regulatory institution.

10. In my humble opinion it is because of the non-application of thorough, pro-active investigations that Saambou Bank collapsed on 9 February 2002. In 1990, Saambou Bank ignored a warning from the Reserve Bank that the calculation of interest in advance before payment date, without the adjustment for payment later the month, is in contravention of the Usury Act. Notwithstanding, Saambou Bank continued using this method until September 1999, recovering millions of Rand on illegal interest from bondholders. The letter from the Reserve Bank is attached as annexure “F”. I wish to invite the Committee’s attention to the contents of my letter dated 11 February 2002 in respect of the collapse of Saambou Bank, addressed to the Registrar of Banks, Mr. Christo Wiese, a copy of which is attached as annexure “G”.

11. With reference to the proposed Amendment Bill to the Usury Act it seems odd that consultation only took place between the Department of Trade and Industry and the MFRC without considering any other outside institutions that have a fundamental interest in affairs of this nature.

12. Although it would appear that “reason” had been put forward for the proposed amendments to the Act, such “reasons” are not supported by acceptable and/or justifiable motivation.

13. In my experience with the MFRC, their efficiency is in great doubt for the following reasons:-

13.1. It is a known that that the MFRC does not undertake pro-active investigation into any registered commercial banks because of the obvious reluctance of the Registrar of the Usury Act,  Ms. Lana van Zyl undertaking such investigations

13.2. The commercial banks are represented by the Banking Council on the Board of Directors of the MFRC and will not act against their own members.

13.3. The MFRC received quarterly financial reports from all the registered lenders which included Saambou Bank. The question that needs to be answered by the MFRC is how was it possible with all the information, that they could not establish before the time that this institution was a sinking ship?

13.4. The MFRC is well aware of the fact that some of their registered lenders enter into telephonic contract with the public, without producing proper standard written agreement, which is required in terms of section 2.2.3 of Annexure A of regulation 713 which relates to the “Rule for purpose of exemption under section 15A” as published in the Government Gazette dated 1 June 1999.

3.5. The MFRC is totally aware of irregularities being committed by it’s registered members, but is reluctant to act against them.

14. Having regard for the content of this document, it is my considered opinion that there is an urgent need for the appointment of a Commission of Enquiry to investigate the apparent irregularities which are present in both the MFRC and the Directorate:- Licensing and Inspections in the Department of Trade and Industry before the Usury Amendment Bill, 2003 is finally approved by Parliament

Yours faithfully
Emerald van Zyl


 

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