National Credit Amendment Bill [B47-2013]: public hearings Day 5; key issues emerging

This premium content has been made freely available

Trade, Industry and Competition

06 February 2014
Chairperson: Mr N Gcwabaza (ANC) (Acting)
Share this page:

Meeting Summary

The Committee received a briefing on the key issues emerging from stakeholders’ comments on the National Credit Amendment Bill, and heard additional responses from Microfinance SA (MFSA) and the Debt Counselling Industry (DCI).

The Committee’s Content Advisor identified the key issues emerging from the hearings, giving a full breakdown on the major aspects involved in the various clauses. Other main concerns were interest rates and other credit charges, emoluments attachment orders, debt collectors, the “in duplum” rule in Section 103(5), which had been misinterpreted in relation to the statutory application of the “in duplum” rule, and could be rectified by defining “default” and the ways to remedy this default.  Other concerns were what voluntary debt mediation could offer as relief, consent orders which might be beneficial for the National Credit Tribunal (NCT) to deal with, thereby ensuring payment after a debt review consent order was finalised, consumers’ right to be allowed to withdraw from the debt review process and new liquidity requirements, which had profound implications for banks engaged in housing finance.

The MFSA presentation addressed some of the questions and comments made during the hearing in order to broaden the perspectives and covered the supply of credit in the short-term and unsecured market, the collection of payments and the need for a set approach to determine rates and fees on an annual basis.

The DCI presentation covered consolidation loans, payment distribution agencies (PDAs), Switches, the role of courts,  section 86 (10) of the NCA,  section 129 letters in terms of the NCA  and “in duplum” interest, the reasons for faith having been lost in the debt review process, credit bureaus and the information retained by them, guidelines relating to codes of conduct of credit providers and debt counsellors, guidelines relating to a resolution code of conduct, affordability assessments, credit life charges and interest charges. 

Members said that the issue of guidelines versus risk was not on the content advisor’s list. Adverse information had to be removed to allow a person who was paid up on his first bond to be able to take out a second bond. Adverse information should be kept only if a person had defaulted. Members asked how the problem of mashonisas and “bakkie lenders” could be resolved and whether the penalties for these types of lenders were enough and if not, what they should be.

Members asked about the high cost of credit. What was a fair cost for a short-term loan?  What social dialogue was there to expand on the concept of development credit and what efforts at educating lenders were taking place? Members asked about the alignment of government departments, given that they had to be complementary. To what extent were their perspectives in conflict?  How were court delays and court capacity problems being resolved? 

Meeting report

Briefing By Committee Content Advisor
Ms Margot Herling, Committee Content Advisor, listed the key issues emerging from the stakeholders’ comments.   These were split into two sections -- those related to the amendments, and other concerns which were related to the National Credit Act (NCA).

Ms Herling noted that the definitions “regulated financial institution” and “mortgage” needed further consideration, and that the definition of “lease” should be maintained. In Clause 2, agreements with other regulatory authorities did not clearly state the purpose of the agreements.  Clause 5 needed to establish a clear definition and the role, obligations, duties and criteria for registration of payment distribution agents (PDAs), and consider using the national payments system to reduce costs for consumers, with the consumers having a choice to use a PDA or not.  Debt counsellors should be allowed to distribute funds if they met certain requirements and there should be protection provided to consumers where a PDA caused a consumer to default.  PDAs should be accepted only on the basis of probity tests, as part of the application for registration.

Clause 8 dealt with the Minister’s powers to prescribe a code of conduct or a guideline, and the Minister and the National Credit Regulator (NCR) having powers to determine an industry code of conduct.  In Clause 9, the NCR should be able to amend registration criteria. In Clause 11, consumers should have a right to choose a replacement debt counsellor. In Clause 12, the debt counsellor should be given ten business days to determine that the consumer qualified for a clearance certificate.

In Clause 13, concerns had been raised about the automatic removal of credit information as it might lead to the higher pricing of credit and decrease accessibility of credit and impact on the ability to determine whether a loan was reckless. In Clause 14, the Minister's power to determine amnesty provisions should be limited to the current proposal.  In Clause 15, section 82(2) and (3) were in conflict with section 48. In Clause 16, stakeholders felt that the Tribunal did not have the expertise or the capacity to declare a reckless credit agreement. In Clause 17, credit providers were concerned that if a consumer made a debt review application at court and then failed to make payments they would be precluded from terminating the debt review process and taking other legal action.   There was therefore a need to distinguish between processes related to voluntary debt mediation (section 86(7)(b)) and formal debt review (section 86(7)(c)).

In Clause 18, there was a need to consider the desirability of the credit provided, and not just whether the credit provider was registered, and the implementation of this section should not result in the arbitrary deprivation of property. In Clause 20, the terms “dispute” and “revive” should be defined and the method of notification should be clarified. In Clause 23, the role and scope of alternative debt resolution (ADR) agents should be limited.  In Clause 23, the Minister should prescribe guidelines for the conditions of registration for ADR agents, accreditation criteria and ADR fees payable by the consumer.

In Clause 24, those who may initiate a complaint to the NCR, in terms of reckless lending, should be limited. In Clause 25, the NCR’s enforcement powers should be more definitive.  There was a call to remove the requirement to attend prescribed training in Clause 26, or to limit who required such training, particularly in large institutions.

Other key concerns were the effects of exorbitant interest rates and hidden credit costs, the application of emolument attachment orders to employees’ salaries, as well as high legal debt collecting fees. Debt collectors should be regulated and costs prescribed. The misinterpretation of the “in duplum” rule could be rectified by defining “default”.  Relief under debt review was limited and effectively excluded low income consumers, due to the high costs involved. Voluntary debt mediation could provide some relief to poorer consumers, and mandating the National Consumer Tribunal (NCT) to confirm all consent orders could increase the accessibility of debt review. The Act did not differentiate between mortgage and other types of lending, thus incentivising unsecured lending.

Mr G Selau (ANC) said that the issue of guidelines versus risk was not on the list.  Adverse information had to be removed to allow a person who was paid up on his first bond to be able to take out a second bond. Adverse information should be kept only if a person had defaulted.

Ms Herling replied that guidelines were not enforceable, so the Department had to specify whether the content was guidelines or regulations. The clearance certificate was for use under the debt review process.

Micro Finance SA
Mr Hennie Ferreira, CEO of the MFSA, addressed some of the questions and comments made during the previous hearings in order to broaden the Committee’s perspectives. 

He said the supply of credit in the short-term and unsecured market was highly competitive and complex. The market players were all registered with the NCR as credit providers.  There was an informal market not registered with the NCR or compliant with the NCA, comprising  “mashonisas”, loan sharks and bakkie-lenders active at taxi ranks, factory gates, shebeens  and at SA Social Security Agency (SASSA) pay points.  The market for short-term and unsecured credit had evolved dramatically since the introduction of the NCA, with lending being secured in offices, via the Internet, telephonically and through the ATM network. The collection of payments was via the National Payment System (NPS) and in some cases, via a "payroll deduction," with oversight done by the South African Reserve Bank. There were on-going debates around jurisdiction and compliance requirements for payroll deductions.

Within the informal market, typically no credit assessment was made, there was no paperwork and oversight was extremely difficult.  The retention of SASSA cards for purposes of collection was rife and illegal. There was a need to formalise and coordinate the work of Government departments, while enforcement and competition agencies also needed to be developed as a matter of urgency. Consumer education -- despite the enormity of the task -- needed to be acknowledged and actioned as a priority. 

One of the main objectives of MFSA was to ensure a sustainable microfinance industry. MFSA recognised that credit providers had to be able to financially sustain and grow their businesses, so rates and fees should reflect the real costs of credit provision, given that the MFSA focused on the unsecured market. A set approach to determine these rates and fees annually had to be developed.  Long-term unsecured products could be managed by setting and capping the loan size and term. 

Mr E Marais (DA) asked how the problem of mashonisas and bakkie lenders could be resolved.

Mr D Swanepoel (ANC) asked whether the penalties for these types of lenders were enough and if not, what they should be. He asked about the high cost of credit. What was a fair cost for a short term loan?

Mr Z Wayile (ANC) asked about what social dialogue there was to expand on the concept of development credit, and what efforts at educating lenders were taking place.

Mr Ferreira said the questions posed spoke to the dilemmas facing MFSA. On the question of loan sharks, he said consumer education was not the magic solution.  MFSA was working with a group engaging with Treasury, and this group had agreed to the content of educational materials which would be made available to credit providers.  It would do training to transfer that knowledge. It had to be acknowledged, however, that education was the last thing that credit seekers were looking for when they applied for loans.

He said all credit providers had to be registered and that industry and civil society had to support mashonisas and the like to enter into the formal economy. There needed to be a better working relationship between microfinance firms and mashonisas. There were indications that savings and stokvel groups were also lending, and defaulters were running to loan sharks to avoid the stigma of default at the stokvel. The secondary economy in South Africa had to be recognised.

More money had been lost on development finance than had been made available by credit providers at the microfinance level because of a lack of capacity of both the loaner and the loanee, as well as the fact that start-ups failed and credit providers could not absorb these losses. The Small Enterprise Finance Agency (SEFA) needed to be engaged, and the nexus of housing and development finance had the best chance of success.

On the issue of penalties, he said the NCR did audits, but did not have the capacity to oversee the market.

On the cost of credit, he said that discussion should not take place in percentage terms. Loans had fixed costs and the costing should be based on activity-based prices.

It was a misconception that one could not borrow and pay at the same time. It was a question of discipline, and there was no incentive to save, because it was not worth it.

There were some great employer loan schemes but others were questionable.  Employers were deducting their payment from the disposable income of employees at the time of payment of wages and salaries.

The Debt Counselling Industry (DCI)
Mr Ken Bredenkamp, an attorney representing the DCI, said it was imperative that consolidation loan funds should always be paid directly only to the debtors and no funds over and above the amount required to settle all the debts were advanced to the consumer.  The provisions of Section 88 (1) and 88 (4) should be applicable to afford protection to consumers. He noted that there was a contradiction in the NCA in section 88 (5) and this anomaly should be corrected.  

The establishment of PDAs was beyond the provisions of the NCA.  The solution existed in the form of alternative payment distribution companies (Switches ) which were  properly accredited and subject to the provisions of the National Payment System Act (NPSA), and were regulated by the South African Reserve Bank Act. Existing PDAs could apply to be registered as Switches in terms of the NPSA if they chose to do so.

He said there was no uniformity in dealing with debt review applications in the various magistrates’ courts, and this caused ambiguity.  The magistrates’ courts furthermore did not possess the necessary capacity to ensure that an application for debt review would be completed within the 60-day time limit imposed by section 86 (10) of the existing NCA.   The DCI proposed the amendment of section 86 (10) by the insertion of Section (86)10(b) which would clarify the situation, provide protection to the consumer and limit the scope of litigation which could arise.  The time period of 60 days should be amended to 90 days and an additional subsection should be inserted to allow the time limit before a credit provider could terminate to be extended by the Magistrates, where the delay was caused by unforeseen circumstances.  This would ensure that the lack of capacity did not result in terminations.

Credit providers had raised objections that consumers might utilise the debt review proceedings to delay enforcement of the credit agreement, by lodging an application for debt review but not proceeding with it. The DCI said that this contention had no merit and the proposed amendment should be effected.    

Provision should be made for the inclusion in the section 129 letter, of  the original date of the credit agreement, the capital amount, the interest applicable, the current capital amount, the current interest rate,  the details of the consumer court, ombud and NCR, the amount of the current arrears, the portion of the outstanding amount that related to the capital, the interest and the other finance and additional charges. Where the credit agreement related to a mortgaged property, the consumer’s attention should be drawn to the fact that should action be instituted and judgment obtained against him, execution against his residence would ordinarily follow and usually lead to his eviction therefrom. The amendment to the section should allow for a consumer who was in default of the original agreement to bring the arrear payments up to date or enter into a suitable arrangement with the credit provider to do so within the 20-day period and then still be able to refer the credit agreement for debt review.  The contemplated resolution or re-arrangement of the debt and the intended “safety net” to be provided in the proposed amended subsection 129 (3) of the NCA, would have no effect without the amendment proposed.

Mr Bredenkamp said that credit providers, consumers and debt counsellors had lost faith in the debt review process because of uncertainty relating to the changing environment, terminations and conflicting information.  All of this resulted in uncertainty, frustration and terminations and delays.  The information kept by credit bureaus were important, particularly that of consolidated loans, which should be kept as part of the credit history of consumers to prevent the further granting of reckless credit. 

The DCI did not support the idea of self-regulation and believed that the enforcement of the proposed codes was the most important function of the NCR.  Industry players had to subscribe to codes of conduct.  The proposed amendments to the NCA should provide for the Minister of Trade and Industry to have the power to draft such codes and to make such codes a part of the regulations of the NCA.  It was advisable to link compliance with the codes to the registration of industry players. This would provide for the fair and reasonable consideration and negotiation of debt restructuring agreements, and lead to an effective and harmonised solution to the current crisis -- the prevailing uncertainty in the process -- and limit the number of matters referred to the courts.  This would provide an opportunity to resolve the process amicably before resorting to the legal process. The guidelines for mediation could form a part of the codes of conduct. 

The current regulations and requirements for credit providers in respect of the format, documentation and information which they needed to obtain and verify when performing affordability assessments was inadequate to prevent an increase in the granting of reckless credit.  The assessment information should be prescribed by the Minister and properly enforced by the NCR and should be more in-depth, in the consumer’s choice of home language and verified from third-party sources.

The provisions of section 133 of the NCA should be amended to hold credit providers responsible for the conduct of debt collectors and the third parties to whom debt was sold.

Numerous reckless credit lending activities had taken place.  The regulation of affordability assessments would prevent the dramatic increase in the number of unsecured loans being offered by credit providers and being taken up by consumers.

Certain credit providers included in their products credit life charges. These charges were not properly explained to consumers and interest was added on to them and charged to the consumer, which was illegal and substantial. These charges should be deleted on credit agreements when a consumer applied for debt relief, provided that the consumer took out an alternative life insurance to meet his obligations in terms of the restructured payments.

There should be regulation of the information which was provided by credit providers and the contact which they had with consumers.  The NCR should be more transparent in its investigations and make reports relating to investigations available to all parties. 

Mr Selau said there were many similarities to the presentation earlier in the week and many matters which had been covered by other presentations.

Mr Wayile asked about the alignment of government departments, as they should be complementary. To what extent were their perspectives in conflict?  Consumers were bearing the brunt of problems with mediators who disappeared with the consumer’s money when in fact they were supposed to help the consumers. How were court delays and court capacity problems being resolved?

Mr Swanepoel said it was a sad day when one needed to look at regulating what should have been ethical behaviour from debt counsellors.

Ms Zodwa Ntuli, dti Deputy Director General: Corporate and Consumer Regulation, asked if the DCI had the actual figures of charges by PDAs and Switches.  What were the gaps in expertise in the Consumer Tribunal that had been mentioned in the presentation, and what areas should be beefed up?

Mr Bredenkamp said the regulation codes and the resolution process were crucial, and this could exclude the Department of Justice and the courts in the process, and would allow for a quick resolution. The codes could provide a solution for quicker litigation and rehabilitation without the consumer incurring more debt. It was important that affordability assessments were verified assessments.

The credit industry was important for the economy and guidelines alone were not sufficient. The codes had to be enforceable by the NCR. The NCR was the first port of call, after which the Tribunal had the right to hear cases on appeal. The NCR needed to be capacitated with investigative and support staff. He anticipated that there would be an initial spike in activity, after which activity would decrease as people became familiar with the legislation. The Tribunal should endeavour to process consent orders quicker than at present, where there were lengthy delays.

He said PDAs operated on a fixed system and cost R90 more for 10 transactions than Switches.

The meeting was adjourned.


  • We don't have attendance info for this committee meeting

Download as PDF

You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.

See detailed instructions for your browser here.

Share this page: