National Credit Regulator on its 2016 Annual Performance Plan

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Meeting Summary

The Committee was provided with insight into the state of the credit market in SA. The total gross debtors’ book to date was R1.63 trillion. The total Rand value of new credit granted was R123.93 billion with mortgages comprising R39.39 billion (31.78%). Unsecured credit increased by 13.28% from R18.23 billion for the quarter ended September 2014 to R20.66 billion for the quarter ended September 2015.The total Payment Distribution Agents’ distributions to credit providers from April 2015 to February 2016 were R6.1 billion. The approach of the National credit Regulator towards stakeholder management was to facilitate open discussion and engagement with the industry and other stakeholders. To this end the National Credit Regulator established a Credit Industry Forum that met quarterly and comprised of amongst others banks, consumers and retailers. The aim of the Credit Industry Forum was to identify challenges in the implementation of the National Credit Act. There were also quarterly regulatory cluster meetings of the Council of Trade and Industry Institutions. Other stakeholders of the National Credit Regulator were the South African Reserve Bank, the Financial Services Board and the Competition Commission. Regulators from countries like Swaziland, Namibia, Botswana, Uganda and Tanzania visited SA to check on how SA regulated its credit market.

On consumer education the National Credit Regulator had “Know your status “campaigns jointly conducted with credit bureaus at shopping centres, offices of the Department of Trade and Industry and the South African Revenue Services. The National Credit Regulator also worked jointly with local tribal authorities in rural areas of the Free State, Limpopo, Kwa-Zulu Natal, North West and Mpumalanga Provinces. The National Credit Regulator had also covered the Western Cape Province where it spoke to grant recipients. The Regulator conducted investigations on the sale of retrenchment and occupational disability covers to pensioners and consumers receiving government social grants, over charging of credit life insurance, reckless lending, overcharging of fees and misleading advertisements. On enforcement, at the end of January 2014 there had been 44 referrals to the National Consumer Tribunal; the figure had since gone up to 59. A total of R67million had been refunded to consumers in overcharged insurance products. Lewis Stores had overcharged on its insurance products. Fines to the amount of R4.4million had been imposed on nine credit providers. Several credit providers were arrested in raids conducted in the Western Cape where identity documents, bank cards and South African Social Security Association cards had been seized.

The Committee was provided with detail on each of the Programmes of the National Credit Regulator in terms of its planned performance:

Programme 1: To promote responsible credit granting: on reducing levels of over-indebtedness an output identified was improved compliance with affordability assessment regulations. The performance indicator set was to visit a number of provinces to monitor compliance and appropriate enforcement action taken where necessary. For 2015/16 seven provinces were visited. Planned targets set for 2016/17, 2017/18 and 2018/19 respectively were to visit 9 provinces.

Programme 2: To protect consumers from abuse and unfair practices in the consumer credit market and to address over-indebtedness: To decrease levels of reckless lending practices an output identified was to conduct reckless lending investigations and appropriate enforcement action where necessary. The performance indicator set was to have a number of credit providers investigated and appropriate action taken where necessary. For 2015/16, 40 credit providers were investigated. The planned targets were to have 60, 70 and 80 credit providers investigated during 2016/17, 2017/18 and 2018/19 respectively.

Programme 3: To enhance the quality and accuracy of credit bureau information: To achieve improved consumer credit information an output identified was to increase compliance by credit bureaus in respect of consumer credit information. The performance indicator set was to have a number of credit bureaus audited; reports reviewed and appropriate corrective action taken where necessary. For 2015/16, 14 credit bureaus had been audited. The planned target for 2016/16, 2017/18 and 2018/19 was to have all registered credit bureaus audited.


Programme 4: To improve National Credit Regulator’s operational effectiveness: To achieve efficient service delivery an output identified was to improve operational efficiency through automated processes. The performance indicator set was to have percentage of uptime availability of the Information and Communication Technology systems, which dealt with registrations and complaints. For 2015/16 there had been a 95% uptime of the Information and Communication Technology system. The planned targets for 2016/17, 2017/18 and 2018/19 was to have 96%, 97% and 98% uptime of the Information and Communication Technology system respectively.

Programme 5: To ensure effective implementation of the National Credit Amendment Act: For improved compliance with regulations and consumer protection the output identified was to improve awareness and compliance. One of the performance indicators set was to have a number of workshops conducted with relevant stakeholders. For 2015/16, 40 workshops had been held with relevant stakeholders. The planned targets were to have 40, 45 and 50 workshops with relevant stakeholders during 2016/17, 2017/18 and 2018/19 respectively.

 The Committee was provided with insight into the budget of the National Credit Regulator for 2016/17-2018/19.

The Committee appreciated the briefing by the National Credit Regulator. Members were in agreement that the problem of loan sharks needed to be addressed by the National Credit Regulator. Perhaps legislation needed to be put in place to get the loan shark problem under control. When was a person giving another person a loan considered a loan shark? Members pointed out that the briefing had been silent over the African Bank court case and the matter relating to the Lewis Group of stores, and would have appreciated insight into the two matters. Members strongly felt that the Regulator needed to take action against perpetrators of wrongdoing. Members asked what the audit outcomes of the National Credit Regulator had been. The Regulator was asked how things looked for its 2015/16 audit report. Members asked what informed the decision by the National Credit Regulator to focus its attention on certain provinces and areas than others. The Regulator was nevertheless commended for its good work. The National Credit Regulator was furthermore asked whether it regulated funeral benefit schemes. Members noted that the Regulator in its previous engagement with the Committee had committed to providing it with information of provincial dynamics. Such information had not been provided but the Regulator was urged to provide it to the Committee in its next meeting. The information would be useful to the Committee in that it would give an indication of what was happening in the provinces. Members asked whether the targets set by the Regulator were realistic. Concern was raised that when electronic applications for credit were made it seemed as if affordability assessments were not made. The Regulator was asked that as a regulator how it determined the correctness of cost of credit. Even people who had jobs were hugely in debt. Given that the National Credit Regulator did investigative and policing work it was asked how it trained its staff. The Chairperson asked whether there were guidelines on the rates of interest that institutions could charge for different types of loans. Were limits set on interest that could be charged? If the amendments to the National Credit Act gave the National Credit Regulator more muscle did it give the Regulator enough muscle to prosecute? Was the legislation a deterrent?

The Committee adopted outstanding minutes.

Meeting report

Briefing by the National Credit Regulator (NCR) on its Strategic Plan 2016/17-2020/21 and 3 Year Annual Performance Plan 2016/17-2018/19
The delegation from the NCR comprised of Ms Nomsa Motshegare, Chief Executive Officer; Mr Obed Tongoane, Deputy Chief Executive Officer; Ms Ayanda Mafuleka, Chief Financial Officer; and Ms Hayley Rodkin, Chief Director. Ms Motshegare undertook the briefing.

The Committee was provided with insight into the state of the credit market in SA. The total gross debtors’ book to date was R1.63 trillion. The total Rand value of new credit granted was R123.93 billion with mortgages comprising R39.39 billion (31.78%). Unsecured credit increased by 13.28% from R18.23 billion for the quarter ended September 2014 to R20.66 billion for the quarter ended September 2015.The total Payment Distribution Agents’ (PDA) distributions to credit providers from April 2015 to February 2016 were R6.1 billion. The approach of the NCR towards stakeholder management was to facilitate open discussion and engagement with the industry and other stakeholders. To this end the NCR established a Credit Industry Forum (CIF) that met quarterly and comprised of amongst others banks, consumers and retailers. The aim of the CIF was to identify challenges in the implementation of the National Credit Act. There were also quarterly regulatory cluster meetings of the Council of Trade and Industry Institutions. Other stakeholders of the NCR were the South African Reserve Bank, the Financial Services Board and the Competition Commission. Regulators from countries like Swaziland, Namibia, Botswana, Uganda and Tanzania visited SA to check on how SA regulated its credit market. On consumer education the NCR had “Know your status “campaigns jointly conducted with credit bureaus at shopping centres, offices of the Department of Trade and Industry (DTI) and the South African Revenue Services (SARS). The NCR also worked jointly with local tribal authorities in rural areas of the Free State, Limpopo, Kwa-Zulu Natal, North West and Mpumalanga Provinces. The NCR had also covered the Western Cape Province where it spoke to grant recipients.

The NCR conducted investigations on the sale of retrenchment and occupational disability covers to pensioners and consumers receiving government social grants, over charging of credit life insurance, reckless lending, overcharging of fees and misleading advertisements. On enforcement, at the end of January 2014 there had been 44 referrals to the National Consumer Tribunal; the figure had since gone up to 59. A total of R67million had been refunded to consumers in overcharged insurance products. Lewis Stores had overcharged on its insurance products. Fines to the amount of R4.4million had been imposed on nine credit providers. Several credit providers were arrested in raids conducted in the Western Cape where identity documents, bank cards and South African Social Security Association (SASSA) cards had been seized.

The Committee was provided with detail on each of the Programmes of the NCR in terms of its planned performance.

Programme 1: To promote responsible credit granting
On reducing levels of over-indebtedness an output identified was improved compliance with affordability assessment regulations. The performance indicator set was to visit a number of provinces to monitor compliance and appropriate enforcement action taken where necessary. For 2015/16 seven provinces were visited. Planned targets set for 2016/17, 2017/18 and 2018/19 respectively were to visit 9 provinces
 
Programme 2: To protect consumers from abuse and unfair practices in the consumer credit market and to address over-indebtedness
To decrease levels of reckless lending practices an output identified was to conduct reckless lending investigations and appropriate enforcement action where necessary. The performance indicator set was to have a number of credit providers investigated and appropriate action taken where necessary. For 2015/16, 40 credit providers were investigated. The planned targets were to have 60, 70 and 80 credit providers investigated during 2016/17, 2017/18 and 2018/19 respectively.
 
Programme 3: To enhance the quality and accuracy of credit bureau information
To achieve improved consumer credit information an output identified was to increase compliance by credit bureaus in respect of consumer credit information. The performance indicator set was to have a number of credit bureaus audited; reports reviewed and appropriate corrective action taken where necessary. For 2015/16, 14 credit bureaus had been audited. The planned target for 2016/16, 2017/18 and 2018/19 was to have all registered credit bureaus audited.
 
Programme 4: To improve NCR’s operational effectiveness
To achieve efficient service delivery an output identified was to improve operational efficiency through automated processes. The performance indicator set was to have percentage of uptime availability of the Information and Communication Technology (ICT) systems, which dealt with registrations and complaints. For 2015/16 there had been a 95% uptime of the ICT system. The planned targets for 2016/17, 2017/18 and 2018/19 was to have 96%, 97% and 98% uptime of the ICT system respectively.

Programme 5: To ensure effective implementation of the National Credit Amendment Act (NCAA)
For improved compliance with regulations and consumer protection the output identified was to improve awareness and compliance. One of the performance indicators set was to have a number of workshops conducted with relevant stakeholders. For 2015/16, 40 workshops had been held with relevant stakeholders. The planned targets were to have 40, 45 and 50 workshops with relevant stakeholders during 2016/17, 2017/18 and 2018/19 respectively.
 
Ms Mafuleka briefly provided the Committee with insight into the budget of the NCR for 2016/17-2018/19.

Discussion
Mr W Faber (DA, Northern Cape) pointed out that there were many loan sharks who were unauthorised money lenders and were making a killing. He asked whether action was being taken against them as no action had been seen being taken against them. Loan sharks were the scourge of communities and needed to be eradicated. He also said that the briefing had been silent about the African Bank court case. The Lewis Stores matter had been mentioned but to date no criminal charges had been lodged. Action against wrongdoers needed to be taken. Regulation and accountability was needed. He was pretty sure that loan sharks were still plying their trade at Marikana.

Ms Motshegare responded that previously loan sharks had not been on the radar of the NCR. The National Credit Act did not make provision for loan sharks to be registered. The NCR used to go to pension pay out points in order to conduct raids on loan sharks. The NCR worked with the National Prosecuting Authority. With the amendments to the National Credit Act a year ago loan sharks were now required to be registered with the NCR. It was however difficult to get to each and every loan shark. The NCR had with the help of the South African Police Services (SAPS) arrested loan sharks at Marikana. Criminal charges had been laid against the Lewis Group. African Bank had been placed under curatorship.

Mr Tongoane pointed out that pre-2005 the consumer credit market was unregulated. In 2005 the National Credit Act was promulgated. The NCR as an organisation was therefore still in its infancy. Looking at the preamble of the National Credit Act and the huge mandate of the NCR it was a difficult task that the NCR had, given its capacity limitations of only having 200 staff members? The NCR hence decided to work strategically and to partner itself with organisations like the SAPS and the Hawks as well as with other regulatory bodies. The judiciary also had a huge part to play. There were however different interpretations on the application of the National Credit Act. The NCR also realised that educating the broader public was also key. People should expose people who give out loans. Consumers were educated that every person who extended credit had to be registered with the NCR and was given a certificate. If the loan giver was not registered with the NCR then the credit agreement was unlawful. Proof of registration was a NCR Registration Certificate. On African Bank the NCR had done its part in identifying problems with the Bank. African Bank had engaged in reckless credit granting. Complaints had been received by the NCR and hence investigations were launched. The NCR referred the matter to the National Credit Tribunal for prosecution. African Bank was fined. The NCR had a cross mandate with the Reserve Bank when it came to banks. African Bank had been placed under curatorship by the Reserve Bank. The NCR’s mandate was on the credit side of things and if criminal charges were to be laid then it must emanate from that.

The Chairperson agreed that loan sharks were a problem and said perpetrators were not only black but also white, and were found in both black and white communities. He asked the Committee Content Adviser and the Committee Researcher to do some research over African Bank and the Financial Services Board.  Saambou Bank had also closed down years ago and perhaps research on it should also be done. Managers at Saambou Bank had given out huge loans because they were paid commissions for each loan that they gave out. What caused financial institutions to act irresponsibly? 

Ms M Dikgale (ANC, Limpopo) noted that the briefing had been silent on what the audit outcomes of the NCR had been. She referred to page 21 and asked why the NCR was not planning raids and investigations on all provinces for the period but only certain provinces. On consumer education where the NCR was working with local tribal authorities in rural areas within Provinces like Limpopo, Free State, Kwa-Zulu Natal, North West, Mpumalanga and Western Cape, what informed the NCR’s decision on going to certain areas before others? Rural areas should be a focus. She commended the NCR for the good work it was doing.

Ms Motshegare noted that the NCR had obtained a clean audit report for 2014/15. The NCR had never had a qualified audit report. She said that the intention was to target all the provinces. A number of investigations were ongoing on unidentified debt.

The Chairperson asked how things looked for the 2015/16 audit report of the NCR.

Ms Mafuleka responded that the Auditor General would issue the audit report for 2015/16 on the 31 July 2016. The NCR hoped that it would be a clean audit report.

Mr M Khawula (IFP, Kwa-Zulu Natal) stated that the Committee had raised the issue of loan sharks with the NCR on a previous occasion. There was a new dimension that the Committee needed to be aware of ie funeral benefit schemes. He asked if funeral benefit schemes were regulated by the NCR. On the NCR’s outreach programmes in the provinces he asked how it had decided on starting at Estcourt in the Kwa-Zulu Natal Province given the vastness of the Province. Outreach had to be expanded especially to rural areas.

Ms Motshegare, on consumer education, said other rural areas would also be targeted. The process had to start somewhere. Provinces would be revisited. She explained that funeral schemes fell under the Financial Services Board. She stressed that Imbizos would be intensified. Rural areas in various provinces would be targeted. 

Mr B Nthebe (ANC, North West) noted that the NCR in its previous meeting with the Committee had committed to giving the Committee provincial dynamics. He asked that the NCR provide such provincial dynamics in its next meeting with the Committee. He wished to know what had been done in the provinces. He was convinced that the same situation existed at present at Marikana on loan sharks as it had in 2012. There had also been agreement that the NCR would provide a broader view of the credit landscape in SA. He referred to the presentation and asked if the annual targets set by the NCR were realistic. On electronic applications for credit he pointed out that there seemed to be none compliance on affordability assessments. He asked how the NCR as a regulator determined the correctness of the cost of credit. Even if people had jobs they were hugely in debt.

Mr Tongoane, on whether targets set were too high, said the Portfolio Committee on Trade and Industry felt that the NCR’s targets were too low. There was a serious balancing act for the NCR when it came to targets. There was only so much budget and capacity. It was also expensive to prosecute cases. The NCR at times also had to employ audit firms. The NCR believed its targets to be reasonable and would review them when necessary. On electronic applications and whether affordability assessments were done,  affordability was about semantics. He pointed out that the regulations tried to cover grey areas. Pay slips, credit bureau accounts were looked at. The disposable incomes of consumers were also considered. At times the honesty of consumers was also taken into consideration. He pointed out that it was a two-way process. The NCR wished to educate credit providers on how to do assessments as well as on what was contained in the regulations. The NCR also engaged with banks to check on their modalities.

Dr Y Vawda (EFF, Mpumalanga) was impressed by the NCR briefing. He spoke to the budget of the NCR and asked what the NCR’s “other income” was. He asked whether the expenditure of R2 million on Information Communication Technology (ICT) was sufficient. He also asked what the R23 million for Professional/ Programme cost in the budget was for. Given that the NCR did investigative and policing work he asked what training the NCR gave its staff. Legislation needed to be put in place in order to get the loan shark problem under control. When a neighbour borrowed another neighbour a R100 was the neighbour giving the loan considered to be a loan shark? He felt that the African Bank mismanagement could have a greater impact on SA’s Gross Domestic Product than five years of loan shark activities.

Ms Mafuleka explained that the NCR’s other income was mostly royalties from credit bureaus. Credit bureaus paid for the utilisation of information. The R23 million related to the core functions of the NCR such as costs relating to legal fees, education campaigns and debt counselling. Registration costs formed part of Programme costs. She could honestly say that the R2 million for ICT was not enough. The NCR was in the process of integrating their information technology systems. The NCR would develop and implement systems in phases.   

Mr Tongoane said there were inspectors who did investigations and raids and had the requisite expertise on how to gather evidence and to conduct investigations. Investigators were recruited from the SAPS. The NCR also had compliance officers who monitored compliance with the National Credit Act. The NCR had a research component as well.

The Chairperson asked whether there were guidelines on rates of interest that institutions could charge for different types of loans. Were there limits set on interest that could be charged? If the amendments to the National Credit Act gave the NCR more muscle did it give the NCR enough muscle to prosecute? Was the legislation a deterrent? He asked how many credit bureaus there were.

Ms Motshegare stated that there were fourteen credit bureaus and one was to be cancelled. There were more than 4600 registered credit providers. Interest rates were regulated and were covered by the National Credit Act. Maximum interest rates depended on the type of credit i.e. mortgage bonds or motor vehicle finance. Interest rates were linked to the repo rate. For a mortgage bond the interest rate was 20.40% per annum. On overdrafts and credit cards the interest rate was 25.4%. On unsecured credit the interest rate was 35.4% but from the 6 May 2016 it would be reduced to 28%. Short term transactions had an interest rate of 5% per month. From the 6 May 2016 there would be a decrease in interest rates. On the effectiveness of the National Credit Act amendment, the NCR would like to test it over time. The NCR would conduct a study at the end of 2016 on the impact of the amendments and regulations on consumers.

Committee Minutes
Minutes dated the 2 March 2016 were adopted unamended.

The meeting was adjourned.
 

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