National Consumer Commission, Companies & Intellectual Property Commission, National Credit Regulator strategic plans 2012

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Trade and Industry

19 March 2012
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The National Consumer Commission (NCC), Companies and Intellectual Property Commission (CIPC) and National Credit Regulator (NCR) presented their strategic plans for 2012. The NCC outlined its plans to hold educational workshops, and noted that, if sufficient funds were available, it wished to have a Southern African Development Community (SADC) regional conference.  It would approach schools to expose the youth to the Commission’s work. Because of budgetary constraints, it had set a target to deal with 60% of complaints this year. The NCC also was targeting specific areas to focus on enforcement and compliance. It would be developing codes of conduct with three industries per year, and the focus in the coming year would be the motor industries and the time-share industry. It intended to establish a standing advisory committee which would present recommendations annually to the Commission. It was intending to fill 35% of the approved and funded staff positions, and this was dictated by the finance available. Its allocations rose from R41,5 million in 2012/13 to 42,5 million in 2014/15. Members asked about the NCC’s expenses for the current year, and asked if this budget included capital expenditure on IT. They were interested in how the complaints handling system operated, how the three industries per year were selected, and whether e-tolling was one of the items to be investigated. They also wondered why consumer voices had not been heard in relation to the Walmart merger, asked if there had been progress in investigating cellphone companies, and raised questions about the sale and subsequent testing of faulty condoms sold through major retail outlets. They asked for clarity between “research” and “investigation”.

The CIPC noted that its major challenge was how to forge a new mandate for the institution. It had looked at the strategic environment, the legislative mandate, the needs and expectations of consumers and international best practice. Although it dealt with fifteen pieces of legislation, it could and would explore opportunities for synergy. Key policy themes for CIPC were economic growth and job creation, the stimulation of growth in key sectors, the potential of indigenous knowledge, the need to develop South Africa’s competitiveness and efficient service delivery. It was noted that although South Africa had just under 6 million small business, only 8,3% of them were registered. The reasons ranged from people not understanding the process, to not seeing the benefit, and finding it too complex. Although it was difficult to benchmark South Africa against other countries, it was pointed out that Singapore offered good examples of good practice. The budget for 2012/13 was R548 million, of which a substantial portion would go to increasing the staff complement. Members asked about the registration of foreigners running small businesses, noted that registration was not compulsory but that CIPC was trying to encourage people to see registration as a way in which other benefits could be gained. Members noted the CIPC’s admission that attention had to be paid to making it easier to register and do business in South Africa. They suggested that perhaps a one stop registration shop was needed. Members asked what types of patents were being filed, what was being done in relation to indigenous knowledge, what the costs were for requesting information from CIPC, and what it was doing to address company hijacking.

The NCR noted that a new board had been appointed in October 2011. The main challenges facing the credit industry were the build-up of mortgage arrears and the increased value of unsecured loans, which, if unchecked, would lead to an increase in inflation. It was explained that most banks saw mortgage loans as being unprofitable, but there was unlimited access to unsecured loans, and the banks targeted new sectors. The NCR had discussed this with National Treasury and the Banking Association, and government was investigating using a “twin peaks” model as a remedy, which would involve establishment of a prudential regulator and a market conduct regulator. The NCR had registered over 2 000 debt counsellors. Recent court judgments had been against the NCR and consumers and there were gaps in the legislation that needed to be addressed. The NCR  \had implemented a new Information and Communication Technology system. There were delays in processing applications and it was looking at e-filing as a solution. An acting finance manage had been appointed and the NCR had been involved in conducting raids in partnership with the SAPS and other interested parties. Challenges were identified as the shift in the consumer credit market, the possibility for over indebtedness, reckless lending, and weak response from credit providers. The NCR was also faced with constraints in resources, delays in processing cases, and lack of presence in the rural areas, and jurisdictional overlap with the NCC. The budget for 2012/13 would be R111 million, rising to R119,9 million in 2013/14 and to R120,5 million in 2014/15. Members asked if the NCR had liaised with the Financial Services Board and with the banks on the ramifications of the growth in unsecured loans, and proposed that the Banking Association be called to a meeting on the unsecured loans issue. Members asked that permanent appointments be made, and suggested the need for more education in schools on credit. 

Meeting report

National Consumer Commission (NCC) Strategic Plan 2012
Ms Mamodupi Mohlala, Commissioner, National Consumer Commission (NCC) noted that the NCC promoted advocacy through holding of workshops, and intended to have a Southern African Development Community (SADC) regional conference, if funds were available. It would approach schools to expose the youth to the Commission’s work. She noted that the NCC’s goals included dealing with complaints, but because of budget constraints, it had a target of dealing with 60% of complaints in the year. NCC had identified specific areas on which it would focus for enforcement and compliance, and intended to develop codes of conduct and exemptions with three industries per year. In the next year, it would be focusing on the motor industry and time- share industry. In order to pursue its goal of customer relationship management, it wanted to establish a standing advisory committee, which would present recommendations annually. In relation to human resource management, NCC aimed to have 35% of its approved and funded staffing positions filled for 2012/13. This figure was dictated by the finances currently available.

Mr Kgabo Mantsho, Chief Financial Officer, NCC, briefly outlined the budgetary allocations, noting that these were R41,5 million in 2012/13, R43 million in 2013/14, and R42,5 million in 2014/15 respectively.


Discussion
Ms S Van Der Merwe (ANC) asked for an indication of the NCC’s expenses for the current year, and also asked if the budget for 2013/14 include capital expenditure on Information Technology (IT).

Ms Mohlala noted that the budget did not include the Information Technology cost for the case management system and call centre, and therefore these would not be operational in the next three years.

Mr Mantsho added that research and other projects like awareness, marketing and communication would be cut. He said the R33 million of the 2011/12 budget was almost consumed.

The Acting Chairperson said that he thought the Sweep Fund was to cover the IT and other establishment costs.

Mr N Gcwabaza (ANC) asked if the R6,7 million rand was factored into the R22 million and asked why the budget declined in 2014.

Mr Kumaren Naidoo, Group Chief Financial Officer, Department of Trade and Industry, noted that this Department (dti) had a budgeting process with the National Treasury and there had been decreases in all agencies except the NCC, which had received an increase. Dti and National Treasury were now in negotiations to see if the NCC’s budget could be increased. He said R7 million was available for IT and that the NCC could commence but the process had to be transparent, after which the money would be released.

Mr A Alberts (FF+) asked what the complaints handling system would do. He enquired on what basis the three industries per annum were to be chosen, and wondered if the e-tolling system would come under investigation.

Ms Mohlala explained that the three industries were chosen based on the complaints received by the commission. The Motor Industry, including both new and used motor cars, topped the list. In the previous year, the NCC had only done inspections in the retail sector, and not in the manufacturing sector. The Commission had investigated the terms and conditions contract of the e-tolling contractor, holding a workshop with the contractor and the South African National Roads Agency Limited (SANRAL). The NCC was involved in discussions around amending the e-tolling terms and conditions to comply with the Consumer Act. She said the Democratic Alliance (DA) had submitted a complaint on the e-tolling system and NCC had forwarded it to SANRAL for a response. SANRAL’s response would be forwarded to the DA and the NCC actions would be based on the DA’s response.

Dr W James (DA) felt that the NCC was not aggressive enough.

Ms Mohlala admitted that the NCC was falling short as far as rural areas were concerned. She hoped the provincial practitioners would create more awareness in rural areas. She said the NCC would call on community and traditional leaders to canvass for suitable candidates, who filled the NCC requirements, to be put forward.

Dr James said the consumer‘s voice was absent in the Wal-Mart issue.

Ms Mohlala explained that the NCC had not involved itself in the Wal-Mart issue as the issue was at an advanced stage when the NCC had been established.

Dr James noted that faulty condoms had been sold through major retail outlets and this was a high priority issue as people’s lives were at stake.

Ms Mohlala said that the condom issue had been brought to the attention of the retailer, and the retailer had instituted testing by the South African Bureau of Standards (SABS). NCC was awaiting the SABS report.

Dr James said that the faulty condoms should be pulled from the shelves immediately. He asked when the report from the SABS would be available.

Ms Mohlala said NCC was awaiting the SABS report, but it was the retailer who had approached the SABS. The report was due on 30 March but the NCC had asked for it to be completed by 23 March. The NCC did not have funds for laboratory costs. She said she was unable to name the retailer as, in an unrelated prior case, the Motor Industries had objected to the fact that the NCC went public before a case went to a Tribunal.

Dr James said there should not be a budgetary reason for not testing.

Mr Alberts asked if there had been any progress with regard to the investigation into cellphone companies.

Mr J Selau (ANC) asked for clarification between research and investigation.

Ms Mohlala responded that research was the gathering of information that would give credibility to the investigation. She noted the NCC staff juggled their roles. In response to Dr James’ concerns, she pointed out that, as the Accounting Officer, she was not able to commit funds that NCC did not have, and therefore could not commission a report on the part of the NCC, but would have to await the report from the retailer. She noted the only cellphone company on which the NCC had started investigations was MTN.

Companies and Intellectual Property Commission (CIPC)
Ms Astrid Ludin, Commissioner, Companies and Intellectual Property Commission, said that the main challenge for the Companies and Intellectual Property Commission (CIPC or Commission) was to forge a new mandate. CIPC had looked at the strategic environment, the legislative mandate, the needs and expectations of consumers and international best practice.

The legislative mandate of CIPC was large, as it had fifteen pieces of legislation with which to contend, but this also allowed the CIPC to explore opportunities for synergy. Key policy themes for CIPC were economic growth and job creation, the stimulation of growth in key sectors, the potential of indigenous knowledge, the need to develop South Africa’s competitiveness and efficient service delivery.

South Africa had an estimated 5.9 million small businesses, but only 8.3% were registered. The reasons why businesses were not registered included the fact that the business owners considered that there were not sufficient benefits in doing so, or the businesses were too small, registration was too complicated, or people did not know the process for registration. CIPC had four customer types - those who had a need to register, those who had a need to comply, those who had redress needs ( for example investors in registered entities) and those who had data/information needs.

She then discussed the vision, mission, values and strategic goals of the Commission (see attached document). She noted that although CIPC tried to benchmark, it was difficult to make comparisons with other countries like Brazil, India, Australia, New Zealand, Rwanda and Singapore, because of differences in countries’ sizes and populations.

Ms Ludin presented the budgets (see attached presentation for full details) and noted that a large percentage of the budget went on the staff establishment, which CIPC was still seeking to increase.  The total budget for 2012/13 was R548 million. The CIPC operated through three programmes: Programme 1 related to Business Regulation and Reputation, Programme 2 covered Innovation and Creativity Promotion, and Programme 3 dealt with Service Delivery and Access.

Discussion
Mr Selau asked about the position with the registration of foreigners who were running small businesses in South Africa.

Dr James thought that the company registration process in South Africa needed many different types of registrations, and a one stop registration shop was needed.

Adv Alberts asked what types of patents were being filed.

Adv Alberts asked for an indication of the cost structures for requesting information from CIPC.

The Acting Chairperson asked what was being done to prevent company hijacking.

Advocate Rory Voller, Deputy Commissioner, CIPC, replied that the dti saw the gathering of information around small business activity as part of its role, and had initiated a small business survey to allow it to target its activities and educational campaigns.

He added that another of the mandates of the CIPC was to address counterfeit goods through inspections and interactions with a variety of agencies, such as South African Police Service and Customs. However, CIPC wanted to take this one step further and educate people on the benefits of IP, and to grow local interest in domestic innovation.

He noted also that the CIPC took the view that one of the benefits it offered should be easy registration, but this was not to be seen as a requirement alone, , but as one way to assist in developing sustainable business. A business who registered would become  part of the formal market, would be seen as more credible and more easily able to access finance, and benefit from CIPC’s links with other agencies.

Adv Voller said Singapore was a benchmark for all other countries. CIPC was working towards a one stop shop approach and was currently working with South African Revenue Service (SARS). It wanted to see an incremental approach being adopted, so that benefits could start following immediately. The first initiative would be for registers to be linked. CIPC was meeting with SARS regularly on this point.

Adv Voller noted that the CIPC was gearing up for a recording system to record IK in communities, but this would be preceded by an educational campaign

Ms Ludin added that there was a budget for recording indigenous knowledge, although work needed to be done on the process to evaluate claims.

Ms Ludin emphasised that registration of a business with the CIPC was not compulsory, but that registration allowed limited liability. There were issues around compliance in the liquor sector. This was an opportunity to work with the NCC, so that consumers could have input as to where they purchased, by supporting businesses that registered and complied with the law. She said that New Zealand and Singapore, both of whom scored high on the rankings of countries who offered systems that made it easy to do business, both had good e- governance systems. The CIPC would be focusing on the upfront verification of the customer.

She noted that the analysis of the patent filing system was currently not easy, as it was a manual process.

In relation to the costs, she noted that CIPC had to strike the correct balance between making information available for free, and deciding which information would have to be paid for. There was a need to make more of the CIPC services free.


She said the CIPC needed to work with intelligence agencies and the police on company hijacking.

Ms P Kotsi (COPE) asked where the CIPC recruited its interns.

Adv Voller said that interns were recruited through advertisements in newspapers and evaluating them in the period of internship.

Ms Ludin added that interns were seen as an explicit Human Resource strategy to recruit the best.

National Credit Regulator (NCR) submission
Mr Trevor Bailey, Chairperson, National Credit Regulator (NCR) Board, said that the current board of six members had been appointed on 6 October 2011. He said the credit industry faced challenges, in particular in the build-up of mortgage arrears and, more significantly, in the total value of unsecured loans. If the growth in unsecured loans were to continue along its current path, this would result in an increase in inflation. He noted that in 2007, there was concern that mortgage loans accounted for 51% of loans, while unsecured loans made up 7%. By 2011, mortgage loans had dropped to 30% while unsecured loans had shot up to 21%. Unsecured loans were growing at an alarming rate because banks saw mortgage loans as being unprofitable. There was, however, unlimited access to unsecured loans, and the banks were targeting sectors not previously targeted. The NCR had informed the National Treasury and the Banking Association of these challenges, and government was investigating a “twin peaks” model as a remedy to the challenge. This would involve the establishment of a prudential regulator and a market conduct regulator.

The NCR had registered over 2 000 debt counsellors. However, Mr Bailey noted that some results of recent court cases had weakened the implementation of the National Credit Act, with judgments being handed down that were not in favour of the NCR or the consumer. Issues had been placed before the Constitutional Court, but there were gaps in the legislation, which necessitated amendments. In addition, the NCR would have to adapt to the changing financial laws. It had implemented a new Information and Communication Technology system as the old one had been inherited from the old microfinance system. There were delays in processing applications and it was looking at e-filing as a solution

Mr Bailey said that an Acting Financial Manager had been appointed and the NCR had been involved in conducting raids, in partnership with the SAPS and other interested parties.

The budget for 2011/12 had increased by 4.4%. The total budget for 2012/13 was R111 million, increasing to R119,9 million in 2013/14, and R120,5 million in 2014/15.

Ms Nomsa Motshegare, Acting Chief Executive Officer, NCR, said the challenges facing the NCR’s first strategic objective of promoting access to responsible credit were the shift in the consumer credit market to unsecured loans, with the possible resultant creation of a “credit bubble”. Other challenges were the possibility for over indebtedness, and reckless lending, as well as a weak or non-response from credit providers.

The challenges facing the NCR’s second strategic objective of protecting consumers from abuse and unfair practices were constraints in resources, delays in processing cases, the NCR’s limited presence in rural areas, changing financial laws and jurisdictional overlap with the NCC.

The challenges facing the NCR’s strategic objective of enhancing the credit market regulatory framework were inadequate reporting, the fact that the National Credit Act needed to be amended, and changing financial laws, like the proposed “twin peaks” model.

Ms Tshidi Mokgadi, Acting Finance Manager, tabled the budget allocations (see attached presentation).

Discussion
Adv Alberts asked if the NCR had liaised with the Financial Services Board (FSB) and with the banks on the ramifications of the growth in unsecured loans.

Ms Van Der Merwe said she was concerned over the level of unsecured loans and proposed that the Committee call the Banking Association of South Africa to attend a Committee meeting on the unsecured loans issue, and discuss what the banks regarded as “profitable mortgages”.

The Acting Chairperson said unsecured loans could not be allowed to go unchecked. He noted that there had been some engagement with the banks on unsecured loans and on the way interest was charged. He said the Committee would target 9 May as a date on which the banks should appear before the Committee.

Ms Motshegare said that NCR had met with the big banks and Capitec on personal loans. The “twin peaks” initiative was in process and NCR had informed the National Treasury. The Chairperson of the FSB was on the board of the NCR. In relation to the question of different interest rates being charged, she said that the National Credit Act only stipulated the maximum interest that could be charged, which was 32% for unsecured loans, while mortgage interest rates were set at a maximum of 17%, and short term loans were set at 5% interest per month. She said bank charges were not included in the Act, but only interest.

Mr Bailey added that 60 000 people were more than three months behind on their mortgage payments.

Mr Selau said that the board should make permanent appointments, instead of having people in acting positions.

Mr Bailey noted that the Acting Chief Executive Officer had the full backing of the Board and the NCR was awaiting confirmation from the Minister on the appointment. He explained that on 30 January 2012, allegations had been made against the Chief Financial Officer, and the NCR had instituted an independent forensic investigation by an auditing firm. Following this, subsequent information had come to light, which led to the CFO being placed on special leave. An Acting Finance Manager was appointed. The forensic report would be available soon and the NCR would take appropriate steps.

Mr Selau suggested that the NCR should negotiate with the Department of Basic Education to educate children on credit. He felt the entities overlapped in their roles.

The meeting was adjourned.

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