National Consumer Council budget request and National Credit Regulator briefings

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Trade, Industry and Competition

25 October 2011
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The National Consumer Council completed answering questions raised in the previous  week's meeting.  It worked with the South African Bureau of Standards and finalising service agreements with other Government departments and entities like the Department of Health and the National Prosecuting Authority. There was a need for an internal legal capacity, because of the drafting of compliance notices which had to be properly and legally articulated, The Council had done a study to ensure that accredited consumer groups would have the power to bring class actions. Litigation was mostly over compliance notices to mobile operators who had all lodged objections. The anticipated legal costs related to the cell operators objections was R26 million. The Council would be participating as a friend of the court as the cell phone companies were undermining it by going to court and not waiting to hear the outcome of the Council. The revised budget totalled R80.1 million.

Members asked for which period the budget was intended. Would the Department of Trade and Industry would fund a next round of increases should the legal costs that the Council  had incurred require it to do so? How effective and available was the Council to consumers. What was the strategy to empower consumers? How many people would be employed  according to the salaries line item in the budget and what type of work would they be doing? When would the opt-out registry be concluded? Had the Council acquired its office space? Should the law amended such that if a case was brought before the Council it could not be taken to court? Was the R81 million rand for the five month period? What was the Council's budget for the medium term? How much of the budget allocation had been spent and what were the implications should the funds not be available. Was the Department not aware of the amount of funds required by the Council when the budget was initially drawn up? Was the email connectivity sorted out? How did the absence of a website control affect communications with consumers? Was there was a provincial office where complaints could be resolved or was it only through the national office?

The National Credit Regulator reported that it had no board currently but that nominations would be submitted to Cabinet by the first week of November. 'Public' debt as a percentage of gross domestic product  stood at 32%. Consumer credit amounted to R1.2 trillion. Only 39.1 % of credit consumers were current on their payments, 14.2% were one to two months in arrears and 18.5% were three or more months in arrears.  13.9% had adverse listings. Judgements and administrative orders had been issued against 14.3%.Continuous increases in interest rates and fuel meant that indebtedness would increase. There were 4 755 credit providers and 11 credit bureaus registered. There were 18.4 million credit active consumers and 2 027 debt counsellors. There were five accredited payment distribution agencies and debt counsellors were not allowed to collect and distribute monies. Debt counselling applications stood at 276 001 and were being received at a rate of 6 000 per month. The Banking Association of South Africa together with the Debt Counselling Association of South Africa and the Regulator had embarked on a national consumer awareness campaign in 2010. The Regulator reported unqualified audit reports since inception, an unanswered call rate of less than 10%, and refunds to consumers of R31 million.

Members asked if the Regulator was being undermined by the number of cases being taken to the high court. Where were the five distributing agencies located and why were there so few? How many people were employed by the Regulator and how could the lack of human resource skills at the Regulator be overcome. Were there unregistered credit bureaus? What was the status of the provinces? What was the alignment between the National Credit Act 2005 (Act No. 34 of 2005) and the Regulator? What were the grounds for his suspension or dismissal of a certain employee?

The Chairperson asked Members to highlight issues that still needed to be discussed for the Committee
s Report on the Department's Annual Report 2010/11 and the Trade and Industry Budget Review and Recommendation Report. The Committee would await the financial report from the Department.



Meeting report

National Consumer Council supplementary budget request briefing 
The National Consumer Council (NCC) appeared before the Committee to complete the answering of questions that had been raised the week before. 

Ms Prudence Moilwa, Head of Enforcement and Investigation, NCC, said that the NCC worked with the South African Bureau of Standards (SABS) with whom it had a Memorandum of Understanding for the use of test facilities. It was finalising service agreements with other Government departments. The Department of Health assisted with the analysis of current legislation and the gaps therein and in the quality of service being provided. Regarding the Consumer Protection Act, she said it was referred to the National Prosecuting Authority (NPA). Regarding the need for an internal legal capacity, she said it was necessary because of the legal drafting of compliance notices which had to be properly articulated, The NCC had done a study to ensure that accredited consumer groups would have the power to bring class actions. Litigation was mostly over compliance notices to mobile operators who had all lodged objections.

Ms Mamodupi Mohlala, Commissioner, NCC, added that the anticipated legal costs related to the cell operators objections was R26 million. The NCC would be participating as a
friend of the court as the cell phone companies were undermining the NCC by going to court and not waiting to hear the outcome of the NCC. In addition this was clogging the NCC's work through the filing of a number of affidavits.

Mr Kgabo Mantsho, Chief Financial Officer (CFO), NCC, detailed the revised budget which totalled R80.1 million. The projected expenses were for all divisions. Cars for use in Cape Town would be leased rather than purchased.

Discussion
The Chairperson asked for which period was the budget intended.

Mr J Smalle (DA) asked whether the Department would fund a next round of increases should the legal costs the Commission incurred require it to do so.

Mr G Selau (ANC) was concerned about the inspectors
ability to do the work.

Mr X Mabasa (ANC) asked how effective and available the NCC was to consumers. What was the strategy to empower consumers?

Mr T Harris (DA) asked if a line item in the budget was for salaries, if so then how many people was it for and what type of work would it be doing. He questioned whether the website was efficient and queried when the opt out registry would be concluded. Had the NCC acquired its office space?

Adv A Alberts (FF+) said that perhaps the law should be amended such that if a case was brought before the Council it could not be taken to court.

Ms S van der Merwe (ANC) queried whether the R81 million rand was for the five month period and what the NCC's budget was for the medium term.

Mr B Radebe (ANC) said the Department should give the assurance that it would support the NCC. How much of the budget allocation had been spent and what were the implications should the funds not be available.

Mr G Mackintosh (IFP) questioned why the budget had to be doubled. When the budget was initially drawn up was the Department not aware of the amount of funds required by the NCC.

Mr Smalle asked whether the email connectivity had been sorted out and asked how the absence of website control affected communications with consumers.

Ms Mohlala replied that the NCC had received money in September; prior to that it had spent money on its set up costs via the Department.

Mr Mantsho replied that the R2.8 million in salaries was for new employees. The new office space was 3 000 square metres. The budget of the NCC was R33 million and it had been given R19.7 of which R12 million had been spent. It was awaiting the balance after the third quarter analysis. The five month budget of R94 million included everything needed until March next year. The letter was to approach the Committee to assist with obtaining the budget. The R81 million budget was the total assuming no donor funds were part of the budget. International travel had to be budgeted for as the NCC had been approached by the Southern African Development Community (SADC) to participate in developing consumer protection. In a similar vein it had been approached by Consumer International, currently catering mainly for developed countries, which wanted to shift its focus to developing countries.

Ms Moilwa said it had had several meetings with the NPA and preferred having protocols rather than memorandums of understanding.

Ms Mohlala said that the NCC was awaiting the website administrator codes from the Department. She said it had initially wanted to outsource the opt-out register but because of budgetary constraints had decided to do it internally. She said that the approach of the cell operators was not to challenge the Council but rather to go to court of law. It had issued compliance notices to MultiChoice and TopTV over concerns on pricing transparency. The South African Broadcasting Corporation (SABC) had also been approached regarding their terms and conditions for TV licences and over groups who qualified for exemptions. The email connectivity issue had been resolved but the NCC lacked the capacity to cope with the volume of complaints received.

Mr Kumaran Naidoo, Chief Financial Officer (CFO), Department of Trade and Industry, said that he needed to interrogate the budget figures. If the NCC required it, it would be given but his initial feeling was that the figures were too ambitious.

Ms Zodwa Ntuli, Deputy Director-General (DDG): Corporate and Consumer Regulation, Department of Trade and Industry, said the Department would look at its allocation and was willing to give what was required by reallocating amongst agencies.

Mr Harris asked whether there was a provincial office where complaints could be resolved or was it only through the national office.

Adv Alberts said that the Department should write an amendment to the law to prevent the NCC
s cases being redirected to a court.
 
National Credit Regulator Briefing
Ms Nomsa Motshegare, Acting Chief Executive Officer (CEO) and Chief Operations Officer (COO) of the National Credit Regulator (NCR), said that the NCR had no board currently but that nominations would be submitted to Cabinet by the first week of November.  Consumer credit amounted to R1.2 trillion (Slide 5). 'Public' debt as a percentage of GDP stood at 32%. In comparison, Greece
s public debt stood at 143%, Indias at 52% and Chinas at 19% (Slide 2). Continuous increases in interest rates and fuel meant that indebtedness would increase. Debt counselling in South Africa was new and evolving. There were 4 755 credit providers and 11 credit bureaus registered. There were 18.4 million credit active consumers and 2 027 debt counsellors (Slide 5). Only 39.1 % of credit consumers were current on their payments, 14.2% were one to two months in arrears and 18.5% were three or more months in arrears.  13.9% had adverse listings. Judgements and administrative orders had been issued against 14.3%. (Pie-chart, slide 10).  33 485 court orders had been granted up to September 2011. (Slide 17). There were five accredited payment distribution agencies and debt counsellors were not allowed to collect and distribute monies. Debt counselling applications stood at 276 001 and were being received at a rate of 6 000 per month (Slide 18). The Banking Association of South Africa together with the Debt Counselling Association of South Africa and the NCR had embarked on a national consumer awareness campaign in 2010. The NCR commissioned an impact assessment study annually to evaluate the effectiveness of its awareness and education campaigns. Awareness stood at 73%, but awareness among low income groups was poor. There was a limited understanding of credit terminology and limited awareness of avenues of protection for consumers. The NCR had been concerned that banks would clamp down on debtors but banks had said that it would treat each case on its merits. The Regulator reported unqualified audit reports since inception, an unanswered call rate of less than 10%, and refunds to consumers of R31 million (Slide 19). It also reported a 99% success rate in referrals to the National Consumer Tribunal. (Slide 21).
 

Discussion
Adv Alberts asked if the NCR was being undermined by the number of cases being taken to court.

Mr Smalle said the fact that debt counsellors received fees meant that those earning R6000 or more were better serviced. Where were the five distributing agencies located and why were there so few?

Mr Radebe asked how many people were employed by the NCR and how could the lack of human resource skills at the NCR be overcome. Were there unregistered credit bureaus?

Ms Van der Merwe said it was important for the indebted to get help before their situation got worse.

Mr Selau asked why there was an acting CEO.

Mr Harris wanted an update on the case of a certain employee. What were the grounds for suspension or dismissal? What was the status of the provinces? Did provincial regulators report on judgements or did the supreme court of appeal. He said that the National Credit Act (NCA) was not the best drafted piece of legislation when trying to adjudicate.

The Chairperson asked what the alignment between the NCA and NCR was.

Ms Motshegare said that the NCR had a fund which subsidized low income earners in getting the help of debt counsellors to get their matters resolved.  It was mainly the middle to high income people who were indebted.

She said the NCR only looked at individuals and small businesses with a turnover of less than R1 million and not businesses.

On the debt counselling skills shortage she said that a minimum matric plus two years
experience was required and the NCR was working on the accreditation of a course  for debt counsellors.

Gauteng was the location for most of the accredited payment distribution agencies (PDAs). It did not matter where one was based.

The NCR operated from Johannesburg and had a staff of 111 with seven fixed term contract employees and 10 learners. It worked closely with auditors and accounting officers to monitor and evaluate and worked closely with the provincial offices. 

If consumers felt they were wrongfully blacklisted and if there was a dispute then the information should not be accessible by credit providers while the dispute was being resolved within a specified period of time, or else the name had to be removed. The NCC and NCR had held discussions and sought legal opinion to investigate the overlap of the two functions.

Adv Jan Augustyn, Manager: Investigations and Enforcement, NCR, said it was more a question of circumventing the National Credit Act rather than undermining it. He was concerned because the processes were not being followed while building a case against a credit provider. In the Papier case in the Western Cape the case was taken to the high court where the judged ruled that it was wrong to bring the case to the high court. In the Collet case however the Supreme Court of Appeal felt that it could be heard in the high court. The NCR then tried to refer its case to the Constitutional Court but access was denied by the judge. The other area of concern was sequestrations, which could be seen as insolvency.

The NCR had done 13 investigations on entities it believed to be credit bureaus and issued one compliance notice which was taken to the National Consumer Tribunal which found against the NCR. When this was referred to the high court it, it found in the NCR
s favour. 

Ms Motshegare said, on the question of who decided if one was debt impaired or not, that it was automatically triggered if one was three months in arrears.

She said that if one was in financial difficulties one had to immediately approach the credit provider.

An employee had been placed on special leave because of tender manipulation and served with charges to appear before a disciplinary hearing.

Ms Ntuli said the Board matter was receiving attention in the Director-General's office and nominations would be put before the Cabinet that day. The Department
s recommendations for a CEO had ben declined and the Minister would consult further on the amendments to legislation and NCR issues. The NCA amendments were on the parliamentary programme. This would most likely occur in the next financial year. She said that the Department was awaiting proposals from the NCR on satellite offices and would look into the financial requirements.

Committee
s Report on the Department's Annual Report 2010/11 and the Trade and Industry Budget Review and Recommendation Report: discussion
The Chairperson asked Members to highlight issues that still needed to be discussed for the Committees Report on the Department's Annual Report 2010/11 and the Trade and Industry Budget Review and Recommendation Report. The Committee would await the financial report from the Department.

Gambling Workgroup Report
The report back was held over to the next meeting due to a lack of time.

The meeting was adjourned.



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