National Credit Amendment Bill [B47-2013]: Department Trade & Industry responses, Payment Distribution Industries submission

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Trade and Industry

07 February 2014
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

A representative of Payment Distribution Agencies (PDAs) gave a submission on the National Credit Amendment Bill, to clarify the position of PDAs, their current regulation and to amplify on their request that they should be regulated under the National Credit Act (the Act). The PDAs were currently governed by a service level agreement with the National Credit Regulator (NCR) and were registered with the Payments Association of South Africa (PASA) as a third party payment processor. PDAs distributed on behalf more than 93 000 customers per month, to around 5 000 creditors per month. Their charges were capped by the NCR at 3% of the available debt repayment instalment, with minimum and maximum charges inclusive of bank charges. They were often mistakenly accused of making late payments or being responsible for terminations, and the presenter explained how delays in clearing debit orders, variations of deposit dates by customers, or customers changing their banks without informing anyone impacted on the process of payment, could result in additional interest, and impact on balances, resulting in deviations from original payment plan. It was also explained that credit providers sometimes levied additional charges, leading to mismatch of start and end balances between them and the PDAs. It would be impossible to service 93 000 paying customers manually, as was claimed in previous submissions to the Committee, and the Committee was told that all PDA systems were fully integrated with the various debt counselling software systems, which in turn produced repayment plans. The request was made that PDAs should be recognised as industry participants, in line with the proposed section 44A, that clear guidelines should be issued on the adherence to payment plans and they continue to fall under regulation of the NCR.

Members discussed who and what PDAs were, if they were affiliated with banks, and asked how their functions differed from debt counsellors. Members were concerned about adding of interest, even for one-day-late payments, and suggested that the industry needed to set margins for late payments. They noted that conflicting viewpoints were expressed on reliability of PDAs, and asked what possible fraudulent activities could arise in the value chain, whether PDAs had been found to be engaging in fraudulent activities and whether the balance of power favoured credits not complying with judgments. Members asked for organograms and sought clarity on the fiduciary insurance cover provided by PDAs to safeguard consumer funds. They wondered if PDAs were linked to banks or financial institutions, asked if all banks were liable to attach and sell for minuscule amounts outstanding, or if the problem was limited to ABSA, and called for the fee structures. They asked how PDAs impacted positively on the value chain.

The Department of Trade and Industry (dti) gave a further response on the public submissions during the public hearings on the Bill. A full table of all proposals and the dti’s response, was tabled, and it was noted that some of the issues would be best dealt with when the Committee was going through the Bill, clause by clause. It was suggested that the cost of credit insurance needed to be capped, regulated and monitored closely, like other aspects of costs. Concerns had been raised about towing and medical costs when a car accident occurred, but dti distinguished between service provider fees, and said that if they were converted to credit agreements, the interest was capped, and the provisions of the Consumer Protection Act in relation to services not agreed to were explained. It was noted that formal agreements between regulators provided for coordination on matters of common interest and should be mandatory, but this was covered in the Bill already. NCR wished to expressly exclude social grant income being included in the means test for affordability of loans, and the South African Social Security Agency and Department of Social Development had agreed to this in principle, but would have to follow a full consultation process before amending their legislation. It was noted that sale of loan books did not fall under the Act, but was one area where abuses occurred, and dti would be addressing this, particularly sale of prescribed debt, and wanted to criminalise it. It had decided that no exclusivity should be created for switches or PDAs, but a consumer should rather have the option to choose. It was stressed that the affordability assessments would have to comply with regulations to be issued by the Minister and that these affordability assessments and the industry code would be enforceable.  Anyone in the business of lending money should be registered and the threshold would be revised to ensure that every credit provider was registered.  Compliance requirements and fees would take into account the costs of doing business for smaller operators.

Professor of Economics, Fiona Treganna, was asked to comment briefly on the issues that dti had raised, and she said that it was not yet clear what specific amendments addressed the cost of credit, and whether this would be addressed in the Bill or regulations. Dti was to give further feedback still on its discussions with National Treasury. She supported the proposals around debt counsellors and PDAs and suggested that cooperation between the two should be promoted, and that it should be made clear to consumers that they had the option to choose neither. She wondered if provisions for small-scale credit might be adapted. She pointed out that many of the submissions dealt with enforcement issues that the Committee would need to track.

Members asked for further clarity on the issue raised around tow trucks and hospital expenses. They noted that additional capacity and support would be needed in the NCR, and presumably also the National Consumer Tribunal, when the Bill was passed. They asked about the costs for smaller operators. They wanted more information on credit life insurance as a loan condition, whether the costs of credit were to be capped, noted that the dti may need to review policies underlying the National Credit act, and asked what the consequences of illegal lending would be.

Meeting report

National Credit Amendment Bill: Payment Distribution Agencies submission
Mr Anton Viljoen, Chief Executive Officer, Debt Control Management, said that in his submission he would highlight the value proposition of Payment Distribution Agencies (PDAs) and to address whether PDAs should be regulated by the Payments Association of South Africa (PASA) rather than by the National Credit Regulator (NCR). He also wished to speak to the point whether PDAs were too expensive and resulted in additional costs for the consumer, and whether PDAs processed payments manually and contributed to terminations.

Mr Viljoen said PDAs were currently governed by a service level agreement (SLA) with the NCR and were registered with PASA as a third party payment processor.  Currently, PDAs distributed on behalf more than 93 000 customers per month and distributed to more than 5 000 creditors on a monthly basis.  PDA charges were capped by the NCR at 3% of the available debt repayment instalment, with a minimum of R50 and a maximum of R500 including bank charges.  Cost drivers were the fact that PDAs collected one payment and distributed to individual accounts and there was a high cost of compliance in order to meet stringent NCR SLA requirements.

Information captured by debt counsellors was independently verified and PDAs assisted debt counsellors with the redistribution of funds returned by creditors as a result of incorrect account reference numbers uploaded by debt collectors, to mitigate fraudulent activities. PDAs provided primary debt counselling software and submitted monthly reports to the NCR giving a full reconciliation of all funds collected, with quarterly and annual audits performed by the NCR. Debt review education to consumers was done to create certainty and positive payment behaviour, and notifications following collections and distributions with monthly statements were provided.

Slides 11-12 gave an overview of the regulatory requirements of a PDA, and the key differences between PDAs and a switch or a Third Party Payment Provider (TPPP).  PDAs were often mistakenly accused of late payments or held to be responsible for terminations.  Delays in clearing debit orders, or slight variations of deposit dates by consumers could result in additional interest calculations and would therefore impact on balances, causing deviations from the original payment plan to the creditor.  Credit providers levied additional charges on the consumer’s account that were not originally provided for, thus leading to a mismatch in end-balances between the PDA and credit providers.  It would be impossible to service 93 000 paying customers manually, as was claimed in previous submissions to the Committee, because all PDA systems were fully integrated with the various debt counselling software systems, which in turn produced repayment plans needed by PDAs in order to effect collections and distributions.

Mr Viljoen urged that PDAs should be recognised as industry participants, as per the revised section 44A of the Draft National Credit Amendment Bill and clear guidelines should be issued on the adherence to payment plans.  It was recommended that PDAs should continue to be regulated by NCR and not by PASA, because one body should oversee and integrate the whole process from start to finish.

Mr D Swanepoel (ANC) asked who and what PDAs were, if they were affiliated with banks, and why debt counsellors could not perform this function.  He asked what the error rate was in processing the payments and who was mostly responsible for the errors. He was concerned that consumers who paid a few days late were penalised by adding interest, or the contract with credit providers was terminated, and said there should be an industry-decided margin allowed for late payments before such actions were taken.

Mr Viljoen said there were three PDAs operational currently, and all were subsidiaries of larger companies.  Hyphen Technology was linked to First National Bank (FNB), The National Payment Distribution Agency (NPDA) was linked to the Tradebridge Group, and the last was DC Partner.  Each of these organisations employed 80 to 100 people. One debt counsellor would not be able to develop and run a payment plan.  The error rate depended on the type of errors. The payment plan information was received from debt counsellors.  Identity document numbers were linked to bank statements, and the PDA system was automated to get this information from bank statements.  Consumers often deposited money for distribution, using only a name, and the tracing process that had to follow caused delays. Another problem was that once consumers were placed under debt review, they might change bank accounts without consulting PDAs.  Debt collectors often did not action the payment plan, which also caused delays. Most terminations could be attributed to the short payments due to fees owed to PDAs, because many credit providers terminated on very small amounts.

Mr Abrie Duvenhage, General Manager, NPDA, said that PDAs were mandated to distribute the funds within five working days of the date on which the funds became available for distribution. Debit orders created a challenge, because they could be disputed within 14 days, and that was why PDAs actually needed to keep the money for 14 days to mitigate fraudulent activities.

Mr Z Wayile (ANC) said the submission presented to the Committee had conflicting views on the reliability of PDAs. He said that if the monies paid for distribution were not paid on time, or vanished, the consumer was held responsible.  He asked for clearer explanations on possible ‘fraudulent activities’ in the value chain, questioned what percentage of PDA members had been identified as fraudulent, and what had been done to such individuals.  It became clear from the submission that the balance of power seemed to favour creditors who did not comply with judgments and he asked how it impacted upon the consumers and what the magnitude of this challenge was. He also referred to ‘bullying tactics’ employed by credit providers.

Mr Duvenhage said the strict SLA with NCR and the quarterly audits done by NCR, where the time frames of paid funds were monitored, ensured and enforced compliance in the industry, and there was no incentive for PDAs to embezzle consumer funds.

Mr Viljoen noted that when the first PDA was appointed the regulator determined that credit providers were responsible for paying PDAs.  That had since been changed, and the consumer was now responsible for the 3% owed to the PDA.  This effectively meant that credit providers would receive 3% less than the agreed instalments. ABSA was known for terminating credit agreements for short-payments of amounts as little as R2 short, moving forward and repossessing with no negotiations.  PDAs had teams whose sole purpose was to hold negotiations with banks to stop sales in execution.  No PDA to date had ever disappeared with a consumer’s funds, but there had been fake PDAs that fraudulently accepted funds, and the money was lost once those agencies were closed down by NCR.  Debt counsellors had been de-registered by the NCR for accepting funds from consumers and not paying the money over to creditors.

Mr G Selau (ANC) referred to the SLA with NCR and their preference to be regulated by the NCR and he asked what the SLA contained. He asked for an organogram of the organisation and asked for clarification on the fiduciary insurance cover provided by PDAs to safeguard consumer funds.

Mr Viljoen said PDAs did not mind being a member of PASA, but the regulator was very strict and had already closed down one PDA for non-compliance within three months.  The payment distribution industry was a sensitive and complex industry and there could be damage to both consumers and credit providers if anything went wrong.  There were no bulk payments, but each account was paid specifically, which was more expensive, but more effective and beneficial to the consumer.

Mr Duvenhage added that the SLA with the NCR required the PDAs to provide fiduciary insurance and to report on the cover.

The Chairperson asked for confirmation whether consumers accrued interest on one-day-late payments. The Committee had been led to believe that PDAs were a major problem in the debt review process with regard to late and non-payment of accounts. She asked for a matrix that clearly illustrated the fee structure of PDAs and asked again whether interest was charged on one day late payments.  She asked whether PDAs were in any way linked to banks or financial institutions.

Mr Viljoen referred to the annexure to his presentation that showed a sample payment plan.  The instalment was adjusted from R500 to R300.  In month seven, the instalment was increased to R526 because another debt had been paid off and that amount cascaded down to other instalments.  When the cascading happened and the adjusted amounts were paid late, credit providers terminated the agreements.  PDAs accepted responsibility for this, but then a clear payment plan needed to be prescribed that stated whether instalments needed to stay the same no matter what debt was paid up.  One-day-late payments were subject to high interest rates penalties, because of late payment.  All PDAs did their processing and payments through a sponsor bank and had ‘arms-length’ agreements with the banks, except for Hyphen Technology that was linked to FNB.

Mr Duvenhage said the Committee would be provided with the matrix of the fee structure and the organogram.

The Chairperson asked for clarification on ‘sponsor banks’.

Mr Wayile asked what an ‘arm length’ agreement entailed and asked if there was not a conflict of interest in the relationship of Hyphen Technology and FNB.  A number of big banks had been in the process of restructuring and it was unfortunate that the Committee could not hear the side of bank employees, since many were rumoured to have left the industry because they were required to meet targets that were to the detriment of consumers. This was perhaps something that the Department of Trade and Industry (dti) needed to look into.

Mr Viljoen said PDAs used ‘sponsor banks’, which were banks who were prepared to integrate systems to facilitate payment distribution and some were customers of the banks.  First Rand Limited, a subsidiary of FNB, had shares in Hyphen Technology.

Mr Swanepoel believed that if it was true that ABSA bank terminated on R2 short-payment, then this made a mockery of consumer protection.  He asked if this was an isolated case and, if not, asked if the Committee could be provided with examples or case studies.

Mr N Gcwabaza (ANC) asked why consumers in the debt review process would change bank accounts; it had been said previously that they were usually advised by debt counsellors to change because of preferred dealings. He asked about relationships between debt counsellors and PDAs, and how information was shared.

Mr Viljoen said bank accounts were changed solely by debt counsellors to stop banks from ‘money grabbing’.  If a consumer under debt review owed a bank money, and held a personal account at that bank, any money coming into that account would be taken and paid towards the amount owed to the bank.  Debt collectors would first check the consumer’s profile to check what banks they owed, and where their salaries were being paid. Changes could be made without informing the rest of the industry, resulting in late or non-payments.

Mr Duvenhage said that the way PDAs were regulated meant there were certain conditions that needed to be adhered to, not only by PDAs, but by debt counsellors as well.  As part of the debt counsellor’s conditions of registration, there were certain fees to be paid, and PDAs made sure that those fees had indeed been paid.

The Chairperson said it should be made clear if banks other than ABSA were also terminating accounts for minute amounts short on the instalment.  It did not seem fair that once consumers had declared they were over-indebted and needed help, the systems put in place in fact increased their debt. She asked what PDAs were doing that contributed positively.

Mr Viljoen said PDAs collaborated with credit providers and determined a set of rules that reduced interest rates – in some cases, no interest was even charged. Banks drove their own agenda and had been found not adhering to their own rules. He submitted that the rules developed by industry should not be the only rules, because the best way to restructure debt was not the pro rata way banks suggested, but that instalments should at least cover the interest of any instalment, with any excess going firstly to satisfy the debts with the highest interest rate, then, once that was paid ff, to be cascaded down to the debt with the second highest interest rate.

The Chairperson thanked the presenters and reminded them to provide the organogram, the fee structure, the case and studies and any additional proposals to the Committee in writing. 

Department of Trade and Industry further responses on submissions received on the National Credit Amendment Bill
Prior to the presentation by the Department of Trade and Industry, the Committee Researcher, Ms Zokwanda Madalane, made some suggestions to be kept in mind by the Committee. She said that factors to be borne in mind must include the legislative framework of the debt counselling process, the interpretation of the National Credit Act by consumers and debtors, and the need for cooperation between stakeholders.

Ms Zodwa Ntuli, Deputy Director General: Consumer and Corporate Regulation, Department of Trade and Industry, tabled a document that set out a summary of the submissions received during the public hearings process, together with the responses by dti (see attached document). She said that in this presentation she would address the issues that spoke to legislative amendments and proposals on regulation.  Issues that spoke to implementation and reinforcement had been highlighted, and in some cases were already covered by the existing National Credit Act (the Act).

She pointed out that educational awareness was the responsibility of both the NCR and the credit providers and it could be enhanced by including this process in the code of conduct.  Coordination of industry regulators and stakeholders was very important, mainly to address the dependency on credit that practices in the credit market elevated.

Ms Ntuli gave an overview of the concerns raised by Professor Fiona Tregenna at the previous meeting and how these issues were addressed through proposals contained in her summary document or through provisions and regulations.

Mr MacDonald Netshitenzhe, Chief Director: Policy and Legislation, dti, said the National Credit Act aimed to promote and advance the social and economic welfare of South Africans.  Some of the practical outcomes of the National Credit Act suggested the time had come to re-assess the policies underlying the Act.  His presentation would deal with the salient points. He reiterated that the summary provided feedback on almost every point dealt with during the public hearings.

He reminded Members that the cost of credit consisted of interest, monthly service fees, initiation fees, default administration charges, collection costs and credit insurance, and all these elements were capped with the exception of credit insurance.  The cost of credit insurance needed to be capped, regulated and monitored closely.  Non-compliance with the agreed capping should be punishable and it was proposed that the time-frame for finalisation of proposed capping regulations should be six months. 

One submission had touched on the position of people involved in accidents, who found themselves facing towing and medical costs. These were fees of service providers, and were not credit agreements initially, but could become incidental, with interest capped at 2%. 

He said that where a dispute arose between the consumer and a credit provider that was not registered, a remedy should be provided for in the Act.  Formal agreements between regulators provided for coordination matters of common interest and should be mandatory, as already provided in the Bill.  This cooperation should not interfere with the mandate in terms of respective legislation.
He reported that the South African Social Security Agency (SASSA) had consulted with dti, and the Department of Social Development (DSD) had agreed to effect amendments in its own legislation after consultations with its own social grants beneficiaries.  However, in the meantime, he suggested that the NCR should expressly exclude social grants as part of the means test for affordability purposes, insofar as applications for credit were concerned.
The selling of loan books did not fall within the mandate of the Act, but continued to be an area of abuse against consumers.  The collection or selling of debts that were prescribed should be made an offence in the National Credit Act.  The dti had proposed that both PDAs and debt counsellors should play a role in the debt review process.  It was proposed that the “fit and proper” test be made part of the requirement for registration, and the considerations for “fit and proper” should be prescribed in the regulations.  No exclusivity should be created for switches or PDAs, but a consumer should rather have the option to choose.
Affordability assessments should be done in accordance with regulations to be issued by the Minister, and both affordability assessments and the industry code, once issued, would be enforceable.

Mr Netshitenzhe said that the credit provider could, in respect of a credit agreement, give notice for termination of a debt review of a consumer, but the period was to be no longer than 60 days after the date on which the consumer applied for debt review. dti did not support the proposal for extension of the said period to 90 days. 

He stressed that anyone in the business of lending money should be registered, and the threshold should be revised to ensure that every credit provider was registered.  The compliance requirements and fees could be prescribed in a manner that took into account the minimised cost of doing business for smaller operators.  The dti proposed that the NCR must publicise the cancellation and deregistration of deregistered entities and individuals widely.

Mr Netshitenzhe e said that the National Consumer Tribunal (NCT) was well placed to hear matters related to reckless credit and was currently empowered to adjudicate on matters referred to them.  In respect of its geographic location, the NCT had jurisdiction throughout South Africa and had established a process to hold hearings across the country, including through technological methods.

Slide 16 gave an overview of the credit market organogram, from the consumer to the High Court.  There was an issue of conflict of interest that arose through the roles that individuals could occupy in the credit market.  This was illustrated in a recent case of an attorney who was also a debt collector which would be explained by the NCT.

Ms Ntuli highlighted the issue that PDAs would be stringently monitored and regulated by the NCR, and a continuous cost effective analyses would be conducted to ensure that the consumer was not disadvantaged.  There was nothing proposed that would prevent a debt counsellor from being a PDA as long as compliance requirements were met.  However, credit providers or debt collectors could never be debt counsellors or PDAs, because of the inherent conflict of interest.  One concern addressed in the submissions overview related to the process that should be adhered to when a debt counsellor voluntarily deregistered. 

In relation to the clearance certificate, Ms Ntuli said that it was proposed, in order to mitigate against consumers in debt review being excluded from accessing credit for a number of years, that the clearance certificate could be issued on condition that the mortgage loan was not in arrears.

Ms Ntuli said that other issues raised during the public hearings, which were summarised in the response by the dti, would be further dealt with during the clause by clause discussions on the Bill.

Input by Professor Tregenna
The Chairperson asked Professor Fiona Tregenna, Professor of Economics, University of Johannesburg, to give input or suggestions based on what had been said in the previous meeting as well as on the responses by dti.

Prof Tregenna said it was not clear what specific amendments addressed the cost of credit and asked if the cost of credit would be addressed purely through the regulations, and what the implications for the Bill were.  The agreements and cooperation between regulators and stakeholders were important, but it could be further explored once feedback was given by dti on its discussions with National Treasury.  The selling of loan books was significant, but since dti said that it was more an issue of abuse outside the mandate of the National Credit Act, it could not really be discussed in relation to the Bill, because there were no clear indications what would be amended within the Act to strengthen this area.  The proposal regarding debt counsellors and PDAs was supported, although it should be noted that cooperation between these two entities should be promoted.  It should be made clear in the amendment that the consumers also had the option to choose neither the PDA nor the switch. She was in support of the requirements that  all credit providers be registered, but suggested that perhaps provisions for small scale credit could be adapted.  She further picked up on some minor issues that would perhaps be dealt in the clause by clause treatment of the Bill.  These issues, as raised by stakeholders, included concerns around definitions, voluntary termination of registration, clearance certificates, unlawful credit agreements, accreditation, registration and de-registration of alternative dispute resolution agents (ADRAs). A number of the issues dealt with reinforcement, and she suggested that the Committee should keep track of whether it was just a purely reinforcement issues or whether anything needed to be strengthened in the Bill.

Mr X Mabasa (ANC) asked if the problem where cars damaged in accidents were towed by tow trucks had been sufficiently addressed. He said that people sometimes ended up by losing their cars, because the storage fees for a few days easily exceeded the value of the car.

Ms Diane Terblanche, Chairperson, National Credit Tribunal, said that section 15 of the Consumer Protection Act said that before service was provided to a consumer, an explanation and a quotation of the cost should be provided and accepted by the consumer. This cost could not be increased more than 15% without written consent by the consumer.  Section 21(7) of the Consumer Protection Act stated that a person was under no obligation to pay a supplier for unsolicited goods and services, nor the deliverer of unsolicited goods.

Mr Selau asked about the capacity and support that would be needed in the NCR for implementation of the proposed amendments.  The dti had touched on capacitating the NCT, but had not spoken about the effect n the NCR of the additional regulatory powers and responsibility afforded to the regulator.  He referred to the credit market organogram on slide 16, and asked what the role of the provincial courts would be. He wondered why the switch was not included since they played a role in the payment distribution market.  There was no direct relationship to SASSA and any legislation considered needed to be effected with direct consultation with the Department of Social Development.

Ms Ntuli said the sector regulators should deal with the conduct of the people they regulated.  Intervention of the NCR should be complementary. The NCR capacity issues were driven by the available budget, which the dti would propose should be increased, to address the new issues.

Ms Terblanche said that orders of a Provincial Court and the orders of the Tribunal had the same status.  In terms of the National Credit Act, the Tribunal did not have jurisdiction around contractual matters such as unlawful and unfair contracts.  Reckless credit was not assessed based on the agreement entered into, but on the assessment guidelines the credit provider was supposed to apply.
Mr Netshitenzhe said the dti would not take the lead in legislative changes that related to SASSA.  There could be a future joint meeting with the Department of Social Development, but dti should be advised by Parliament on how to proceed.  This Bill would address the affordability guidelines that prohibited credit providers from using the grant income as part of the means test to assess affordability.

Mr Swanepoel said credit insurance should never be a condition of obtaining a loan, and consumer awareness was needed in this regard.  The credit agreements with tow trucks showed that the interest rate was capped at 2%, but he maintained that the costs themselves needed to be capped.  The choice that the consumer would have between a switch and a PDA should be outlined, indicating the costs, for the consumer.  He asked, in relation to the principle that everyone in the money lending business would be covered by the Bill, whether this would include incidental or ad hoc loans as well.

Mr Lesiba Mashapa, Company Secretary, NCR, said credit life insurance played an important role in the credit market.  If a consumer died or became disabled, his or her debt would be settled and it also provided security for the credit provider.  The proposal was that the pricing of credit insurance should be capped within the National Credit Act.

Ms Ntuli said credit life insurance did not have to be a part of every loan, and it came down to an issue of disclosure to consumers of the cost and impact of the insurance. She agreed that companies needed a code of conduct that prescribed the disclosure responsibilities.

Ms Nomsa Motshegare, Chief Executive Officer, NCR, confirmed that the Act did not apply to incidental loans.

Mr Wayile said there were a number of case laws and case studies presented. He asked that any gaps identified through them should be specified. He asked how any corrupt practices identified would be dealt with, and whether the provisions in the Magistrate’s Court Act, 1944, were still relevant in relation to what this Bill provided. Areas identified around the selling of immovable property, laws around interest and the principal debt needed more clarification.

Mr Mashapa said that various gaps had been identified in court judgments. This was why amendments to section 129 were being proposed, which would prevent credit providers from excluding a credit agreement from debt review where a section 129 letter had been issued. Another gap being filled was the fact that lenders would be prevented from terminating the debt review process.

The Chairperson asked if it was the intention of the dti to review the policies underlying the NCA.  She asked what happened to illegal lenders, the money they made from illegal practices and if they faced any penalties.  The poor were still paying a higher interest rate, because price was determined according to a risk profile, and she asked if this practice could not be curbed.

Ms Terblanche referred to the case that Mr Netshitenzhe had mentioned earlier, involving a Mr Borman who was a registered debt counsellor, an attorney and the owner of a debt counselling agency that employed unregistered debt counsellors.  He charged fees as an attorney and as a debt counsellor, as well as charging for services provided by his unregistered debt counsellors. The NCT found that he should be de-registered as a debt counsellor and should refund the 10% he charged in each case as a collections attorney. He was also reported to the relevant Law Society. Mr Borman had appealed the NCT findings to, firstly, the High Court, then the Supreme Court of Appeal, but both upheld the findings by the NCT.  To date the NCT had issued penalties to the tune of R2.4 million and worked with the NCR to enforce the payment of those penalties.  If a consumer was found to have paid more than s/he should have paid, it was made a specific condition in the Order that the consumer should be refunded.  Fines and penalties could go up to 10% of the annual turnover of the previous financial year.

Mr Netshitenzhe said there was  concern that inherent conflict of interest in regard to the PDAs, debt counsellors and ADRAs had to be analysed, and their implications understood. There was a matter of corporate lenience that should be focussed on consumer awareness.  Reckless lending and affordability guidelines were not working, and statistics needed to be gathered around investigations and outcomes of reckless lending.  There was the possibility of appealing to court on decisions around capped costs and interest rates. The dti may have to come back and review policies again.

Ms Motshegare said the NCR visited provinces before the end of each month to make contact with local law enforcement authorities, so that any raids on illegal lenders were conducted in conjunction with the police.  The challenge was that most illegal lenders were able to operate again within hours of their arrests.  In some cases, bank cards were seized, but borrowers would just contact the bank and apply for new cards.

Ms Ntuli suggested that industry players should be held personally liable for their conduct, but said that this was a policy issue and the Committee would need to decide whether it should be provided for in the Bill. Illegal lenders had the loop hole of not being registered, and legal lenders doing illegal activities abused the provision at the moment.  The enforcement issues were indeed very important and the NCR should continue to engage on these issues.

Ms Terblanche said section 54 dealt with restricted activities of unregistered persons and the proposed amendment to section 54 would relate to the notice issued by the Regulator. That created the impression that the notice was a prerequisite of the process of dealing with an unregistered credit provider.  The biggest problem was that the penalties and fines imposed on unregistered persons went to the fiscus, and money was not necessarily returned to the consumer.

The Chairperson asked if it was proposed that new legislation be drawn that prohibited the social grants from being considered in affordability assessments, or whether this could be incorporated in the regulations.

Ms Ntuli said the legislation that dealt with the social grants should be amended. The National Credit Act would then be brought in alignment with that. There were problems and gaps with the interpretation of the legislation, and the Department of Social Development said this would be addressed.  There were many beneficiaries of SASSA, and it was not possible to process any amendments without holding a consultation process.

The Chairperson said she understood the NCT to not have jurisdictional limitations, but court appearances were often arranged in different provinces from where the consumer resided.

Ms Terblanche said the NCT did not require any person to travel to the Tribunal, and the Consumer Protection Official in the town of the consumer assisted with the electronic connections to the Tribunal.

Mr Mashapa responded to Prof Treganna’s point on unlawful credit agreements, and said that section 89(5)(c) had been struck down by the Constitutional Court because it had said that a credit provider did not have the right to reclaim money lent to a consumer if it was not a registered credit provider in terms of the Act at the time the loan was made. The gist of the judgment was that there needed to be a balance between the rights of the consumer and the rights of the credit provider. The aim was to give the Court the discretion to decide what was just and fair. Dti had indicated that the proposal was to criminalise prescribed debts, and was to address the selling of loan books.

Ms Ntuli said the proposed provisions regarding threshold for credit providers required all credit providers to be registered and the fees and compliance requirement would be lower for the small scale credit providers.

Ms Terblanche referred to a comment made the previous day about not receiving feedback from the NCT.  If an application did not meet with the filing requirements, it was referred back and was labelled as an incomplete application.  If the right information was not supplied within six months, the application lapsed.  The lapsed rate on debt rearrangement agreements was 25%, but the NCT had started to address this issue by taking debt counsellors through the application process, was setting up workshops and was in the process of developing a software programme that would assist them in smoothing the application process.

The meeting was adjourned.

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