National Credit Amendment Bill: Black Sash on grants used as collateral for loans; Committee proposed amendments

Meeting report

Black Sash on government grants used as collateral for loans
Black Sash National Advocacy Manager, Mr Elroy Paulus, said it had engaged the Department of Trade and Industry (DTI) in discussion about how poorer and lower income persons (Living Standards Measure LSM 1-5), were greatly affected by reckless credit granting. The impact of the credit market on the quality of life of the poor had for decades been a vexing and deeply concerning issue. Many of the provisions in the National Credit Act had contributed to a significant lessening of the risks regarding access to credit, however there had been an unprecedented increase in the provision of unsecured credit recently.

The Community Monitoring and Advocacy Programme (CMAP) had been established to enable the formal monitoring of SASSA pay and service points, clinics, the Department of Home Affairs and some municipalities through standardised questionnaires. At the end of the period, 46 reports were done on mainly SASSA beneficiaries. Feasibility studies done in 2003 on the cost, volume and allocation of credit showed the impact of the credit market on the quality of life of the poor, as well as the impact of the lack of access to credit and the exploitation by those with economic power over people who either struggled to access credit or struggled with debt repayment. Black Sash had ongoing engagements with SASSA and had forwarded to the Committee a copy of an open letter to the Minister of Social Development raising grave concerns around the irregular, illegal and immoral deductions made by unscrupulous lenders from the grant beneficiaries. Black Sash generally supported the National Credit Amendment Bill but access to credit should have processes that were equitable, transparent and accountable between lender and borrower.

Some debt collectors took much more than the guideline fees and it was a major concern for consumers to not have their cases concluded in a reasonable time frame, because of monies held over. The gist of the concern was the report by the National Credit Regulator (NCR) that the unsecured credit had increased by 49% year on year and the gross debtors’ book sat at R1.3 trillion and unsecured lending constituted 9.1% of which poorer household were enormously affected by huge interest rate hikes. As a result of the acceleration of deductions for loans and financial services with the requirement of the proof of a life certificate for SASSA beneficiaries on a monthly basis, people would be stuck in chronic debt and poverty. The research and the available data lumped persons earning under R10 000 per month in one group and credit granted either legally or illegally, should be better understood. A meeting was held on 29 January 2014 at the South African Council of Churches with testimonies from both SASSA beneficiaries and poor South Africans on the deductions. They called for a response from the Minister of Social Development.

Black Sash Gauteng Regional Manager, Ms Thandiwe Zulu, said the testimonies spoke to the impact the deductions had on households, because after deductions most beneficiaries had nothing left. The outsourcing of the SASSA payments made it possible for those private entities to earn huge profits through a government initiative that was supposed to address poverty and unemployment and provided basic needs support to the poor. The testimonies by two beneficiaries showed in one case an amount of money was being deducted from an elderly women’s grant for airtime for a cellular phone she did not own and another beneficiary was granted a loan without a credit check because the SASSA payment was guaranteed. Before the beneficiary could get the grant, the loan repayment amount would have already been debited. Black Sash called for the amendments to the Social Assistance Act to make any debit deductions from the bank accounts of grant beneficiaries illegal and the National Credit Act should be amended so that social assistance grants were not considered as collateral for loans. The in-sourcing of social grants should revert to SASSA, the Department of Social Development. SASSA and third party service providers should be held individually and jointly accountable for debit deductions. With regards to ensuring the rights of the child were protected, it should be the duty of the parents, caregivers and the State to protect this money for the child’s needs.

Mr Paulus said because of the service level agreement (SLA) between SASSA and the Cash Paymaster Services and how the money was paid into the account of the beneficiaries, an administrative decision was made that the money should revert back if it was not drawn at the end of the month to address fraudulent activities and to ensure proof of life. It was the perception that poor people who left money in their accounts did not deserve the money and while the proposal was that the grant should not be used as collateral or considered in affordability assessments, it had been known that poorer people had used other means such as stokvels to save money. The reason there had been an acceleration in the deductions was Net 1 was the holding company for the Cash Paymaster Services, was listed on the Johannesburg Stock Exchange (JSE) and the New York Stock Exchange and had subsidiaries who were lenders of debt.

Discussion
The Chairperson said the Committee had been aware of the SASSA issue but the Bill did not directly address the grants. In legislature, if there was a cross-cutting mandate, there needed to be some executive consultation at a certain level between the affected departments and committees.

DTI Director General: Consumer and Corporate Regulation, Ms Zodwa Ntuli said there had been some engagement between the Department of Social Development and the Department of Trade and Industry, but there would need to be consultation between the Department of Social Development and their beneficiaries and the relevant stakeholders.

The Chairperson said there would be some way the National Credit Amendment Bill could address the issue.

Committee Content Advisor, Ms Margot Herling, said in terms of section 48, clause 8 the new proposal allowed the Minister to ensure that all registered credit providers should comply with affordability assessment regulations which would include the regulation that grants could not be considered as income in the assessments.

Mr G McIntosh (COPE) said a grant was meant to be a poverty safety net and there was a demand for credit and was it not possible for the State to become a “nanny state” that patronised and dictated to people on how they should spend their money. He asked if the organisation had been able to determine the scale of the mashonisa (loan shark) lending practices and what had been done with regards to consumer education to budget and plan their expenses better.

Mr Paulus said the responsibility of the State had been given serious consideration and evidence from Brazilian municipalities through experience was that family state support was granted on condition that the child be in school 85% of the year. This was a developmental approach because a mother could now use some of the grant money to pay for childcare while she took her products to bigger cities to sell. The lending environment prevented developmental gains and allowed wealthy people to step on the poor to enrich themselves especially if there was no recourse or punishment for illegal lenders. Effective consumer education was the way to go and part of the Black Sash’s programme had been rights education, local advocacy and a human rights framework to make sure that people understood their rights and their responsibilities. There had been a call for proposals for the ‘Citizens in Action’ movement, the Community Monitoring and Advocacy Project had drawn the attention of the Presidency and there was a Draft Policy Statement that was finalised by the Department for Performance monitoring and Evaluation for a pilot to research the benefits of community monitoring and had engaged twice with the Presidency in that regard. The efforts of the organisation were being heard, but much more needed to be done.

Ms Zulu said Black Sash was a small organisation, but secured over 270 partner organisations in the communities to capacitate those organisations.

Mr G Selau (ANC) said the Department of Social Development should initiate the SASSA issue legislatively. He asked for an explanation on whether the presentation referred to a debit order, which was permission granted by the account holder to deduct money or a stop order which meant the money was deducted before the consumer was paid. On the issue of outsourcing of the grant payment system by the Department of Social Development, it was not clear if the intent was that the system should revert back to the challenged system where the elderly had to wait in long lines for days on end to get their grants.

Ms Zulu said whether it was debit order or a stop order, consent was needed and the request was made for documentation to be provided as proof that a consumer had consented for money to be deducted. In one of the testimonies presented, the beneficiary’s account was being deducted for a cellular phone she did not own nor had bought. The beneficiary had given her private information to SASSA and that information was now sold to a third party that used that data for their own interest and it violated people’s rights to privacy. Black Sash had advocated for the old system to be abolished and did not want the elderly or vulnerable to stand in long queues, but wanted SASSA to insource the system by paying the grants directly to the beneficiaries and to improve the system. It was unacceptable if a profit making entity benefited from something put in place by the state to deal with the issues of poverty and unemployment.

Mr Paulus said when SASSA outsourced to Cash Paymaster Services, in its attempt to provide banking for the unbanked, it created problems especially with SASSA's choice of partner with its offshore bank, its history and with a wild profit interest that did not serve the interest of South Africans.

Mr K Marais (DA) said the submission dealt largely with SASSA challenges and not National Credit Act issues and the SASSA bank account should be designed to not allow any deductions. The submission did not distinguish between legal and illegal micro lenders and the Act spoke to the legal micro lenders in clause 8 and how they should be regulated. Illegal lenders seemed to be at the centre of the challenges identified by Black Sash, and he asked if the organisation had looked into non-compliance by credit providers and the consequences thereof.

Mr Paulus said one of the options Black Sash had been considering in the Stop Debits Campaign was litigation and through consultation realised the deductions made by legal and illegal micro lenders needed to be carefully documented and should be the responsibility of SASSA and the Department of Social Development. The acceleration of the deductions made was as a direct result of the service level agreement (SLA) that SASSA had entered into with Cash Paymaster Services and Net 1. Black Sash visited Net 1 to get clarity on the matter and the evidence from the receipts and the aggregators that collected the debt allegedly incurred by the beneficiary - and the credit providers had many questions associated with it. In terms of the Social Assistance Act only one type of deduction, a deduction for a funeral scheme was allowed to come off the SASSA card, and not more than 10% of the grant amount. The consequences for non-compliance should be as strong and sustained as possible, both to the lender and the borrower.

Mr Z Wayile asked how widespread the challenges were and how effective consumer education was, both in terms of budget education and collaboration between social partners in delivering consumer education. Presentations made been on the fraudulent activities in the credit space and he asked if Black Sash had made any reports to the South African Police Service (SAPS) or the Department of Justice and what the outcomes of the reports were. Stokvels were examples of a culture-specific way of saving, especially for the poor and he asked if that could be used as a platform to promote saving. He asked whether Black Sash, with understandably limited resources had come across the debt spiral consequence of especially black and African students who were blacklisted even before they had a chance to be employed.

Mr Paulus said Black Sash was a small organisation with limited resources and the work and evidence were based on voluntary collection of data handed to some of their partners, photocopied and sent to the organisation as evidence. Organisations from the Northern Cape in collaboration with local community leaders reported to SAPS about mashonisas grabbing identity documents and SASSA cards at pay points. SAPS entered the site, retrieved the SASSA cards and identity documents and laid a case, but there was only one commercial crime court in Kimberley and this would result in having to travel 1 000 km from certain towns just to state one's case. One of the reasons Black Sash wrote the open letter and included the Department of Justice and Constitutional Development was the unintended consequences of being violently threatened by illegal lenders for repayment of a loan. While there needed to be the strengthening of the legal structures of credit granting, there needed to concomitant strengthening and political commitment to make sure that illegal lenders did not threaten or harm borrowers. The Economic Policy Research Institute (EPRI) had done some sterling work where they collaborated with the bank to incentivise saving, encouraging families receiving child support grants to save 10-15% of their grants, and at the end of the year their savings would be increased by partners in the initiative. The project was under threat because of the proof of life certificate where the money was taken back.

Mr X Mabasa (ANC) said most of the input cut across other departments, but it made the Committee aware of the broader challenges. Credit checks were not always done before granting credit and social grants used as collateral should be made illegal and were abusive towards the elderly. The biggest challenge was consumer education and he asked if Black Sash had gone into the rural areas to see if these challenges also affected those areas.

Mr Paulus said work had been done in Aberdeen, Adelaide, Upington, Keimoes, Saldanha and several towns across the Northern Cape, Western Cape and in Limpopo. All these towns had different profiles and entities that provided challenges. The SASSA card enabled some retailers to dictate that consumers should spend a set amount on specific goods in order to have access to the goods and services on offer. The Legal Resources Centre had collected evidence from a range of towns like Bathurst, Adelaide, Camdeboo region and Black Sash in collaboration with the Light of Hope Foundation collected evidence in Ekurhuleni and Limpopo and the information had been forwarded to the NCR and the Legal Resources Centre to build evidence that showed that the deductions were not funeral scheme deductions and they exceeded the allowed maximum of 10% of the grant amount that would show violations of the Social Assistance Act and to some extent the National Credit Act.

Mr D Swanepoel (ANC) referred to slide 9 and the highlighted unsecured credit growth. He asked if micro lenders should not be considered under short term credit growth. He asked if Black Sash had any evidence of roll-over debt where interest and costs accumulated each month and consumers ended in a debt trap and whether illegal lenders were making deductions from the SASSA cards.

Mr Paulus agreed, but said the argument was not only for SASSA beneficiaries, but also for people in the LSM1-5 group and micro lenders could then fall into both groups.

Ms Zulu said the aggregators picked up old debt that had been settled and consumers could not prove that the debt had been settled and were harassed by debt collectors based on faulty information.

Mr Paulus said any questions not covered, would be forwarded to the Committee in writing.

The Chairperson thanked Black Sash for the presentation and said although there had been significant focus on SASSA, there had been reference to the LSM1-5 and the main consideration was the emphasis of hard hitting penalties for non-compliant lessons. She hoped the documents contained some of the information that referred to Brazil. The Bill would be strengthened by putting a stop to the exploitation of the poor, and would address the SASSA issue as much as was allowed.

Parliamentary Legal Advisor on the National Credit Amendment Bill
Parliamentary Legal Advisor, Adv. Charmaine Van der Merwe said the presentation would deal with the initial drafting of proposed amendments so that Committee could start to look at clauses and how these tied in with the submissions and the response from the DTI.

Clause 1
DTI would confirm the proposal to revisit the deletion of paragraph (d) due to the impact on rental agreements or financial leases. The definition of ‘mortgage’ was agreed to be defined as ‘a mortgage bond registered by the registrar of deeds over immovable property that served as continued covered security for a mortgage agreement’. Proposed that the definition of ‘secured loan’ retained the word ‘movable’ in paragraph (b). New amendments included a definition for a Payment Distribution Agent (PDA) and a proposed definition for ‘regulated financial institutions’.

Clause 2
Provided for a mechanism to resolve disputes between the NCR and other regulators. DTI proposed this be agreed upon in the agreement, which was cooperative governance which in turn was a constitutional prescribed obligation.

Clause 3
Proposed to replace the word ‘official’ with ‘employee’, because the Act referred to ‘employees’ of the NCR and not ‘officials’ of the NCR. Section 40 was a new amendment that spoke to the registration requirements of the credit providers. The proposal was that all credit providers should be registered, and if the Committee wished to include this in the Bill there needed to be some form of public participation.

Clause 5
DTI would confirm whether experience, capacity and capability of PDAs could be prescribed by regulation, or included in the Bill.

Clause 6
Dealt with minor proposed amendments on the applications for registration of all who should be registered in terms of the Act. It included an appeal to the National Consumer Tribunal (NCT) against decision of NCR regarding fitness of a person to be registered and section 59 already provided for a review of the decision.

Clause 7
Disqualifications contained in section 46 could also be applied to section PDAs.

Clause 8
Dealt with the conditions of registration and the proposed amendments stated the Minister should make codes and affordability assessment regulations, after public consultation and on recommendation of NCR. Clauses 8 and 15 should be aligned in respect of in or after consultation. It was proposed that compliance with affordability assessments regulations and codes should be a prerequisite for registration and affordability guidelines should exclude SASSA grants.

Clause 11
Inserted additional regulations for voluntary cancellation of registration by a debt counsellor, as well as other de-registration and transfer of a business, including notification to credit bureaus. The word ‘seize’ to be changed to ‘ceased’.

Clause 12
Inserted an obligation that debt counsellors should regularly assess the financial position of consumers. The clause should clearly indicate what was required before a clearance certificate was issued and the certificate should be made available to all credit bureaus.

Clause 13
Amended clause so that only negative profile information was removed and all credit bureaus should be notified. DTI would confirm whether section 71A should be aligned with regulation 17 and if transitional provisions should be created to assist bureaus.

Clause 15
Consequential amendments to subsections 82(1), (2), (3) and (4) related to ‘guidelines’ becoming regulations.

Clause 16
Ensured that the NCT decisions were subject to review and appeal and DTI should provide details of the transitional provisions required.

Clause 17
The clause provided for all types of credit applications and ensured that cost of credit was limited to the balance of the unpaid debt. Section 103(5) already capped all possible costs and the cost of credit insurance was to be regulated and capped. Collection costs under other laws to be capped in consultation with the Minister of Justice and Constitutional Development. These amendments fell outside the current scope of the Bill and required National Assembly permission and the facilitation of public involvement.

Clause 20
Amended the consumer to lodge a complaint before debt enforcement and section 129(1)(a) was a prerequisite for litigation and section 130 required the credit provider to prove that notice was delivered. Accepting that it would increase the cost of credit, the court required registered mail with track and trace.

Clause 25
Amended the clause to clarify that a notice on non-referral was an outcome of an investigation into a complaint. This amendment fell outside the scope of the Bill. National Assembly permission was required as well as facilitation of public involvement.

Clause 26
Amended the clause to provide the Minister the discretion to prescribe training. There was no obligation on the Minister to prescribe training and the proposed clause could be worded in such a way as to make it clear that it was discretionary.

New clause
Collecting, selling or activating debts that had prescribed to be null and void was to be made an offence. The agreements would not be enforceable as a person could not sell more rights than they had.

Slide 17 gave an overview of how the proposed amendment would work in practice. It was proposed that an offence was added under section 100 that dealt with prohibited charges, provision for emolument attachment orders which would be a big project, and the Credit Ombud to register with the NCR. The concern was a duplicate registration and could cause the Ombud to be subject to two different sets of rules. It was proposed that the fines be utilized towards the consumer and not to be paid into fiscus. The Minister of Finance would have to be consulted about this, because draft legislation that excluded money from payment into the National Revenue Fund could be introduced in Parliament only after the Minister of Finance had been consulted on the reasonableness of the exclusion and had consented to the exclusion.
 

Discussion
Mr Marais said a mortgage could also be registered over property as security for another agreement. He asked if the definition of ‘mortgage’ would be limited to the proposed definition. He asked for clarification on whether the word ‘movable’ should be retained in clause 1 since the secured loan could also be secured by immovable property.

Adv van der Merwe said there was no link as to what the money was used for. The definition of ‘mortgage’ would have no impact on whether it referred to a normal mortgage bond or whether the mortgage was used to secure another agreement. ‘Mortgage’ and ‘secured loan’ were distinguished by ‘movable’ and ‘immovable’, because they were both the same instruments and the nature of where the security lies, whether it was fixed or could be moved about, could be distinguished in the registration requirements. Immovable property was registered by the registrar of deeds and movable property was registered through agreements.

Mr Swanepoel referred to clause 5 and asked why PDAs would automatically be illegal if the transitional provision for registration was not included and asked why clause 25 fell outside the scope of the Bill if it was already dealt with in section 140.

Adv van der Merwe said the Bill currently did not require PDAs to be registered and would not require registration until the Bill came into effect and they should be afforded some time to do the application. Section 140 referred to the NCR that could enforce any action provided for in the Act and clause 25 specifically referred to notice of non-referral by the NCR and that constituted two different amendments, and clause 25 was not initially proposed to be amended.

Mr Wayile referred to section 40 and asked how the section would deal with the penalties for debt counsellors that did not pay monies over to the credit providers, but the consumer was held responsible and how would this section deal with the matter. He asked for elaboration on the penalties that could be levied against PDAs and the possible process of having those penalties be paid to the consumer. During the submissions the conduct and integrity of the law society were questioned and asked if they would not come before the Committee to engage on the Bill.

Adv van der Merwe said section 40 specifically referred to credit providers and non-compliant debt counsellors could be provided for in the Act, but the DTI could provide details of what the process could be. Any fine that was applied by legislation should go into the fiscus, because there was a process for the flow of government money from National Treasury to the different departments and the Minister should be consulted if that money was proposed to be used any other way. DTI had also cautioned on the proposal that penalties should go the NCR, because it could lead to incentivising to penalise based on budgetary needs and it could be an issue that needed to be researched because it should also be accounted for to the public. The invitation was sent to the law society to come and present on the Bill and the onus was on them to come and voice their opinion on the Bill. The more important consultation was with the Minister of Justice because the Magistrate’s Court Act was administered by the Department of Justice and the emolument attachment orders provisions should be done in consultation with the Minister of Justice. The easiest way for this to be amended would be to make provision for regulations where it would be in the schedule with amendments to the Magistrate’s Court Act and would provide for the Minister of Justice to make provisions for regulations in consultation with the Minister of Trade and Industry.

The Chairperson referred to clause 6 where it stated that section 59 already provided for a review of the decision and asked if it meant there would be no amendment if it was already there.

Adv van der Merwe said section 59 already provided for a review of the decision, although the proposal asked for an ‘appeal’. The review was the more appropriate process because an appeal was a dispute on fact.

Ms Diane Terblanche the Chairperson of National Consumer Tribunal(NCT) said those credit providers that should be registered based on the current provisions in the Act, but were not registered would be issued with a compliance notice from the NCR. The notice could be referred to the NCT for review and the notice could be upheld or set aside. Administrative penalties could be levied against a non-compliant credit provider, but there was also a criminal punishment that could include jail time or a fine.

Ms Ntuli said statistics on over-indebtedness did not take into consideration those credit providers that were not required to register under the current provisions of the Bill and once the amendments that required all credit providers to register was enforced, it would give a clearer picture of the over-indebtedness challenge.

Mr Marais said the Committee should not confuse the issue further with regards to SASSA and there was regulations that could be could be done to address the issues, but not in the Bill. Any legislative changes should be driven by the Department of Social Development.

The Chairperson said with regards to SASSA the National Credit Act provided for the assessment guidelines, and the other issues such as fraudulently debiting money from a person’s account should be covered in other legislation.

Adv van der Merwe said if a person or a credit provider was not complying with the law, whether it would be put in the Act would not make a difference, because they would still be non-compliant. All the illegal and fraudulent activities discussed by the Black Sash was covered by law and it could be just enforcement challenges. The focus should be on consumer awareness of what credit providers were lawfully entitled to do and the only real gap was in the credit provider registration thresholds where unregistered credit providers disregarded the Act or manipulated the 100 credit agreements provision.

NCR CEO, Ms Nomsa Motshegare said the NCR knew there was enforcement challenges and needed a strategy to reach out to consumers to create awareness and although much had been done, it was still not enough.

Mr N Gcwabaza (ANC) asked if the 100 credit agreements meant the signing of the agreements, because what about the person in the rural village that operated out of his car, no signing of credit agreements and charging high interest rates.

Ms Motshegare said currently the Act provided for credit providers to register if they had 100 credit agreements or the principal debt on their loan books exceeded R500 000.

Ms Ntuli said the threshold was provided for to lessen the burden of registration, but it opened up the loophole where credit providers would not be required to register and interpreted that to mean not complying with the Act as well. It was then decided that all credit providers should be registered and the cost of compliance would be less for the smaller credit providers, because the NCR would be better able to monitor credit providers if they were registered. No close supervision of somebody who operated as a lender from their car, would let such a person fall through the cracks where registration was concerned, but did not exclude such a person from compliance to the provisions of the Act.

Ms Ntuli went through the issues raised by Adv van der Merwe and confirmed that DTI agreed with the presentation and all the ambiguities or irregularities would be addressed collaboratively.

The Chairperson referred to clause 12 and asked whether the obligation needed to be inserted that debt counsellors needed to regularly assess the financial position of consumers if the affordability guidelines already addressed it.

Ms Ntuli said the debt counsellors had an obligation to assess the financial position of consumers with regards to issuing of a clearance certificate and whether the consumer had been rehabilitated.

Mr Marais said there should only be two groups of credit providers, those that were registered and those that should be registered. Even if the threshold should be brought down very low - so that the wrongdoing could be exposed and consumer protection could be prioritised.

The Chairperson explained the programme for the following days, she thanked everyone for their input and the meeting was adjourned.