The Committee addressed critical issues that had been identified in the public hearings as weaknesses in the Principal Act but which had not been addressed in the Amendment Bill. Permission from the National Assembly was required to include amendments to sections of the Act that did not appear in the Amendment Bill according to National Assembly Rule 249(3)(b): “if it is a bill amending provisions of legislation, …. seek the permission of the Assembly to inquire into amending other provisions of that legislation”.
The Parliamentary Law Advisor took the Committee through the proposed amendments:
Clause 4 amended Section 23 by proposing the removal of the National Credit Regulator (NCR) Board and the accountability of the NCR Chief Executive Officer to the Minister and to Parliament. This governance matter that was explored in the submissions, was extensively discussed by the Committee.
Clauses 10 and 11
These clauses removed the obstacle of credit providers having to have 100 credit agreements as a requirement for registration. The onus was squarely on the Minister to determine the threshold that could be as little as R1 if he so decided. The Committee discussed possible regulations that could be put in place to address registration requirements for credit providers who offered both goods on credit as well as cash.
Clause 29 amends Section 100 dealing with prohibited charges and was amended by the addition of subsection (3) which states that ‘A person who contravenes this section is guilty of an offence’. The submissions showed that some credit providers supported this while others opposed this proposal as there were uncertainties. It was pointed out that compliance to the Act was compulsory and all that had changed was that non-compliance was now an offence. An accounting mistake was not an offence, but once one became aware of the mistake and did nothing to rectify it, it became an offence. The Committee discussed the penalties that should be imposed, the prospect of imprisonment and the submissions of stakeholders who opposed this proposal.
Clause 30 will amend section 106 of the Act and provide that the Minister “may” prescribe a limit on the cost of credit insurance through regulations. The National Credit Act provides that credit life insurance can be charged to a consumer by a credit provider, but the cost of credit life insurance is not limited by the Act. It has now transpired that there is already a review underway by the Consumer Credit Insurance Task Team who might take this in a completely different direction. The practical implication is the Minister will only be able to prescribe this limit in consultation with the Minister of Finance once the task teak has completed its research.
Mr McIntosh (COPE) said he wanted to put it on record that he felt ‘discomforted’ by what he perceived as ‘rushing’ the Bill. The Committee's management of its stakeholders also concerned him because of the short time it had allocated to stakeholders for a second round of submissions.
The Chairperson said it was advisable to follow the rules if the Committee wanted to make changes to sections of the Act that were not included in the clauses of the Amendment Bill. All such proposed amendments had arisen from the public hearings. The Committee became aware only at the eleventh hour about the governance issue as raised by the Department of Trade and Industry (DTI). The Chairperson said she had never ‘rammed’ through any Bill. It should be made clear there was no intention to ram through this Bill. The impression had been that all parties to differing degrees wanted this Bill to go through. Everyone wanted to see reckless lending stopped and adverse information removed from credit bureaus once a debt had been settled so as to grant people access to employment and credit. 'Expedited' did not mean ‘ramming’ through the Bill. The critical issues that arose from the public hearings and directly affected the Principal Act would be addressed.
Mr G McIntosh (COPE) said legislators carried a huge responsibility and he understood the Chairperson had tried to ensure the process was done in the fairest way possible. Credit was fundamental to a prosperous society and growth to the economy. There were different levels of sophistication amongst consumers and even university graduates battled to understand the principles of compound interest and most consumers wanted immediate satisfaction. Poorer people needed credit for basic needs. The micro finance world was very important and the aim was to protect these people from exploitation. The concern was that the Committee was rushing the Bill, and although the issues were vital, there was no need to rush. On Friday 14th there were submissions from stakeholders on the new proposed amendments concerning the National Credit Regulator (NCR) which most supported. Evidence had been shown that if the NCR had been doing its work properly, some of these issues would not have been problematic, and quite rightly DTI wanted to make the NCR work better. Prescription was complicated and it affected a lot of other legislation and most of these stakeholders had to burn the midnight oil to present these submissions. There was the letter to the Speaker to extend the scope of the Bill, the issue of the Twin Peaks regulation and the implications for the South African Development Community (SADC). However, there was a real sense of discomfort about stakeholder management, especially with what had happened in the last few days.
The Chairperson said all these issues were raised during the public hearings, in particular with the financial institutions, and only two responded directly with the rest leaving their responses to the Banking Association of South Africa (BASA). The proposed amendments that were outside the scope of the Bill were as a consequence of the outcomes of the public hearings and needed to be adequately addressed rather than risking future court proceedings. National Treasury had been invited to submit in writing, but there had already been presentations on the Twin Peaks regulation.
Mr K Marais (DA) said everybody was on the same page with what needed to be done, but giving stakeholders a weekend to write up submissions could create the impression of trying to push the Bill through in a limited time. There would be a problem if it meant the regulations were distributed to stakeholders without coming to the Committee first.
The Chairperson said some of the amendments discussed were to be contained in the secondary legislation (regulations) rather than in the Bill. This did not mean the regulations were distributed to stakeholders to rubber stamp, because primary legislation needed to be dealt with first. The Committee was entitled to see the regulations, but only once the primary legislation had been dealt with. Stakeholders did not have a weekend for their submissions, but had been requested on 12 February to submit by 17 February.
Mr G Selau (ANC) said he was looking forward to moving on to the next item on the agenda.
Mr B Radebe (ANC) said the comments made by Committee members should be respected, but the Bill was long overdue and the draft Bill was presented by DTI to the Committee even before it was tabled in Parliament because of its importance so that Committee members could prepare themselves for engagement. The Committee identified the Bill as a priority, across all party lines and he suggested the Committee proceed to deal with the clauses.
Mr McIntosh referred to an electronic document dated14 February that called for further input from stakeholders on the National Credit Amendment Bill by Monday 17 February.
The Committee Secretary said the request for further submissions was put on the parliamentary website on Wednesday evening 12 February. The actual draft of the clauses to assist the stakeholders was forwarded on 14 February and by then most of the stakeholders had already submitted their submissions.
The Chairperson said the issue raised by stakeholders as well as the Committee regarding credit insurance would be focussed on and gave over to the Parliamentary Legal Advisor, Adv Charmaine van der Merwe.
New proposed amendments: briefing by Parliamentary Legal Advisor
Clause 30 amending section 106 of the Act
Clause 30 of the Bill will provide that the Minister can prescribe a limit on the cost of credit insurance. The National Credit Act as it stood provided that credit life insurance could be charged to a consumer by a credit provider, but the cost of credit life insurance was not limited by the Act. If this amendment was to be included in the Bill, it would have to be a prescribed limit, because it would affect the insurance community and consultation and discussions was needed before it could be done. It had now transpired that there was already a review or research underway by the Consumer Credit Insurance Task Team. So the Minister would need to make regulations to prescribe the cost of credit insurance. Members of that task team included the Financial Services Board (FSB), the NCR, the Competition Commission and the Actuarial Society of South Africa and they were looking into consumer credit insurance. The concern was that it seemed that this process was very close to finalisation and decisions were to be made and based on feedback from National Treasury that review could go in a totally different direction than what was proposed in the Bill. The practical implications for this clause was that the Minister would only be able to prescribe this limit once he was aware of what was going and only in consultation with the Minister of Finance.
Mr Radebe said the Committee was put in a difficult position because this task team should have alerted the Committee beforehand what their intentions were. There was a policy gap about consumer credit insurance and this could not be left as it was. He proposed the Committee continue with the proposed amendments and if the outcome of the review differed from that of the Committee, the Bill could be amended.
Mr D Swanepoel (ANC) said the amendment read ‘the Minister may’ and if the outcome of the task team provided for a different direction, the word ‘may’ provided flexibility in the process.
Mr Marais said the Committee was not informed of parallel work taking place. This could jeopardise the work of the Committee. There was an obligation on government departments to inform the Committee of these parallel processes.
Mr McIntosh said National Treasury’s submission stated it was concerned by the Committee’s eagerness to add the additional clauses because it could blur the lines of accountability. The responsibility of insurance regulation lay with the FSB, accountable to the Minister of Finance. He supported Mr Radebe’s proposal, but the Bill could also be passed after the 7 May elections.
Mr Z Wayile (ANC) said the Bill was contested terrain by different interest groups and the Committee should exercise a high level of vigilance not to get distracted from the core business of finalising the Bill. The focus in the past weeks had been on coordination and alignment and the Committee should be provided with the terms of reference of this task team to mark the way forward.
National Treasury Consultant: Financial Sector Policy Unit, Ms Katherine Gibson, said the task team had been raised before and the Committee could be presented with a draft that would show the status of the progress made by the task team.
The Chairperson said it seemed that Committee members for the most part agreed with Mr Radebe’s proposal and cooperation and coordination were important matters in this process.
DTI Chief Director: Policy and Legislation, Mr Macdonald Netshitenzhe, apologised about the Committee not being informed about the process by the Consumer Credit Insurance Task Team and said DTI would be cognisant of any other parallel processes that could impact the Bill.
Adv van der Merwe said the Bill was introduced as a proposed section 75 Bill, but when the clauses were considered it became clear it was a section 76 Bill. On the cover page of the B version of the Bill ‘processed as a section 76’ was inserted to address any misunderstanding. This was procedural and did not affect the contents of the Bill.
This would be amended to include ‘to provide for the alteration of the governance structure of the National Credit Regulator’ and to correct grammatical errors.
Section 1 of the National Credit Act was amended by the deletion of the definitions of ‘Board’ and ‘Member of the Board’ because of the change in the governance structure of the NCR and by the substitution for the definition of ‘mortgage’. The clause also substituted the definition of ‘mortgage agreement’, inserted the definition of ‘payment distribution agent’ which meant ‘a person who distributes payments to credit providers on behalf of consumers following a debt-rearrangement agreement or an order of court or Tribunal made in terms of this Act’. It was also amended by the substitution for the definition of ‘prohibited conduct’ and ‘secured loan’.
Sections 19, 20, 21 and 22 of the principal Act were repealed.
Section 23 was amended by the substitution for subsection (1) with ‘The Minister must appoint a suitably qualified and experienced person as Chief Executive Officer of the National Credit Regulator, who is responsible for all responsibilities pertaining to the functions of the National Credit Regulator’, and by the addition after subsection (2) the following subsections:
‘23(3) The Chief Executive Officer is the accounting authority for the National Credit Regulator, and as such is responsible for-
(a) all income and expenditure of the National Credit Regulator;
(b) all revenue collected by the National Credit Regulator;
(c) all assets, and the discharge of all duties and liabilities of the National Credit Regulator; and
(d) proper and diligent implementation of this Act in order to achieve the objects stipulated in this Act.
(4) The Chief Executive Officer may –
(a) assign management and other duties to employees with appropriate skills to assist the National Credit Regulator in the management, or control of the National Credit Regulator; and
(b) delegate, with or without conditions, any of the powers or functions of the Chief Executive Officer to any suitably qualified employee of the National Credit Regulator, but such delegation does not divest the Chief Executive Officer of responsibility for the exercise of any power of performance of any duty.
(5) The Minister may appoint a suitably qualified and experienced person as a Deputy Chief Executive Officer to assist the Chief Executive Officer in carrying out the functions of the National Credit Regulator.’
Mr Radebe said the issue of the new governance structure for the NCR by removal of the Board was agreed upon in principle because the Board did not make investment decisions as was the case with other entities. National Treasury’s proposal for the Board to be reinstated was in direct conflict to what was already decided, which was the NCR’s accountability to the Minister through the DTI Director General.
The Chairperson referred to the summary of submissions on the additional submissions on the Bill and said the governance issue was raised as one of the core concerns.
Mr Marais asked if National Treasury could comment on their premise in the submission that removal of the Board could impact operational independence and to whom the Chief Executive Officer or the Board of the NCR would be accountable.
Adv van der Merwe said the Board was accountable to the Minister, and since the amendments stated the Chief Executive Officer was to be appointed by the Minister. It would seem that the Chief Executive Officer would account to the Minister. DTI had however made comments on the effectiveness of the Board.
The Chairperson clarified National Treasury’s position and said the submission supported the removal of the Board, but expressed concern regarding the process.
Ms Gibson said caution was advised based on the amount of time spent by National Treasury on the Twin peaks model and how a sound governance structure should be based on issues such as transparency, decision making and accountability.
Mr Netshitenzhe said this issues had been raised during consultation with National Treasury and the aim was to comply with the Public Finance Management Act (PFMA) and all the regulatory framework around governance structures.
Mr McIntosh proposed insertion of the ‘shall’ in subsection 1 to read who ‘shall’ be responsible for all responsibilities pertaining to the functions of the National Credit Regulator.
Adv van der Merwe said there was a drafting concern that the word ‘shall’ was futuristic and proposed the word ‘must’.
Mr Marais referred to subsection 5 and asked if the appointment of the Deputy Chief Executive Officer was an optional appointment by the Minister, because the word ‘may’ created ambiguities about the appointment and whether that person should be ‘suitably qualified and experienced’.
Adv van der Merwe proposed the subsection to read ‘The Minister may appoint a person who is suitably qualified and experienced, as a Deputy Chief Executive Officer to assist the Chief Executive Officer in carrying out the functions of the National Credit Regulator.’
Section 26 was amended by bringing in sections 20 and 21 verbatim and through the substitution of key words so that it could be applied to the National Consumer Tribunal (NCT).
NCT Chairperson, Ms Diane Terblanche, proposed that where applicable, it should be amended to ‘meeting or hearing’ and ‘minutes or report’ pertaining to a hearing. The Tribunal did do meetings, but when the panel heard a case, it was referred to in terms of section 142 as a public hearing.
Mr Marais referred to subsection 11 which stated ‘Proceedings of the Tribunal, and any decisions taken by a majority of the members present and entitled to participate in those decisions, are valid despite the fact that-
(a) a member of the Tribunal failed to disclose an interest as required by subsection (9); or
(b) a member of the Tribunal who had such an interest attended those proceedings, participated in them in any way, or directly or indirectly influenced those proceedings.’
He said this person could have a huge impact on the decision made by the Tribunal and the provision basically said there were rules, but if a person transgressed, it would have no impact on the decision and it seemed harsh and unfair.
Mr Swanepoel asked if the outcome of the decision would be subject to appeal and would undue influence be reviewed in this appeal.
Ms Terblanche said the decision could be taken under review in terms of the Promotion of Administrative Justice Act and the Tribunal always submitted to appeals for decisions.
Mr Marais said that was not the nature of his question.
Ms Terblanche said it also provided for instances where a lot of time, money and resources was spent on a case, only to find that the process had to be repeated.
Adv van der Merwe asked if the section could be flagged so that the issue could be clarified and to check whether the insertion of ‘hearing’ could be done.
Mr Selau referred to section 5 that showed the provisions that would prohibit a person from being a member of the Tribunal and said there were cases people were accused of misconduct and it was reported in the media and such persons were removed from their positions, not because they were found guilty, but because it would bring stability to the situation. Section 5(d) provided a person could not be a member of the Tribunal if such a person ‘has ever been, or is, removed from an office of trust on account of misconduct in respect of fraud or the misappropriation of money’.
Adv van der Merwe said strictly speaking there should be a finding before someone was removed from office, but it did not always happened in practice. This clause was important because in some cases a person would be removed from office, but no further criminal proceedings would be instigated. The provision could be amended to clearly show there were internal investigations that led to a disciplinary hearings with a finding.
Mr Swanepoel said it should not be limited to an ‘internal’ enquiry, but should rather be a ‘formal’ enquiry.
Mr Marais said it should be specified as an ‘adverse finding’.
Section 40 was amended to read ‘A person must apply to be registered as a credit provider if the total principal debt owed to that credit provider under all outstanding credit agreements, other than incidental credit agreements, exceeds the threshold prescribed in terms of section 42(1)’.
Section 42 was amended by the substitution for subsection (1) by ‘The Minister, by notice in the Gazette, must determine a threshold for the purpose of determining whether a credit provider is required to be registered in terms of section 40(1)’.
Adv van der Merwe said these clauses removed the obstacles where it no longer required credit providers to have 100 credit agreements as a requirement for registration, but the onus was squarely on the Minister to determine a threshold that could be R1 if he so decided.
Mr Marais said it was a practical arrangement that would be in the regulations and it was one instance where the Committee needed insight into the regulations before they were distributed.
Mr Swanepoel asked if it would be discussed in the evening session whether everybody should be regulated, because there had been substantial discussions on how to do away with mashonisas (loan sharks).
Adv van der Merwe said there was a lot of submissions that addressed this issue. Incidental loans and a court provision of interest also influenced the decision, but the DTI would address this in the evening session.
Mr N Gcwabaza (ANC) referred to Home Choice as an example of a company that was registered as a business that sold home ware, but also offered loans to consumers. He asked if the loan aspect of the business would be registered separately.
NCR Company Secretary, Mr Lesiba Mashapa, said the company would be allowed to trade as a credit provider, because the registration did not specify the specific product that would be sold and if a company traded goods on a credit basis it was a provider of general credit.
NCR CEO, Ms Nomsa Motshegare, said the business registered as a legal entity and not as separate section of one business.
Mr Gcwabaza asked how the Act governed such a business.
Mr Marais asked how the NCR dealt with the financials submitted by businesses if some of the sections of these businesses were not being declared.
Mr Mashapa said credit could be in different forms through either a personal loan, a store card or a mortgage. It could be difficult to determine through financials from which section of the business the credit was accessed, but the tax returns submitted by credit providers only dealt with credit granted.
Mr Swanepoel said the NCR registered businesses that provided credit, either in cash or through the provision of consumer goods. It was not clear how the reporting was done, but the tax returns of the business should show how much of the credit was extended through loans and how much through goods.
Mr Gcwabaza said there should a provision in the Act that separated the issues, because the scale of unsecured lending would not be evident.
Mr Netshitenzhe said the DTI would confer with NCR and would come back to the Committee on the matter, but the NCR could issue compliance notices so that companies declared their interests.
Mr Gcwabaza said it was not the intention to close businesses, but companies should be open regarding their business dealings.
Section 44A was amended to settle the discussion around whether a natural or juristic person could apply to be a registered payment distribution agent. It was settled by using the wording ‘a person’ and also provided that a consumer was not obliged to make use of the services of a payment distribution agent. The section dealt with the fidelity insurance that should be maintained, conflicts of interest and the registration requirements of a payment distribution agent.
Mr McIntosh referred to subsection (2)(a) which read ‘A person must not offer or engage in the services of a payment distribution agent, or hold themselves out to the public as being authorised to offer any such service, unless that person is registered as such in terms of this Chapter’, and he asked if ‘Chapter’ should not be substituted with ‘Act’.
Adv van der Merwe said the Act was divided into Chapters and it needed to be checked if this section fell within the Chapter that dealt with registration or not.
Section 45 was amended by the substitution for subsection (3) with: ‘If an application complies with the provisions of this Act and the applicant meets the criteria set out in this Act for registration, the National Credit Regulator, after considering the application, must register the applicant subject to section 48 unless the National Credit Regulator after subjecting the applicant to a fit and proper test or any other prescribed test, is of the view that there are other compelling grounds that disqualify the applicant from being registered in terms of this Act’. It also added subsection (4) which read: ‘The Minister may prescribe the criteria to be considered in conducting a fit and proper test contemplated in subsection (3)’.
Section 46 was amended by the substitution of subsection (2) with ‘A natural person may not be registered as a credit provider, debt counsellor or payment distribution agent if that person is an unrehabilitated insolvent’ and by the substitution in subsection (3) for the words preceding paragraph (a) with ‘A natural person may not be registered as a credit provider, debt counsellor, or payment distribution agent, if that person—‘.
Section 48 was amended to show that the NCR ‘must apply’ the provided criteria as registration requirements to be registered as a credit provider and drafting rules dictated that the ‘affordability assessment guidelines or regulations’ was changed to ‘affordability assessment code’.
State Law Advisor, Adv Mongameli Kweta, said the ‘affordability assessment code’ and the Code of Conduct in this Bill were prescribed by the Minister and the Act explained that ‘prescribed’ meant ‘prescribed by regulations’ which would in effect mean “regulations prescribed by regulations”. DTI could advise whether ‘code’ was the right word in this context.
Mr Marais said ‘code’ was not the right word. He asked if it was to be called ‘affordability assessment regulations. Repetition aside, what would the problem be since the intent was clear?
Mr Selau said the regulations prescribed by the Minister would include the Code of Conduct and the enforcement guidelines of the affordability assessments. It should be called neither a ‘code’ nor ‘regulations’. The drafters, DTI and the legal team should confer and come up with proposals.
Section 48A was amended by insertion of provisions of how the code of conduct would work. If the code of conduct was the same as the one described in section 48 and prescribed by the Minister, the definition needed to be inserted in section 48.
Mr Marais said ‘code of conduct’ was a generic term and the definition of the code should be followed by subsection (3) that stated ‘A code of conduct must be consistent with the purposes and policies of this Act’, and he asked if this Act prescribed policies. He referred to subsection (5) that stated ‘A registrant must not, in the ordinary course of business, contravene an applicable code of conduct’, and said that it seemed there could be various codes of conduct and this could be confusing.
The Chairperson said the Act had a policy and the provision asked for the legislation regarding the code of conduct to be consistent with that policy.
Adv van der Merwe said the intention seemed to be the ‘policies underlying the Act’, but it would need to be clarified with DTI.
The Chairperson said there should be clarification on subsection (4) which referred to a ‘review in terms of subsection (5)’, the policy issue and whether it was the same code of conduct in terms of section 48.
Mr Radebe said there should not be multiple codes within one industry, because in the creation of the code the NCR should consult with the relevant stakeholders, and the Minister should prescribe the code of conduct.
Mr Marais said subsection (5) referred to an ‘applicable code of conduct’ and that was a broad statement that could also be applied outside of this Bill.
The Chairperson asked Ms van der Merwe, DTI and the NCR to confer and come back in the evening session with clarifications.
The Chairperson welcomed everyone back to the meeting and apologised for the delay.
Adv van der Merwe said in collaboration with DTI it was found that there was only one code of conduct within the Act save for one section where an ‘industry code of conduct’ was mentioned, but that was outside the scope of credit. The general reference to code of conduct would be removed from this clause and moved to section 1 that dealt with definitions. In this clause specific reference would be made to the clause in the previous section and it would address the role of the Minister, the NCR and the registrant. The ‘applicable code of conduct’ referred to the industry specific code of conduct only relevant to specific industries, e.g. online businesses.
Mr Swanepoel asked what the consequence would be if a registrant contravened the code of conduct.
Mr Mashapa said the NCR would require credit providers to subscribe to the code of conduct as a condition of registration. Non-compliance would be a breach of the conditions of registration and it was prohibited conduct.
Section 51 was amended by the addition in subsection (1) of ‘a penalty for late renewal of registration by registrants which must be imposed by the National Credit Regulator on a registrant who fails to pay its prescribed registration renewal fees within 21 business days from the date on which such fees were payable.’
Mr Marais asked if ‘prescribed’ needed to be included in the clause.
DTI Deputy Director General: Consumer and Corporate Regulation, Ms Zodwa Ntuli, said in the Act, if registration was not renewed in time, it lapsed automatically. The grace period would not be included in the regulations and was therefore included in the Bill.
Adv. A Alberts (FF+) asked why 21 days and not 30 days and whether it was business days.
The Chairperson said it needed to be defined.
Adv Alberts said the Interpretation Act could perhaps give some guidance on the issue.
Adv van der Merwe said it would be investigated, the correct period would be reflected and the interpretation rules would be applied.
Section 52 was amended through technical amendments and the insertion of a provision that stated registration lapsed on the last day upon which the prescribed renewal fee should have been paid in terms of section 51(1)(c).
The clause dealt with the voluntary cancellation of registration and section 58A was amended to include the provision in subsection 4 that said ‘The Minister may prescribe the procedure for hand over and transfer of records of consumers where the registrant ceases to operate for any reason including cancellation of registration, lapsing of registration, death, disappearance or incapacity.
Mr Marais asked how ‘disappearance’ was defined in this context.
Adv van der Merwe said a consumer would lodge a complaint to say he or she was not able to locate or contact the person they had been dealing with and upon investigation and a factual finding by the NCR, the transfer would be different because there was not someone to hand over the case.
The Chairperson questioned whether ‘disappearance’ had ever been included in any legislation and the phrase ‘for any reason’ already dictated the process after a ‘registrant ceases to operate’.
Mr Radebe proposed the word ‘abscond’.
The Chairperson said the phrase ‘any reason’ rendered all the processes listed thereafter obsolete.
Adv Kweta agreed and said ‘any reason’ covered any eventuality.
Mr Selau said ‘any reason’ should be qualified.
Adv. Kweta said ‘disappearance’ should be removed and the rest of the provision should stay as is and the Committee agreed.
Section 71 dealt with the clearance certificate that could be issued by a debt counsellor once the debt had been settled or in the case of long term debt like mortgages. There should no arrears on that rearranged debt and the financial stability to satisfy future obligations in terms of a long term debt, should be demonstrated by the consumer.
Section 48 was amended, based on the discussion in the previous session for subsection 2 to read ‘The Minister must, on recommendation of the National Credit Regulator, make affordability assessment regulations’. The word ‘prescribed’ was removed to eliminate repetition.
Section 86 was amended through technical amendments and subsection (10)(b) was amended to read ‘No credit provider may terminate an application for debt review lodged in terms of this Act, if such application for review has already been filed in court or in the Tribunal’.
Ms Gibson said National Treasury made drafting recommendations in their submission for this section and greater consideration should be given to mortgage agreements in respect of the primary residence. In terms of the debt counselling process, the primary residence deserved special treatment and consideration. The proposal did not go against what this clause attempted to deliver upon and an additional subsection was proposed that stated “an application, in terms of this section may not be made and did not apply to the mortgage agreement of a primary residence”. The intention was that the priority of debt repayment should not be at the expense of a consumer’s primary residence.
The Chairperson said this issue had been raised during Committee deliberations, although not entirely in this regard.
Ms Ntuli asked for clarification, because the implications of the proposal seemed to read that a mortgage loan should not be part of the debt review process. This would mean that it could not be rearranged and the consumer would be liable to repay that loan regardless of their financial ability to do so.
The Chairperson said the Committee had spent a lot of time on this issue and it should be made clear the intention was not that consumers should lose their house.
Mr Marais said some of the previous clauses dealt specifically with the ability to rearrange payment on a long term debt and the possibility that debt rearrangement could take place without including a mortgage loan could lead to consumers losing their house.
Ms Gibson asked if National Treasury could propose wording for this clause that would take into account all the issues.
The Chairperson said not just yet.
Mr Radebe said the prioritising of the consumer’s residence was thoroughly discussed during the public hearings. This clause simply prohibited the credit provider from terminating the application for debt review and was not in any way harmful to the consumer and should stay as it was.
Mr Alberts said the National Treasury’s submission said that when a consumer was in financial trouble their primary residence could not be attached to settle the debt or they could not be evicted from the residence.
Ms Ntuli said DTI was not prepared to allow credit providers to exclude credit agreements from the debt review process, because once it was excluded, it could not be rearranged and the consumer would need to meet those obligations despite their financial distress. Prioritising the mortgage agreement once the debt had been rearranged could be an option or matter that could be discussed.
Ms Gibson said National Treasury’s submission was in regards to prioritisation of the mortgage agreement.
Mr Marais asked if that meant that the mortgage loan should be prioritised within the debt rearrangement process.
Ms Gibson agreed.
Mr Radebe said the bottom line was that no credit provider would be allowed to exclude themselves from the debt review process and the prioritisation of the mortgage agreement should be within the debt review process.
Section 100 dealt with prohibited charges and was amended by the addition of subsection (3) which stated that ‘A person who contravenes this section is guilty of an offence’. The submissions made it clear that some credit providers supported while others opposed this amendment. Those against stated there were uncertainties with regards to this amendment. It was not clear what the problem was because compliance to the Act was compulsory, and all that had changed was that non-compliance was now an offence. An accounting mistake was not an offence, but once you became aware of the mistake and did nothing to rectify it, it became an offence.
Mr Marais said there had been no complaints in the past, because there had been no consequences for non-compliance. More and more pieces of legislation should look into the consequences of non-compliance.
The Chairperson referred to the summary of submissions and said those that opposed the amendment mentioned issues such as ‘interpretational uncertainties’, ‘duplication of penalties’ and the fact that there were already sufficient structures and penalties in place to enforce compliance. If that was the case, why was there still non-compliance in the industry?
Mr Selau said the issue of penalties would be enforced once non-compliance had been investigated.
Mr Radebe said the Act provided for penalties and guidance was needed because an offence should be penalised.
Adv van der Merwe said section 161 in the Act dealt with penalties with regards to the NCR and criminal offences. The provisions stated that any person convicted of an offence in terms of this Act, was liable to a fine or imprisonment of a period not exceeding 12 months or to both a fine and imprisonment. If the NCR imposed a fine and referred the matter to the police, the court would take into account the civil penalty when determining the correct sanction. The Act also aligned the period, where 12 months was the gauge depending on the seriousness of the offence to the fine that could be imposed.
This amended section 106 of the Act and provided that the Minister could prescribe a limit on the cost of credit insurance. From the morning session’s discussion, it was agreed upon that even though the Consumer Credit Insurance Task Team could veer into a total different direction, the prescribed regulations should be done in consultation with the Minister of Finance and the word ‘may’ provided some flexibility in the process.
Section 129 was amended by substitution in subsection (1). In the previous discussion the word ‘must’ and had now been amended to ‘may’, because the Sebola v Standard Bank judgment found that the section 129 letter was a prerequisite for litigation and if a consumer made a credit arrangement with a credit provider and did not honour the obligation, it would have commanded that the credit provider issue a section 129 letter, because the consumer was in default. That was not the intention of the provision and there were sufficient provisions for the section 130 proceedings that the section 129 notice was a requirement for litigation. Based on the submissions and to eliminate confusion, the provision was amended to read that the credit provider ‘may draw the default to the notice of the consumer in writing and propose that the consumer refer the credit agreement to a debt counsellor, alternative dispute resolution agent, consumer court or ombud with jurisdiction, with the intent that the parties resolve any dispute under the agreement or develop and agree on a plan to bring the payments under the agreement up to date’.
Adv Alberts referred to subsection (4), that read ‘a consumer may at any time before the credit provider has cancelled the agreement, remedy a default in such credit agreement by paying to the credit provider all amounts that are overdue, together with the credit provider’s permitted default administration charges and reasonable costs of enforcing the agreement up to the time the default was remedied’. He said ‘reasonable costs’ was too open ended and asked that it be reworded.
Mr Marais asked if it was not already dealt with in the regulations and the capping of the interest rates.
Adv Alberts said the costs charged were not interest, but inflated collection charges.
The Chairperson said the Debt Collectors Act fell under the Department of Justice.
Mr Selau said the cost of credit had been discussed before and the NCR needed to submit regulations that the Committee could study to see how the consumer could be protected.
Mr Radebe said even if the Debt Collectors Act fell under the Department of Justice, there was already issues within this Bill that should be referred for discussions by the Ministers of Trade and Industry and Justice. This issue should also be flagged for such a discussion.
Mr Marais said the word ‘permitted’ gave the impression that there could be regulations or guidelines that could limit the costs, although the ‘reasonable costs’ that enforced the agreement until the debt was remedied was still open ended.
Adv Alberts said the ‘default charges’ were within the jurisdiction of the Minister and ‘permitted’ could be substituted by ‘prescribed’, because the Minister could prescribe those charges. The reasonable costs should be discussed with the Minister of Justice to create certainty.
National Treasury Director: Financial Regulation and Legislation, Ms Jeannine Bednar-Giyose, said if there were clear linkages made between sections 101 and 129 and clearly defined terms inserted in those sections, the issue of charges could be addressed.
Ms Motshegare said default charges and collection charges were prescribed in legislation.
Ms Ntuli said the Act provided for these regulations, but the regulations did not exactly prescribe to the exact amounts but rather to the limits in terms of the Magistrates’ Courts Act. The decision was made to look at those regulations if the need arose to see if it needed tightening up.
Adv van der Merwe said section 46 talked about default administration charges and section 101 talked about collection charges and the section would be flagged. The wording would be constructed once the legislation had been checked.
The Chairperson asked if the in duplum rule should be defined in the Act.
Adv van der Merwe said section 101 listed all the amounts that could be charges and all of those costs, when the consumer went into default, according to the in duplum rule, stopped once the principal debt amount was reached, until the consumer started paying again. The reasonable cost under the Magistrates’ Court Act was not included in this section and should be discussed with the Department of Justice.
Ms Bednar-Giyose said perhaps, in terms of the earlier discussion, the proposals by National Treasury with regards to the definitions of some of the costs could address some of the issues.
Ms Ntuli said the cost of credit could be addressed through capping in the Act and it was time that the regulations be reviewed if it was still appropriate. The in duplum rule was discussed and the concern that the cost was too high and it could be an incentive to credit providers to not collect too early because the costs could escalate until it reached the principal debt. It was decided that the Department of Justice would be consulted, although there was not a definite decision made.
Mr X Mabasa (ANC) said the in duplum rule should be addressed with the interest of the consumer as a priority.
Adv Alberts said the in duplum rule came from the common law and the Committee had an opportunity to adjust it by statute and make it more fair by way of a sliding scale depending how much the amount was, and once the ceiling had been reached, charges should not be added.
The Chairperson agreed and said at some point the debt should freeze to stop consumers overpaying the debt.
Mr Mabasa said a practical example would be building societies that built rooms behind four roomed houses and once the consumers were in default the house would be secured for the debt and people lost their houses.
Ms Ntuli said the sliding scale was an option, but if the charges were properly capped the amounts could not amount as high as was allowed.
Adv van der Merwe said another issue was how the section 129 notice should be delivered and said subsection (5) was amended to state the notice should be delivered to the consumer by registered mail or to an adult person at the location designated by the consumer in writing. The consumer should in writing indicate the preferred manner of delivery and proof of delivery was satisfied by written confirmation by the postal service or its authorised agent, or the signature or identifying mark of the recipient.
Mr Marais referred to a recent incident where thousands of mail items were found dumped and asked if there was any recourse for the consumer in this regard.
Adv van der Merwe said unfortunately this would become a court process. The next step would be a summons that would be delivered by the sheriff followed by default judgments and sale of execution notices. Before the sale of execution, there was a length of time for the consumer to get the judgment rescinded in court.
Adv Alberts said there had been a Constitutional Court judgment that found that notices should be delivered to the person and not just to anybody.
Adv van der Merwe said it depended on the type of notice where a normal summons did not have to be delivered to the person but execution notices needed to be delivered to the person.
Section 126A was amended by additions that provided that no person could sell a debt under a credit agreement to which this Act applied and that had been extinguished by prescription under the Prescription Act. No person could continue the collection of, or re-activate a debt under a credit agreement to which this Act applied if the debt had extinguished by prescription under the Prescription Act and where the consumer raised the defence of prescription, or would reasonably have raised the defence of prescription had the consumer been aware of such a defence, in response to a demand, whether as part of legal proceedings or otherwise.
Mr Radebe asked under which department the Prescription Act resided and although the provisions was satisfactory for now, in future the Prescription Act would need to be looked at.
Mr Swanepoel said debt prescribed after three years subject to no legal action being incurred. The provision was satisfactory because good practice by credit providers would not let a debt prescribe.
The Chairperson said the Prescription Act resided in the Department of Justice and that although the debt was prescribed, it was still owed, but the credit provider could no longer pursue the debt through court processes.
Section 171 did not need amendment, but the section provided for the Minister when making regulations to enter into public consultation and he could consult with the NCR and the provincial regulators. The Committee could ask for the regulations to keep their finger on the pulse, but if the Committee wanted it in this legislation it would needed to be inserted into section 171 although it was covered by oversight.
Mr Marais said it was not the intent to overburden the process or to over legislate, but he asked how this could be implemented since oversight basically was a review of things that had already happened. The Committee did not want to be in the position where regulations that were already distributed were sent to the Committee as an afterthought.
The Chairperson said the National Credit Amendment Bill was a very important piece of legislation.
Mr Radebe said there were committees that dealt with delegated legislation, but in most cases those committees did not understand the preceding issues. Whether it was put in the legislation or not, there should be an agreement that any amendments or regulations should go through the Portfolio Committee first and it was the Committee’s prerogative to decide whether it would be dealt with or delegated.
Mr Selau said there was no need to add power into the legislation that the Committee already had.
The Chairperson said it was doubtful that the Committee would be the same group post the elections, but the Committee would address this in the handover or in its legacy report.
Ms Gibson said National Treasury would support that the more significant regulations with significant policy impacts, should be returned to the Committee.
The Chairperson said it was necessary for the secondary legislation to come back to the Committee and the new Committee needed at least to be advised to engage on this issue. She referred to the front page and asked why ‘processed as a section 76’ was inserted.
Adv van der Merwe said often when a Bill went to the National Council of Provinces (NCOP), there was confusion, especially if a Bill was introduced as one, but classified as another and this was included to clarify any confusion. This Bill was introduced as section 75, but had subsequently been tagged as section 76 because it was a Schedule Four matter.
The Chairperson said this was not the Bill that as introduced and the cover page should state ‘as amended’. Everything that needed to be addressed was addressed, and the concern of Mr McIntosh was on record.
Mr Selau said the governance structure and the issue of the registration of credit providers that offered both goods and cash on credit needed to be addressed.
The Chairperson said the governance issue was simple because it was either for or against a Board, but registered credit providers that provided goods on credit, and, with the same registration, offered loans to consumers were problematic.
Mr Marais said he was satisfied by the registration requirements and regulations and the consequence of non-compliance that addressed this issue.
The Chairperson asked whether it was necessary for a credit provider to register the loan section of the business with the NCR.
Ms Ntuli said if a business was registered as a provider of goods on credit and also offered loans, there was no need for a separate registration and whether that issue brought challenges needed to be determined. It spoke to the matter that arose during the public hearings of how easy it was for financial institutions to be established.
Mr Selau said the different types of credit granted by credit providers needed to be qualified.
The Chairperson said there was a problem if there was no record that a credit provider was providing loans in addition to a core business.
Mr Radebe said people that extended loans should have a certain skill set, and there should be a distinction made in the regulations.
Mr Marais agreed. If this could not be dealt with through the reporting by credit providers, it should be included in the regulations because a big part of the Bill addressed unsecured loans.
Ms Ntuli said it could be addressed through the regulations and could also be addressed through indications on the application form that additional businesses should be declared and separately registered.
Mr Mabasa said the conditions for a business that sold furniture on credit should be different than the conditions for a cash loans business and registration should be separate.
The Chairperson said it should be clear in the regulations and it would be useful if DTI could give an example of the parameters that would be included in the regulations during the clause by clause deliberations.
Mr Marais asked to whom the NCR CEO would be accountable to once the Board was removed.
Ms Ntuli said all DTI entities were listed under the Public Finance Management Act (PFMA) and that listing indicated what the obligations were in terms of governance. The CEO would be accounting to the Minister and to Parliament. There would be no gap in accountability. A study was conducted to look at effectiveness of regulatory agencies and the Minister was informed by the outcomes of the study, when the decision was made.
The Chairperson said the amendment that removed the Board would be retained and the Committee agreed.
The Chairperson thanked everyone for their contributions and hard work and the meeting was adjourned.
- Summary of Submissions: further Input on National Credit Amendment Bill - Part 2
- Summary of Submissions: further Input on National Credit Amendment Bill
- National Credit Amendment Bill Working Document
- Portfolio Committee on Trade and Industry Proposed Amendments to National Credit Amendment Bill [B47-2013]
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