National Credit Regulator on its 2013/14 Annual Report

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Meeting Summary

The National Credit Regulator noted that it had received an unqualified opinion and had no findings on compliance, supply chain management and performance information. There was an under-expenditure of R 15.65 million. Key successes were to be found in its enforcement actions and its consumer education. The key challenges were funding, office space, and reaching rural and semi-urban areas in its objective of educating all consumers in South Africa.

The great discrepancy in the number of debt counselors between Gauteng and the Northern Cape was questioned by the Committee and it was assured that the number of debt counselors is proportional to the number of applicants in the area. The largest number of debt counselors is in Gauteng (1 065) and the Western Cape (409) and the fewest is the Northern Cape with 17.

The Committee was very concerned about the exploitation of those vulnerable to credit providers. It asked the NCR to communicate with the Committee regarding its needs to ensure full implementation of this important institution. Additional concerns were insufficient consumer education,  the lack of visibility, budget under-expenditure, and loan sharks, especially those that confiscate identification documents, bank cards and SASSA cards from people.

The National Credit Regulator agreed that visibility is a problem due to lack of offices and marketing. The NCR would like to build offices and employ locals and expand its capacity. The NCR would also like to change marketing strategies to include more effective methods of communication such as community television and prime time radio air time. NCR explained that these changes need approval from the dti and are expensive. The NCR uses other offices and credit regulators to implement its mandate.

The Committee is prepared to disseminate any educational material that the NCR has prepared to their constituents via their constituency offices.

Meeting report

National Credit Regulator (NCR) on its 2013/14 Annual Report
Ms Nomsa Motshegare, NCR Chief Executive Officer, gave an overview of the NCR’s annual performance against its targets. The identified targets for 2013/14 were achieved unless otherwise specified:
- Report on implementation of recommendations.
- Produce final functional specification document of the National Register of Credit Agreements (NRCA).
- Establish National Register of Credit Agreements (NRCA) Steering Committee.
- Develop proposal on affordability assessment guidelines
- Produce a report on implementation of the strategy.
- Two credit bureaus’ investigations conducted & enforcement action taken in terms of section 43, 70, 71 , 72 and regulations 17 to 20 of the National Credit Act (NCA): registration; receipt and retention of info.
- On-site guidelines to be approved and 12 on site visits to be conducted: This was exceeded: 14 on-site visits were conducted because on-site guidelines approved and implemented a month in advance.
- Stakeholder assessment surveys to improve service delivery: 50% positive response rate achieved.
- Functional Complaints ICT sub system: go live with registrations sub system: This was not achieved because ICT technical problems were identified and the project is currently on hold.

The NCR’s identified key successes were:
- 23 referrals to tribunal
- R1.8 million worth of fines imposed
- Raids conducted in three provinces
- Advertising value equivalent of more than R200m spread across all media channels
- 49 exhibitions, activations, and road shows
- Education workshops include provincial consumer protection desk, trade unions, universities, church groups, tribal authorities
- Established Credit Industry Forum
- Rolled out third Learnership Programme.

The key challenges were funding, office space, and consumer education, especially in rural and semi-urban areas.

Ms Fundisiwe Malaza, NCR Acting Chief Financial Officer, presented the financial performance for the year. The NCR received an unqualified opinion and had no findings on compliance, supply chain management and on performance information; the NCR was not pleased with their performance as they were hoping for a clean audit. There was an under-expenditure of R15 652 801 as the vetting process for debt counsellors took so long.

Mr Obed Tongoane, NCR Chief Operating Officer, explained the graphs dealing with credit and loan statistics (see presentation). More credit and mortgages were granted than in the previous years and there was more outstanding book, but less unsecured credit granted. The largest number of Debt Counselors are in Gauteng (1 065) and the Western Cape (409) and the smallest number are in the Northern Cape (17).                                     

Mr W Faber (DA, Northern Cape) pointed out that loans sharks have been in the news and are prevalent in the Northern Cape, but these loan sharks have continued to be a problem. Loan sharks are making big money from the interest rates they charge. There should be a “no-nonsense attitude” to stop the problem; many loan sharks make settlements when they are caught and there is no proper strategy to stop them. He also asked who pays the debt counselors’ salaries and why there are 2 193 debt counselors but the Northern Cape has only 17 debt counselors despite the fact that the Northern Cape’s population is large and poor.

Mr B Nthebe (ANC, North West) did not get a clear sense of the Consumer Credit Information Forum and what it does. He asks what elements of civil society are included. As a matter of emphasis, the 23 referrals to the tribunal should be increased. If the NCR plays its part, it will go to the heart of the matter to ensure that the people in the lowest bracket are given space to operate and to move into consumption that affords them an opportunity. He wondered about the microeconomic impact of the work the NCR does. He asked what the NCR does to help people navigate the currently challenging economic climate. What would be the impact of the downgrading of the top five South African lenders by the rating agencies? He noted that when credit cards are issued, the banks do not explain how a credit card works. Consumers must be educated in order to make better decisions. Consumer education is critical and more must be done.

Ms E van Lingen (DA, Eastern Cape) referred to the research done on the credit amnesty with regards to the policy linked to the National Credit Act,. She has repeatedly asked for this document. She was told that it is before Cabinet and she is again requesting the document. She believes that the document should be studied by everyone in order to understand the forerunner of the National Credit Act and the amnesty. The draft regulations were published before the National Credit Act was passed in the rush to get it through Parliament. She agrees that Mr Faber is correct; there is a loan shark problem. Loan sharks are bad and as politicians, members often run into problems when constituents do not have identification cards for voting because the loan sharks have taken them and not returned them due to unpaid loans.  More than just three provinces should have been raided, especially small lenders in rural areas. She asked about how the illegal deductions taken from SASSA grant cards works because the law says that third parties cannot deduct anything off of the SASSA card, but then cell phone airtime and funeral burial policies go onto the SASSA card. She does not believe that this is legally correct because the SASSA card was implemented for people to get free access to their grants. The Minister also promised special negotiations with the banks for reduced bank charges so that people could hold their own regional bank cards rather than taking a SASSA card. She proposed that a proper assessment is done on SASSA because it is not going well and there is the possibility of a court case regarding SASSA.

Ms van Lingen asked if the predictions prior to the credit amnesty have changed since attempting to reduce the cost of credit. Where is the current cost of credit at according to the study she had referenced. The statistics look brilliant, but she is skeptical when it comes to the graphs presented in slideshows. The NCR reported a 50% positive response rate on stakeholder assessment surveys conducted to improve service delivery; she feels that it is a bit low. She questioned how the NCR measures consumer education because it is difficult to measure. She finds that more people are coming to MPs asking for money more than ever before. If credit is not readily available, then people turn to private lenders. When it comes to advertising, she finds it difficult to understand why Correctional Services would advertise to passengers at Cape Town airport. She wants to know how targeted and focused its advertising is. She spotted a NCR billboard on a Gauteng highway, which is responsible because many consumers travelling by can see it. She wants to know how effective it is.

Ms Nomsa Motshegare, NCR CEO, responded that currently the NCR does not know where loan sharks with high interest rates are operating so proactive investigations and complaints are the NCR’s main source for locating them. However, the National Credit Amendment Act will require registration and hopefully the NCR can then more effectively regulate service providers. The NCR can better identify the service providers and how they provide credit services to consumers. Debt counselors are individuals who are registered with the NCR to assist small businesses; they are not NCR employees. These people must meet the NCR’s criteria, complete a course, receive certification, and then they can apply to be a debt counselor. The number of registered debt counselors in each area is dependent on the number of applications that are received. The NCR would like to see more people apply to be debt counselors. There is a charge because businesses need money. Legally, there are guidelines for how much debt counselors can charge consumers. This is why the NCR entered into agreements with agencies that collect a fee, pay debt counselors, and divide up the rest between public owned providers so that debt counselors are paid accordingly. The only fee is the R50 application fee, but there are guidelines that must be complied with.

Mr Obed Tongoane, NCR COO, added that loan sharks are a complicated matter that is concerning. It requires a multi-lateral approach: the regulator to enforce the Act, the Department of Trade and Industry at the core of the administration, and the consumers to all play a part. The National Credit Act makes certain type of micro lending criminal and SASSA payout points have been used to lend to these people. The NCR has identified a lack of consumer education on the matter of loans. In turn, the NCR initiated educational campaigns and workshops to educate South Africans on the National Credit Act and what to do in financial matters. In many instances, people are unfamiliar with the provisions of the act. Raids have been done in the provinces followed by educational awareness. The problem is that consumers do not cooperate. Bank cards, IDs are seized and people are arrested but consumers must testify against the loan sharks to convict them. They are then sentenced accordingly. Consumers are also guilty of using their bank and identity cards inappropriately so they may be less likely to come forward. He questioned who the true thief is. It is important to advertise and educate people about the consumer rights provisions of the Act. The Act was introduced by Parliament to help the people. The consumers, regulators, government departments, and other entities all must take part for the Act to be effective. In a previous workshop, it was realized that the Act starts with the individual, not just the government. The NCR has an ongoing responsibility to educate consumers all across the country. He shared that 2 000 SASSA cards had been retrieved. More cases are being built and one micro lender was making about R1.4 million in cash and was believed to be involved in money laundering as well. It is massive. SASSA can be linked to these creditors but it is not sure how to deal with this. The Consumer Credit Information Forum (CCIF) includes credit providers, consumers, clients, consumer action groups, registrars and non-profit organizations (NPOs) that explore new solutions to new challenges. The NCR has embarked on a lot of initiatives. He hoped that over a period of time solutions will be found. The Act has been operating since 2011, and at that stage registration was the main focus; the CEO was appointed in 2012. Once this had been settled, NCR can now focus on compliance and consumer education. The problem is that banks are also businesses in need of profit, so it is good for them to have more loans approved. On the other hand, consumers must be honest and accurate when claiming what their assets and expenses are when applying for credit. The National Credit Act and NCR must be marketed and advertised. The NCR cannot answer for the banks and their ratings by rating agencies. In answer to a question, he noted that Moneyline Financial Services, of which the holding company is Net1, has been referred to the Consumer Tribunal and the matter is being looked into [Moneyline has been accused of lending irresponsibly by treating social grant payments as earned income on loan applications. Net1 is accused of using data about grant recipients held by another of its subsidiaries, Cash Paymaster Services (CPS), to market Moneyline services]. The NCR utilises billboards, television and different platforms at different times. The NCR tries to be responsible and it hopes that with time it can be more effective with its education.       

Ms Fundisiwe Malaza, Acting CFO at NCR, said that they will request the credit amnesty report from dti, the relevant authorities. The 23 referrals to the tribunal had been raised and she noted that a number of compliance notifications have been issued. Compliance notices have often been complied with out of fear of tribunal referral. NCR makes use of other monitoring tools outside of the tribunal. When credit providers register they are required to submit proposals to the NCR on how they will provide information to the consumers, including which language they will communicate in, especially those that operate in the various provinces. The NCR ensure that the majority of the people in the area speak the language(s) that the credit provider has chosen to communicate in, as a form of monitoring the service providers.

On the 50% positive response rate received on the stakeholder assessment, Mr Tongoane explained that this speaks to the NCR's educational campaign. It involves appointing a consumer consultant to go to the places where the NCR has done educational work to engage with the people there about the NCR’s performance. Of course, all forms of media are used to ensure that the majority of people are reached. The NCR has learned that sometimes the timing of television advertising is not the most effective. However, advertising might be more effective during prime time and sporting events, but this is also more expensive.  The NCR is exploring more ways to reach people, but the target was improved on this financial year.

The Chairperson believed that the entire Committee agrees that 50% is not enough and would like to see this improve. He appreciated the answer that was given. He would also like to see improvements in the outcomes.

Mr L Suka (ANC, Eastern Cape) requests that the CEO provide some information for the Members to give to their constituents. Secondly, everyone of every race can benefit from information about credit so he requested that information on the location of the NCR office be made available.

Ms Motshegare responded that there is only an office in Midrand.

Mr Suka added that perhaps the NCR should be making itself more available so that the people can become more aware of the NCR all over South Africa. He appreciates the NCR advocacy program, especially for its rural outreach improvement. Rural areas are very poor and their SASSA grants go to loan sharks; this is a serious matter. He asked what the NCR capacity is like and for the organizational organogram, so that he is sure that the NCR’s structure can carry out its mandate without overburdening its staff. If adjustments to the Act are needed, these weaknesses should be explained to the Committee so that adjustments can be made to better suit the NCR’s ability to carry out its mandate. He noted that the African Bank almost went under. Based on the graph, he wonders why there is a gap. Lastly, he asked if the NCR knows where the largest number of people who need NCR assistance, are located.   

Ms M Dikgale (ANC, Limpopo) thanked the NCR for their presentation and congratulated them on their unqualified auditreport. She encouraged them to get a clean audit in the future. Many people are calling and explaining that although the programme was delayed, they still received help. She thanked the NCR for this. The Council of Churches does not include the many private churches and spiritual leaders; she appreciates that the NCR includes these leaders because that connects to many more people. She does not understand why the number of offices is problematic because there is plenty of free office space in the provinces to run such offices and help people. She agrees that they need to improve on their media timing. The content of the one that she hears on Monday during her morning commute could be improved, she joked. However, it is doing really well and they should keep this up.  

Dr Y Vawda (EFF, Mpumalanga) said that he had heard that there was a breach of confidentiality on health issues by a credit bureau and he was not sure how it had been handled. What is happening in Mpumalanga is a problem, but the problem still needs to be addressed here. The annual application fee for credit providers can be raised, but it will result in their clients being punished because the gross profit must be increased to cover their expenses. He commended the NCR for bringing reckless lending to below 20%. However, NCR needs to be proactive with its IT because the big banks are already developing the technology that they plan to be using only in two years time. He remarked that the CEO had given an excellent presentation and that the COO spoke very bravely like a new kid on the block.

The Chairperson asked the NCR to complete its responses in a timely manner.

Ms Motshegare responded that NCR uses various tools for monitoring of compliance. Any credit provider must set up with an accounting officer or an auditor if necessary, by requirement. Annually they must submit reports about compliance. The complaints department is used to monitor credit providers and debt counselors. Internal inspectors are used for monitoring compliance with the Act as well. Monitoring officers have also been used to begin to make visits to credit provider operations, debt counseling operations and credit bureau operations. Of course, the NCR would like to see its capacity increase, but in the meantime it uses other financial service regulators. For example, the Financial Services Board would pick up on insurance and credit provision matters and refer it to NCR. As regulators they assist each other. A number of consumers complained to the NCR about the African Bank being involved in reckless lending. As a result, an investigation was done and the findings were reported on. The African Bank is regulated by the regulator of banks so they were consulted every step of the way. The matter was then referred to the National Consumer Tribunal. Just before the matter was heard, the African Bank settled and reached an agreement with the NCR. According to the agreement, the African Bank would pay a settlement amount of R20 million to the National Revenue Fund. It has since been paid. Additionally, consumers that were overcharged were reimbursed, consumers listed on the credit bureau were to be dealt with, and documents against consumers were to be rescinded according to the settlement. There is an NCR office in Johannesburg and it makes use of other offices in various Provinces. The NCR works very closely with other credit offices. The NCR make would like to make sure that it has a presence, and perhaps the NCR could have offices in a few Provinces in addition to satellite offices and shared offices with other departments. In order for offices to be built and local people can be employed to work in them a request must be submitted to the principal for approval, dti. The NCR agrees that it must have a presence in other Provinces as well. The credit bureau the leaked confidential information regarding consumer’s debt was issued a notice of compliance; after which, the information was removed from the public. As was said before, the compliance notices are a monitoring tool that is used and if it is not complied with there will be a referral to the National Consumer Tribunal, but the creditor in question did comply. The NCR is not considering increasing application rates; it was referring to a study on interest rate caps and fees. Interest rates caps and fees are regulated but the NCR cannot pre-empt whether or not interest rates will increase or decrease; a study must still be conducted. The findings will be published. There has been a lot of consultation with registrars, especially creditor providers in that regard. Reckless credit is not longer in the huge jump as it was in the 1st Quarter, December 2012; however, the NCR does want credit lenders to lend credit, not to close the gap, as long as it is lent responsibly. The NCR is pleased with the trends that are seen today. The NCR will certainly make use of the community television stations because it is a communication vehicle for storylines that works. A lot of positive responses came from people who viewed television ads in the past but it is an expensive communication tool. The relevant companies will be contacted.

Mr Tongoane added that the organizational diagram was not available, but that there is a written explanation of the department’s organization. The administration does compliance, and overseeing creditors. The communications department has separate divisions including those for educational campaigns and development messages in media. The compliant department is capacitated with complaint officers that are legally trained. The department also has a call center that can be phoned, emailed, and written to formally; the department is responsible for collecting complaints from the consumers, challenging them, and resolving them accordingly. Statistics talk to the relief as result of the new members brought on by the NCR. There is information on consultants and legal advisors that are responsible for taking matters to the tribunal and carrying out the necessary litigation processes. The debt counseling department focuses exclusively into debt counselors because consumer debt counseling is a new mechanism unique to South Africa. Other countries are inspecting it and deciding how to adapt it for use in their country. There is a specialized division because of this it also includes the payment submission agency that collects fees from clients and brings them over to credit providers.  There are various departments within the NCR relating to each function. In terms of the NCA, Provinces are provided for and have their own structures responsible for resolving credit disputes, under that there is the Consumer Protection Act. The NCA, the Consumer Protection Act, and other consumer legislation work in conjunction with the NCR’s mandate.

Mr Suka asked again about the organizational diagram.

The Chairperson answered that the organizational diagram was not given, but that the department’s organization was discussed at length and in detail.

Mr Kumeran Naidoo, Department of Trade and Industry (DTI) Group CFO, added that funding is a challenge for the NCR but that they are doing what they can with the funding that they have. Funding is a challenge for the Department and the country as a whole. There are a lot of competing needs. When reprioritizing the budgets this year, he believes that the NCR is one of the few institutions that received more funding. DTI understands the importance of the institution. He appreciates that the Committee also finds it important, but at the moment the budget is a product of the current financial climate. The DTI is working within what they have available.

Ms Busi Ngwenya, Acting DTI COO, added that DTI and the NCR will be researching the cost of credit during the next financial year. The regulations will be made available quite soon. A Performance Management directorate had been put in place to monitor how the Act is implemented, how agencies implement the Act, and issues of implementation that need to be assisted.

The Chairperson clarified that the NCR is accountable to the DTI. In closing, he remarked that the Committee has a profound concern about the exploitation of those vulnerable to credit providers and micro lenders . The NCR should know that the Committee is prepared to disseminate any NCR educational material to their constituents via their constituency offices. The NCR should feel free to consult with the Committee and to share what they have so that the Committee can assess the usefulness of the information. Do not hold back in terms of communicating with the Committee. The Committee is committed to being activists and to ensure that the people that the MPs serve are able to benefit from the NCR’s services. The Committee really appreciated the NCR presentation today.

The committee minutes of the 12 November were adopted.    

Meeting adjourned. 

Appendix 1

Net1 under fire from National Credit Regulator

South African mobile money and payments company  Net1 UEPS Technologies is in trouble today, as the National Credit Regulator (NCR) has asked the National Consumer Tribunal to revoke the lending licence for one of subsidiaries, Moneyline Financial Services.

Moneyline has been accused of lending irresponsibly by treating social grant payments as earned income on loan applications.

Net1 CEO Serge Belamant issued a statement today strongly denying the accusations and claiming that the NCR behaved improperly by issuing a press release about the case before presenting the findings of their investigation to Net1 for comment.

The complaint was originally brought by activist group Black Sash, which accused Net1 of using data about grant recipients held by another subsidiary, Cash Paymaster Services (CPS), to market Moneyline services. CPS administers payments on behalf of the South African Social Security Agency (SASSA) and is a core part of the Net1 business.

“Data collected in all nine provinces reveal that repayments for credit have been debited from SASSA beneficiaries’ bank accounts, in the order of 10% to 97% of monthly grant payments,” Black Sash wrote in a blog post, “Regrettably, access to the social-grant beneficiaries’ database was facilitated by the outsourced contract between CPS and SASSA.”

Net1 has denied any wrong-doing, but the National Credit Regulator (NCR) has applied to the National Consumer Tribunal to have the registration of Moneyline Financial Services cancelled for breaching of the National Credit Act 34 of 2005.

NCR conducted an investigation into Moneyline Financial Services, and found that it “granted credit to consumers receiving child support grants and foster child grants meant for the upkeep of children which grants were used as income for assessing the consumers’ ability to repay credit.”

It also found that Moneyline Financial Services allegedly gave, without checking debt repayment history or taking into account their monthly living expenses, credit to consumers who received social grants.

“The credit agreement provided by Moneyline Financial Services to consumers is not in the prescribed form and does not contain crucial information about the rights and obligations of consumers,” NCR said in a press statement.

However, Net1 has refuted all claims and said that investigation and subsequent report by the NCA is “riddled with factual inaccuracies.”

Belamant said in his statement that the company has been playing by the rules and audit documentation is freely available.

“We strongly deny any contravention of the NCA and will oppose the NCR’s application. As a South African and US-listed public company, we adhere to stringent internal controls and compliance procedures and we are subjected to regular internal and external audits all of which are documented and accessible for review by any regulator.”

Net1 has recently been attempting to diversify its business away from its core operations around social grants and introducing mobile payment services such as its one-time-use virtual credit card app, VCPay. It’s seen as a potential major player in the overall movements to introduce cashless payments en masse in South Africa, because CPS already issues payments to biometrically signed smartcards and the firm’s payment technologies are widely available at point of sale readers in stores.

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