National Credit Regulator briefing on unsecured debt; Cooperatives Amendment Bill: consideration

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Trade and Industry

25 October 2012
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Committee received a briefing from the National Credit Regulator on the state of affairs for unsecured lending in South Africa. The Regulator informed the Committee that unsecured credit rose by 49% year on year. There had also been an increase of consumers with impaired credit records. There had been an increase in adverse listings. The National Credit Regulator informed the Committee that the figures came from TransUnion, FinScope and Bureau of Market Research. The gross debtors’ book sat at R1.3 trillion. Unsecured lending constituted 9.6% of this R1.3 trillion. 60% of the unsecured credit was targeted at R15 000 per month earners as per the statistics. There was also an increase in unsecured lending for people who earned more than R15 000. The National Credit Regulator conducted raids on micro-lenders present at pension payout points in the Northern Cape, Eastern Cape, KwaZulu Natal as well as North West. A number of micro lenders were arrested. The National Credit Regulator informed the Committee that the establishment of the Voluntary Debt Mediation Solution was a pilot project that the banks wanted to set up. However, the National Credit Regulator had to stop this as it was in conflict with the National Credit Act.

The Committee questioned the figures of 9.6% as well as 49%. The Committee wondered whether there was indeed a bubble given that unsecured lending amounted to 9.6% of the R1 trillion debt. Others felt that the level of unsecured lending was indeed a concern. The Committee stressed the need for educating consumers and for the rigorous regulation of unsecured lending.
 
The final version of the Cooperatives Amendment Bill was scrutinised clause-by-clause. The Committee took the decision that ‘the’ before ‘Agency’ should be inserted in the content of the Bill. A Member asked whether the offence should not be specified under clause 48(2). The Committee found it strange that a Cooperative would only be punished after a second offence under clause 57 in 72B(a). It was questioned whether provisions were in place for Cooperatives to trade internationally. The drafters were instructed by the Committee to clean up the Bill for adoption at the next meeting.

Meeting report

National Credit Regulator (NCR) briefing on unsecured lending
Ms Nomsa Motshegare, NCR Chief Executive Officer, informed the Committee that the presentation would provide a picture of the current rate of unsecured lending. Unsecured credit had increased by 49% year on year. There had also been an increase of consumers with impaired credit records and in adverse listings. Distressed household borrowing had remained in distress. The figures came from TransUnion, FinScope and Bureau of Market Research (BMR). The gross debtors’ book sat at R1.3 trillion. Unsecured lending constituted 9.6% of this R1.3 trillion. 60% of the unsecured credit was targeted at R15 000 per month earners as per the statistics. There was also an increase in unsecured lending for people who earned more than R15 000.

In order to address this, the NCR had made the following interventions:
▪ proposed amendment to the National Credit Act to close gaps in the system,
▪ the introduction of affordability assessment principle-based guidelines,
▪ new ways of reaching consumers through consumer education,
▪ closer monitoring of level of unsecured lending against customer indebtedness.

The NCR would continue with its proactive investigations as well as well as its compliance monitoring exercises. The NCR had conducted raids on micro lenders at pension payout points in the Northern Cape (NC), Eastern Cape (EC), KwaZulu Natal (KZN) as well as North-West (NW). A number of micro lenders were arrested. The NCR would continue with raids in other provinces.

The NCR had ongoing investigations into reckless lending such as ATM loans as well as multiple loans. The major culprits in this instance were the banks. Some lenders continued to charge excessive amounts of interest as seen in investigations at Marikana and fees and credit life insurance were also being abused. National Treasury, NCR, Competition Commission and the Financial Services Board (FSB) have set up a task team to investigate credit life insurance as it was being abused. Consumers were not being given pre-agreement quotes, contracts and in some instances credit providers were withholding bank cards.

The NCR had 800 debt councillors, there were challenges in the sense that some matters were postponed at the court hearing stage which had a bottleneck affect. There was also a backlog at the courts. The establishment of the Voluntary Debt Mediation Solution (VDMS) was a pilot project that the banks wanted to set up, the NCR had to stop this as it was in conflict with the National Credit Act (NCA). Specialised dedicated debt courts had been laid on the table as a solution and in Gauteng this was already underway. The training of magistrates had begun and some of the chief magistrates had already started assisting with the training.

Challenges and contraventions in the area of debt counselling was discussed as well as proposed solutions to the challenges such as proposed solutions to the Act.

Discussion
Mr Hill-Lewis referred to the first slide and said it indicated that the gross debtors’ book was at 25% yet on slide 3 it had 9.6%, which figure was incorrect? In an interview, the CEO was quoted as stating that the NCR was investigating Capitec, African Bank and First National Bank, was this the case? What was a repayment multiple? 9.6% of unsecured lending as a total of debt seemed to be small, was there any evidence of a bubble in this market? There were dangerous tendencies however the NCR had not provided much evidence of a bubble forming.

Mr Mabasa asked if the Marikana experience was a sign for need for the NCR to be proactive. There should be a provision for alternatives where consumers were advised to stay away from bad credit practices. It seemed those bad micro-lenders were not publicised enough as a form of deterrent.

Mr McIntosch said that the NCR was doing a good job. The so called bubble was media hype, the media often exaggerated because they wanted an angle or a story. There were two concerns emerging from the briefing. The one was Marikana and the second was to understand from where low income people were coming. Low income people tended to borrow for such things as money for school fees. The challenge was how to ensure that low income people were not exploited without one being over-bearing. There was a need to ensure that the threshold was not raised because if this was done then there would be a black market and they would find the money from the wrong people. The NCR had to ensure that people were better educated and understood such things compound interest. The Marikana issue was very serious and it was good that the President had set up a Commission of Inquiry.

Ms van der Merwe said that she did not agree that unsecured lending was a hyped up bubble. The fact that the NCR had made the interventions had demonstrated this point. Unsecured lending had to be properly regulated so as to prevent matters from getting worse. Who were the main culprits in this regard? There was a sense that the banks were also involved. 9.6% of total debt was a horrific amount. People did not understand finance or compound interest. Could more clarity be shed on VDMS?

Mr C Huang (COPE) said that he wanted more information on Marikana. Could the NCR explain how it got to the 49% increase for unsecured lending? Was there a mechanism on how much lenders could lend to customers?

The Chairperson asked what the NCR had been able to do with regards to customers signing blank documents as well as the garnishee orders and emoluments. Assuming that the 49% increase in credit lending was correct, this was an untenable situation. A new type of worker was being created here, the poor employed whereby ones’ funds were immediately taken. Was the VDMS not criminal, it was surprising that banks were involved in this, did they knowingly undertake this?

Ms Motshegare replied that the 9.6% constituted unsecured credit as a portion of the R1.1 trillion of total debt. The 49% increase was a year on year increase of unsecured lending. The NCR did not monitor financial stability; it focused on the impact of these figures. The NCR had a consumer protection perspective. The NCR would not apologise for having this approach as more and more people were over-indebted.

Mr Hill-Lewis said that he was referring to the 25% indicated on the first slide on page two, not the 9.6%.

Ms Motshegare asked that the vertical numbers on the slide should be ignored and the Committee should focus only on the percentage increase.

The Chairperson asked that the NCR should provide another graph that was clearer.

Ms Motshegare continued to say that the interview referred to by Mr Hill-Lewis was with the investigations manager on MoneyWeb. The manager was trying to explain that the NCR had a plan to go after micro lenders and then the banks. The manager was trying to explain that the NCR had investigated before. The repayment multiple was what the NCR wanted consumers to see when they signed an agreement. Regarding Marikana, the NCR was aware that if people were not working and being paid there was going to be more and more loans taken out and lenders were bound to cut corners. This was why a team was sent out to Marikana.

Mr Obed Thungwane, NCR Chief Operations Officer, said that the NCR had an education and information strategy in place. The NCR was aware that it had to educate people. Currently the NCR was partnering with trade unions since it was mainly civil servants that were being targeted. The National Youth Development Agency (NYDA) had been targeted in order to infiltrate the youths. The NCR was planning to brand taxis and busses as well. The more satellite offices that the NCR would have, the better.

Mr Lesiba Mashapa, NCR Company Secretary, said that the VDMS was a project initiated by an industry association called the National Debt Mediation Association (NDMA) which was funded by credit providers including The Banking Association. The NDMA approached the NCR and DTI about setting up this structure however they did not provide any concrete documents. The NCR and the DTI requested a concept document. The NDMA did not provide a concept document and then indicated that they would start implementing at the beginning of July. The NCR informed the NDMA that they should put the implementation on hold, however the NDMA insisted that it would go ahead. The NCR conducted an investigation and discovered that it would be a parallel debt counselling mechanism that would not be regulated by the Act. The NCR debt councillors were going to be used to develop restructuring proposals on behalf of consumers which were not going to be presented before magistrates or consumer debt tribunals. In addition the NDMA was going to use statutory forms prescribed for statutory debt councillors. The banks were participating in this through recommending debt councillors to consumers and then paying them a fee. This was against a statutory obligation whereby debt councillors were not allowed to receive payments or fees so as to maintain their independence. This process was also going to list consumers under debt mediation with the credit bureaus; this was not allowed under the Act.

Ms Motshegare added that the NCR would continue to monitor the situation. The NCR was working on concrete recommendations based on its study

Mr Mashapa said that the emoluments and attachment orders were currently regulated by the Magistrates Courts Act and they were not covered in the National Credit Act. The law clearly outlawed the signing of blank documents.

Mr Hill-Lewis asked if there was any information on the number of garnishee orders issued in South African courts. A massive increase in the issuing of garnishee orders and emoluments would show that there was a problem. What was the maximum interest rate chargeable? What was the rationale behind having the 2.5 multiplier in the formula for calculating interest chargeable?

Mr Huang said that there was no cap for micro lending and this was a problem, was there a mechanism to curb this?

Mr McIntosch asked what was the rationale behind the R15 000 target, was this a threshold that was set by the NCR.

Ms Motshegare replied that the sky was the limit in terms of lending, it was only limited for juristic persons since the Act was meant for consumers. The NCR was not limited to people who earned R15 000 and credit extended to anybody in this country. The 2.5 multiplier would have to be investigated and the NCR would respond in writing. The NCR would also look into the question around the cap and put it in writing.

The Chairperson said that this had to be looked at from a whole country perspective as opposed to just focusing on Marikana only. The Committee would continue with follow ups and the National Credit Act amendments were being pursued as this was a concern. The Members should study this report and raise other questions.

Cooperatives Amendment Bill [B17B – 2012] clause-by-clause condieration
The Committee went through the latest working draft of the Cooperatives Amendment Bill [B17B – 2012] clause-by-clause. Members could comment if there was disagreement about wording as they went along. [Note: The meeting started an hour earlier than advertised. PMG missed commentary on Clauses 1 to 47]

Clause 48 amending Section 64
Ms S Van der Merwe (ANC) referred to section 64(2) and asked if the offence should not be specified.

Ms Kathy Idensohn, Legal Technical Expert to the Committee, said that the statutory offence would refer to the particular section and the general offences section would spell out what the penalty was.

Clause 55 inserting Section 71
Mr G McIntosch (COPE) referred to insertion of 71A and said that the special resolution referred to therein may need to be beefed up. What were the provisions of a special resolution?

Ms Idensohn said that the term ‘special resolution’ was already defined in the principal Act which states that “...a special majority voter of at least two thirds of the majority of members present or such greater majority as specified under the Constitution”. The Constitution had the leeway to up this if required.

Clause 57 amending Section 72
Mr G Hill-Lewis (DA), referring to 72B(a), said that it seemed strange that a Cooperative could commit a crime once and this would be okay but a second time, it would not be.

Ms Idensohn said that this was the intention, simply because winding up is such an incredibly radical event which would affect the Cooperative, its members as well as its creditors etc. Some of the offences were technical in nature and did not constitute fraud or malicious intent. Sometimes it was okay to have a bit of leeway.

Mr Hill-Lewis said that section 72B left the discretion to a tribunal, if the offence was so severe in the first instance that the tribunal may well feel that winding up was necessary, why have the provision for a second chance? Should this not be left to the discretion of the tribunal?

The Chairperson said that this dealt with the whole culture of a tribunal.

Mr McIntosch said that the critical thing was section 19(4) which was mentioned under section 72B(a). If the issues were technical then one could say that a slap on the wrist would be okay, however if it was a Cooperative which was involved in illegal diamond mining for example the common law would be applicable and the point made by Mr Hill-Lewis would be valid.

Ms Idensohn referred to clause 19(4) on page 33 and said that this was one of the sections of the principal Act that was being altered. Section 19(4) listed offences which were technical in nature. The offences were not serious.

Mr Jeffery Ndumo, Chief Director (CD) for Cooperatives from the Department of Trade and Industry (DTI) said that the offences were specifically in terms of this Act and not the broader criminal law.

Part 2 Funding and financial management of Agency (p80)
The Chairperson requested that the drafters insert ‘the’ before ‘Agency’ throughout the entire Bill.

Clause 91N (pg 86)
Mr McIntosch referred to the heading ‘Functions of Tribunal’ and said that once again ‘the’ in front of ‘Tribunal’ was missing. The legal drafters should advise the Committee because headings of paragraphs were not legally binding. Adding ‘the’ was preferable.

The Chairperson instructed the legal advisers to put in ‘the’ in the content of the Bill.

Clause 91Y
Mr Hill-Lewis referred to page 95 under clause 91Y(1)(a) and asked if the wording should not be ‘the contravention of this Act had likely taken place’ because it would be difficult to prove that the contravention had taken place.

Ms Idensohn referred Mr Hill-Lewis to clause 91Y(1) which provided ‘if there are reasonable grounds to believe that’.

Clause 91CC
Mr McIntosch asked if there was provision for Cooperatives that wanted to trade internationally.

Mr X Mabaso (ANC) said that the answer to the question was yes, the sub-committee had taken the decision that a Cooperative could ply its trade internationally.

Adv Charmaine van der Merwe, Parliamentary Legal Adviser, said that it was not specifically stated that Cooperatives were allowed to trade internationally as this was generally allowed. This specific chapter did not deal so much with trading. The Chapter dealt with cooperation within the South African government.

Ms Idensohn said that international trade was allowed and encouraged because one of the cooperative principles was to develop international links and so forth.

Mr Ndomo said that all forms of business were allowed to trade, this clause did not go into specific detail on international trade for cooperatives.

Clause 94B
Ms S van der Merwe did not think the Committee should specify a chief directorate as it may be the responsibility of department. ‘Chief Directorate’ should be removed.

Mr Ndoma said that the Department was more concerned about the function and not the terminology.

The Chairperson agreed with the suggestion made by Ms van der Merwe.

Clause 74 substituting item 6 of Part 2 of Schedule 1 (page 118)
Mr McIntosch referred to item 6(4) and 6(5) asked if the provisions would not result in a cooperative losing its ‘cooperative spirit’.

Mr Mabaso said that the intention was to have the Minister of Labour involved as the political head to respond holistically.

Clause 78 substituting item 2 of Part 4 of Schedule 1 (p120)
Mr Mabaso referred to item 2(2) and asked why ‘agricultural’ was specified, did ‘Ltd’ not apply to all Cooperatives.

Mr Ndomo said that this was set out as a universal requirement particularly for those Cooperatives that were going to be registered under the Act. This was not specifically for agricultural.

Adv van der Merwe said that the provision was saying that Section 10 should be complied with and then Section 10 was repeated. The advice was for the removal of the entire sub-section. This should also be done in clause 71 and 73 where there was this repeat.

Part 5 Social Cooperatives (p121)
Mr Hill-Lewis referred to clause 1(1)(a) and (b) and said that where there was a contradiction should something not be said about this. For example, the clause on surplus under Part 5 contradicted the other clauses on surplus in the Bill.

Mr Ndomo said that where social Cooperatives were concerned, the application of Part 5 applied to what had already been agreed to by the Committee. The requirement by the Constitution took a different turn with regards to the surplus. One of the requirements for a surplus within a social Cooperative was that it was kept and none of it was distributed to its members.

Adv van der Merwe said that where a section had a general application and another section had a specific application, the specific application trumped the general application.

Clause 82 substituting Table of Contents
Mr Mabaso referred to Chapter 13 on page 138 and asked what was the significance of underlining 94A and 94B.

Adv van der Merwe said that the current index was being replaced with an index that provided for all the new insertions. Anything underlined in this index was new.

Mr N Gcwabaza (ANC) asked what was the relevance of 94B in light of the earlier correction.

Adv van der Merwe said that this would be part of the consequential amendment.

The Chairperson thanked the legal advisers and state law advisers and said that the Bill just had to be cleaned up so that it could be ready for adoption.

Ms Van der Merwe proposed that the Department should come up with a booklet that would provide a guideline for Cooperatives.

Mr Gcwabaza said that the booklet should be in all eleven official languages and Braille if possible.

The Committee agreed.


Meeting Adjourned.


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