Usury Amendment Bill: briefing & adoption; DTI Legislative Programme

Meeting report

ECONOMIC AND FOREIGN AFFAIRS SELECT COMMITTEE
28 March 2003
USURY AMENDMENT BILL: BRIEFING & ADOPTION; DTI LEGISLATIVE PROGRAMME

Chairperson: Mr G Tolo (ANC) [Mpumalanga]

Relevant documents
Usury Amendment Bill [B1-2003]
Briefing Notes on Usury Amendment Bill (Appendix 1)
Department of Trade and Industry's 2003 Legislative Programme (Appendix 2)

SUMMARY
The Committee was briefed by the Department on its legislative programme for 2003, and the nine Bills were explained briefly.

The Department briefed the Committee on the Usury Amendment Bill which aims to allow the Micro Finance Regulatory Council (MFRC) to appoint inspectors to control the micro-lending industry. Before adopting the Bill, Members raised the following concerns:
- whether there is a substantive difference between the roles and functions of CEO of the MFRC and the Registrar and the concern with the concurrent powers granted to both,
- the incentives for micro-lenders to register with the MFRC,
- the problems with the current situation in which registered micro-lenders can essentially charge any interest rate they wish and the possibility of capping their interest rates, because it cannot simply be left to market forces to decide.

The broader principles of consumer protection, in view of the predatory practices and very high interest rates imposed by the micro-lenders, will be comprehensively dealt with in the new Consumer Credit Bill.

MINUTES
Briefing by Department of Trade and Industry on Usury Amendment Bill
Ms Astrid Ludin, the Department's Deputy Director-General: Consumer and Corporate Regulations Division, conducted the introductory portion of the presentation. Ms Lana Van Zyl, Director in the Department's Consumer and Corporate Regulations Division, took Members through the clause-by-clause analysis of the Bill. [See Appendix 1 for briefing]

Discussion
Mr M Bhengu ((IFP) [KwaZulu-Natal] asked whether there is any difference between the Registrar and the CEO of the Micro Finance Regulatory Council (MFRC).

Ms Van Zyl responded that the difference lies in the fact that the Registrar is a member of the public service and is appointed by the Minister of Trade and Industry (the Minister), and the Usury Act (the Act) does specify his/her powers. The Act now provides that the CEO of the MFRC has the same rights and powers as the Registrar, and is aimed at broadening the capacity of the MFRC to conduct the same functions as the Registrar. It thus has to be remembered that the CEO of the MFRC and the Registrar are two different people.

The Chair suggested that perhaps he could clarify matters for Mr Bhengu by stating that these are two different persons. The Department has the Registrar and the MFRC is like a voluntary institution that registers all micro-lenders as their associates, and the MFRC has the CEO as its head. The Bill is seeking to grant the powers of the Registrar to the CEO of the MFRC, so that the MFRC can also inspect micro-lenders.

Ms Van Zyl agreed and stated that there is a link between the two, because the MFRC is accredited by the Minister.

Ms Ludin added that the Bill will not be transferring all the functions currently performed by the Registrar to the CEO of the MFRC. The Registrar currently determines, in consultation with the Minister, the interest rate scheme of the micro-lenders, and there is no intention to transfer this function of the Registrar to the CEO of the MFRC. The only powers currently granted to the Registrar that will be given to the CEO of the MFRC as well relate to the conducting of investigations of micro-lenders.

Ms N Ntwanambi (ANC) [Western Cape] asked the Department which of the two is the senior official, or which one has greater powers than the other.

Ms Van Zyl replied that, as indicated by Ms Ludin, there is co-operation between the MFRC and the Department and the inspection powers will be granted via a Memorandum of Understanding, so that there is coherence in applying the Act.

Ms Ludin added that perhaps some background information to the adoption of this route would be beneficial. One of the alternative routes considered by the Department was simply granting the power to the Registrar to appoint inspectors from outside the public service. The Department decided against this option because the MFRC would be granted the power to conduct investigations, and it would be very difficult to control such investigations if they inspectors were not officials of the Department. It was also agreed that having the inspectors as Department officials would remove any risk of legal challenge to the investigations conducted.

Furthermore, the Registrar could be granted the power to appoint the inspectors but if the inspectors are not made to report to the Registrar directly, it would be difficult to control those inspectors. It was thus decided that these inspection powers would instead be granted to the CEO of the MFRC.

Mr Jeremiah Mele, Director in DTI's Consumer and Corporate Regulations Division, added that he is a member of the MFRC's Enforcement Committee, and it is currently discussing means to co-operate with the Department with regard to the inspection powers, so that a duplication of efforts is avoided. He assured Members that both the MFRC's Enforcement Committee and the Department are strategising together to ensure this capacity.

Mr Bhengu stated that he is concerned about the concurrent powers of the Registrar and the CEO of the MFRC, because he foresees some kind of discomfort here. He proposed that it would be better if the Registrar controlled the CEO of the MFRC.

Ms Ludin responded that she understands Mr Bhengu's concern but assured Members that the powers granted to the CEO of the MFRC are really limited to investigating micro-lenders, and the Department still serves a broader role in regulating micro-lenders under the Act, and it is not limited to the Act alone. The aim of the Bill is to grant powers to the CEO of the MFRC to investigate both registered and unregistered micro-lenders, so that the Department can free up its powers to be used in other areas by granting the investigative powers to inspectors. There will thus not be a separation between the registered and unregistered micro-lenders, but instead the overall inspection function will be enhanced. Thus the functions of the Registrar are broader than those of the CEO of the MFRC, and the Memorandum of Understanding concluded between the two will address any concurrent functions.

The Chair stated that he was of the opinion that those unregistered micro-lenders were operating illegally and would be immediately closed down, yet the Department is suggesting that this is not done when inspectors come across them. This seems to address some authenticity to those micro-lenders.

Ms Ludin replied that the problem here is that those unregistered micro-lenders have to comply with the Act and the interest rate prescribed to unregistered micro-lenders. If the inspectors find that those unregistered micro-lenders are not complied with that prescribed rate, a court case will be prepared against them and the South African Police Service (SAPS) will then close them down. The Act does therefore impose criminal sanctions on those micro-lenders. These issues will be addressed in the Consumer Credit Bill, so that more powers are granted to close down such micro-lenders.

Ms Van Zyl added that they would not necessarily be closed down because the inspects aims to gauge compliance with the Act, and serves as visible policing.

The Chair sought clarity on the incentives to register with the MFRC.

Mr Mele responded that those micro-lenders that have not registered with the MFRC are expected to comply with the interest rate prescribed by the Act, which is currently capped at 29% per annum. Yet those micro-lenders that are registered with the MFRC are not limited to this rate, and can charge a higher interest rate than 29%. This does not mean that registered micro-lenders can charge any rate they see fit, because competition within the market will determine the rate charged.

Mr Bhengu contended that this seems to suggest that registered micro-lenders can charge any interest rate they like, and asked what the ceiling is for such interest rates? If it is not capped those micro-lenders could exploit the poorer members of society.

Ms Ludin replied that when the Exemption Notice was introduced in 1999 attempts were made to set a ceiling for interest rates, but the court instructed the Department to conduct more research on this first. The Department is currently evaluating the best way to impose a ceiling rate, but any ceiling that is lower than what the majority of the people charge would drive most micro-lenders underground. Consumers would then have no recourse because such conduct is illegal, and they also employ illegal collection methods.

The Department is planning to address this issue comprehensively in the new Consumer Credit Bill, and any measures introduced by the Bill has to be consistent with the Consumer Credit Bill. He intention is to set a ceiling rate, because "unfettered practices" by those micro-lenders cannot be allowed. There was no ceiling imposed when the first Exemption Notice was issued in 1990 and the problem since then has been that there has been no interest rate ceiling, and any attempts by the Department to set a ceiling rate has been met with a court challenge.

Ms Ntwanambi stated that in the townships people are involved in "savings clubs" to which they contribute money and then lend from that pool to members, and currently charge an interest rate of 20% per month. Would such clubs would also be inspected?

Mr Mele responded that the short answer is that such clubs contravene the Act. The challenge is to educate the people so that they are away of the law in this regard, and his division aims to ensure this education.

The Chair stated that he was under the impression that no ceiling has been imposed because the risks involved in lending money in that sector are so high.

Ms Ludin replied that micro-lenders are in desperate trouble and the MFRC has tried to establish certain rules to deal with this problem of reckless trading. Reckless trading will be punished, and those offending micro-lenders could even be deregistered. These micro-lenders are exposed to the highest risk, but government and the Registrar's perspective is that they do deal with the most vulnerable sector of society, and those consumers have to protected via policy and the new legislation.

Mr Bhengu stated that he understands the response given by the Department, but he is not satisfied. If this matter is left to the market to decide it will not be effectively regulated, because these micro-lenders will charge very high rates to the very vulnerable consumers that have been denied credit by the banks. If the MFRC does not regulate these micro-lenders those consumers will be exploited, and this cannot be allowed to happen.

Mr Z Kolweni (ANC) [North-West] asked whether any new regulations would have to be gazzetted for this Bill.

Ms Van Zyl responded that no new regulations would be introduced under the Bill.

Mr Kolweni stated that it is important that the micro-lending industry is being dealt with because Members receive many complaints from people in their constituencies, who expect them to do something about the matter as public representatives.

Voting on the Usury Amendment Bill
The Chair read the Motion of Desirability and noted that Members agreed to it. The Chair read through the Bill and the Committee agreed to all five clauses.

Department's 2003 Legislative Programme
Adv Johan Strydom, the Department's Senior Legal Advisor, took Members through the table in the 2003 Legislative Programme (see Appendix 2), and stated that Bills 3, 5, 6, 8 and 9 would probably be dealt with in Parliament's second semester.

Ms Ludin presented "Annuxure A" of the document (see Appendix 2) which deals in greater detail with the aims of each Bill listed in the table, and noted that Bills number 4 and 5 are the more substantial pieces of legislation to be dealt with by the Department in 2003.

In conclusion, the Chair thanked the Department for the presentations, and extended a special thanks for providing the teleconferencing facility to accommodate Ms Ludin in the Department's Pretoria office.

Appendix : Briefing on Usury Amendment Bill
BRIEFING NOTES ON THE USURY AMENDMENT BILL, 2003

INTRODUCTION
1. The purpose of the Bill is to introduce certain amendments to the Usury Act, 1968 (Act No 73 of 1968) (the Act) so as to:
- provide for persons other than public service officials to be appointed to inspect the activities of a moneylender, credit grantor or lessor and
- define, for clarity purposes, the chief executive officer, inspector and regulatory institution.

2. In June 1999, in Government Gazette No 20145, Notice No 713, the Minister of Trade and Industry exempted a category of money lending transactions from the provisions of the Act with the exception of sections 13, 14 and 17A of the Act on certain conditions. The main condition of the Exemption Regulation being that a money lender has to be registered with the Micro Finance Regulatory Council (MFRC) to utilize the Exemption Regulation. A large number of money lenders have opted not to register with the MFRC or have not renewed their annual registration. It appears therefore that non-compliance with the provisions of the Usury Act has increased requiring decisive enforcement action.

3. The proposed amendments in the Bill are aimed at addressing the lack of capacity that presently exists to conduct inspections on the large number of unregistered micro-lenders that probably contravene the provisions of the Usury Act. The proposed amendments will enhance the enforcement capacity and protect consumers from unscrupulous moneylenders.

CONSULTATIONS
4. The Bill was discussed with the MFRC as it is, at this point in time, the only regulatory institution that will be effected by the amendments to the Act. The MFRC supports the proposed amendments.

CLAUSE 1
5. The Usury Amendment Bill, 2002, provides for persons other than public service officials to be appointed as inspectors to inspect the activities of moneylenders, credit grantors and lessors. To give effect thereto, it is necessary to include and amend definitions in the Act.

6. The Bill defines a chief executive officer, an inspector and a regulatory institution and amends the definition of the Registrar. A chief executive officer means the person having the executive authority within an approved regulatory institution.
- A regulatory institution in turn means a legal entity approved by the Minister of Trade and Industry in terms of any regulation or notice promulgated under the Usury Act.
- An inspector means any person appointed in terms of the Act.

7. The definition of the Registrar has been amended to include the chief executive officer. Persons to be appointed by the Registrar and the chief executive officer as inspectors, need to have the same powers to carry out inspections. For this purpose, the chief executive officer has to have the same power and authority as that of the Registrar. To give effect to this, the definition of the Registrar has been amended to include the chief executive officer and it is made clear that the chief executive officer will for the purposes of sections 12, 13, 14, 17A and 18A of the Act have the same power as the Registrar. Amendments are proposed under sections 12 and 13 and are discussed under clauses 2 and 3. The amendment proposed to section 18A is discussed under clause 4.

8. Sections 14 and 17A of the Act allow the Registrar to request any information from any moneylender, credit grantor or lessor and if any of them fail to submit the requested information, a penalty may be imposed. The chief executive officer will in terms of the proposed amendment to the definition of the Registrar also be empowered to impose a penalty.

CLAUSE 2
9. Section 12 of the Act allows the Registrar to conditionally delegate or assign any power or duty conferred upon him or her to any officer or employee and this provision should be extended to the chief executive officer to ensure effective management. The inclusion of the chief executive in the definition of the Registrar, will allow the chief executive to also delegate or assign any duty conferred upon him or her, thereby ensuring effectiveness.

10. The specific amendment of section 12 is to replace "officer or employee in the public service" with "person", thereby giving effect to the aim of the Bill by providing that persons other than public service officials can be appointed as inspectors and that duties can be delegated or assigned to such inspectors.

CLAUSE 3
11. Presently, in terms of the Act, the Registrar may appoint a person who is not in the full-time employment of the State as a temporary inspector for a particular inspection. With the proposed amendments, the Registrar as well as the chief executive officer of a regulatory institution approved by the Minister of Trade and Industry will have the ability to appoint persons other than civil servants to carry out inspections on a continuous basis and not only as temporary inspectors for particular inspections.

12. Section 13 of the Act allows the Registrar to appoint inspectors and to issue them with appointment certificates. To effectively manage inspections performed in terms of the Act, the chief executive officer must be allowed to appoint his or her own inspectors, hence the proposed amendment to the definition of the Registrar. Subsection (1) (b) is amended to delete the specific reference to officers as defined in the Public Service Act and to replace it with just "persons".

13. The deletion of subsections (2) and (3) and amendment of subsection (4) are consequential as it refers to the procedures for appointment of a person that is not in the employment of the State.

CLAUSE 4
14. In terms of section 18A of the Act, the Registrar has the right to approach a court of law for a declaration order. The same right should be extended to the chief executive officer should he or she require such declaration to ensure proper compliance with the Act. The inclusion of the chief executive in the definition of the Registrar, will allow the chief executive to also approach a court of law for an order.

15. The specific amendment to section 18A of the Act is to replace the references to the "Supreme Court" to the "High Court".

MEMORANDUM ON THE OBJECTS OF THE USURY AMENDMENT BILL, 2003
The purpose of the Bill is to provide for persons other than public service officials to be appointed as inspectors to inspect the activities of moneylenders, credit grantors and lessors. It has consequently become necessary to define an inspector, a chief executive officer and a regulatory institution and to amend the definition of the Registrar. A chief executive officer means the person having the executive authority within an approved regulatory institution. A regulatory institution in turn means a legal entity approved by the Minister in terms of any regulation or notice promulgated under the Usury Act. An inspector means any person appointed in terms of section 13 of the Act.

To ensure effectiveness, provision has been made for the delegation and assignment of powers and duties by the chief executive officer to any person. The Registrar as well as the chief executive officer have been given the power to appoint persons other than civil servants to carry out inspections on a continuous basis and not only as temporary inspectors for particular inspections. All persons appointed by the Registrar and the chief executive officer as inspectors will have the same powers to carry out inspections. For this purpose, the chief executive officer has to have the same power and authority as that of the Registrar. To give effect to this, the definition of the Registrar has been amended to include the chief executive officer and it is made clear that the chief executive officer will for the purposes of sections 12, 13, 14, 17A and 18A have the same power as the Registrar. Section 12 will allow the chief executive officer to delegate any power or duty conferred upon the chief executive officer and section 13 will allow the chief executive officer to appoint inspectors and to issue them with appointment certificates. Sections 14 and 17A will allow the chief executive officer to request any information from any moneylender, credit grantor or lessor and if any moneylender, credit grantor or lessor fail to submit the requested information, the chief executive officer may impose a penalty. In terms of section 18A, the chief executive officer will have the right to approach a court of law for a declaration order.

Parties consulted
The Micro Finance Regulatory Council.

Financial implications for state
Revenue obtained from the licence fees paid by regulatory institutions will be utilized to fund the inspectors

Parliamentary procedure
The State Law Advisors and the Department of Trade and Industry are of the view that this Bill must be dealt with in accordance with the procedure established by section 75 of the Constitution since it contains no provision to which the procedures set out in section 74 or section 76 of the Constitution apply.

Appendix 2: Department's 2003 Legislative Programme
DEPARTMENT OF TRADE AND INDUSTRY - 2003 LEGISLATIVE PROGRAMME

CCES : Cabinet Committee for Economic Sector
PC/NA : Portfolio Committee on Trade and Industry (National Assembly)
SC/NCOP : Select Committee : National Council of Provinces
SLA : State law advisers

Kindly refer to Annexure A for a brief synopsis on the objects of the respective bills. PREPARED BY PARLIAMENTARY OFFICE

ANNEXURE A

DEPARTMENT OF TRADE & INDUSTRY LEGISLATIVE PROGRAMME FOR 2003

1. NATIONAL SMALL BUSINESS AMENDMENT BILL
The National Small Business Council (NSBC) was liquidated in 1998. It is, therefore, necessary that all references to the NSBC in the National Small Business Act be deleted and that a provision providing for alternative means for achieving the aims of the NSBC be inserted in the Act. Additional smaller amendments to the Act are also necessary to refine and clarify the role of Ntsika vis-a-vis the Department of Trade of Industry.

2. BLACK ECONOMIC EMPOWERMENT BILL
The bill will empower the Minister to issue codes of practice on Black Economic Empowerment and will authorise government to enter into sectorol charters. It will furthermore clearly define the relevant policy objectives and will establish an empowerment reporting and monitoring system for the public and private sector.

3. CO-OPERATIVES BILL
To provide for the formation, registration and winding up of co-operatives and for matters incidental thereto.

4. LIQUOR BILL
This Bill is a new draft encapsulating the policy principles previously agreed to with stakeholders, but addressing the constitutional matters raised by the Constitutional Court in its judgement on the Bill. In particular, the Bill does not seek to regulate matters in the exclusive jurisdiction of provinces, such as the licensing of the retail and micro-manufacture of liquor, although it does set out matters of principle. It further creates a national licensing function for the manufacture and wholesale of liquor, in line with the Constitutional Court judgement, and sets out national norms and standards. Finally, the new bill provides for a policy formulation and coordination mechanism in the form of a Policy Council, which consists of the Minister of Trade and Industry and the Members of the Executive Council of the provinces, giving expression and content to the concept of co-operative governance.

5. NATIONAL GAMBLING AMENDMENT BILL
To enhance co-operative management of the gambling industry between national and provincial government.

6. MANUFACTURING DEVELOPMENT AMENDMENT BILL
To review the necessity for the Board and its functions and to accommodate the new industrial needs in terms of incentives.

7. USURY AMENDMENT BILL
A lack of capacity results in very few inspections being performed on the large number of unregistered micro-lenders. This lack of action is leading to increased resistance amongst registered lenders and is increasingly pushing lenders from the regulated market into the unregulated market. The Bill proposes to rectify this problem through widening the scope for inspectors considerably.

8. LOTTERIES AMENDMENT BILL
To make provision for natural persons to be entitled to receive funds.

9. INTELLECTUAL PROPERTY LAWS AMENDMENT BILL
The respective principal Acts directly and indirectly regulate how state emblems should be used or be registered as part of trade marks. However, the Draft Policy on the use of State Emblems will necessitate amendments to these Acts. There is a need to amend the Intellectual Property Laws Amendment Act, for example, to provide that the use of the national flag is subject to the Minister's consent. As the Act stands, the national flag is in the public domain.