National Regulator for Compulsory Specifications & National Credit Regulator on their 4th quarter 2015/16 performance

This premium content has been made freely available

Trade and Industry

31 August 2016
Chairperson: Ms J Fubbs (ANC)
Share this page:

Meeting Summary

The Committee was briefed by the National Regulator for Compulsory Specifications (NRCS) on its fourth quarter performance for the 2015-16 financial year. Its strategic goals were stated to be to ensure an optimally capacitated institution, to develop, maintain and administer compulsory specifications and technical regulations, to inform and educate stakeholders about the NRCS, and to maximise compliance with all

A key highlight was its collaboration with the South African Revenue Service (SARS) to identify illegal and non-compliant goods destined for SA’s borders, with both institutions working together to prevent these goods from entering SA. The NRCS had been involved in outreach programmes to educate South Africans on the dangers of paraffin stoves. It had conducted raids, and in the process had confiscated over 1.6 million non-compliant products and removed them from the market place. It battled with the huge numbers of non-compliant goods trying to enter the South African markets. When it intercepted non-compliant goods, it faced the challenge of destroying them, taking into account the cost involved and the effect on the environment.

The NRCS had to act in terms of its mandate, which was to protect the South African consumer and the environment from non-compliant and dangerous goods, despite a reduction in funding from government and the impact of declining economic activity on revenue collection.

Members asked if it was a deliberate strategy of the DTI to use the Letter of Authority (LOA) process as a non-tariff barrier in SA. If that was the case, then they should be upfront about it. They claimed that applications had taken up to six months to be processed, and this was causing real bottlenecks and delays in the economy. What criteria were used to disallow goods from being imported into SA? They said that it seemed easier to go after the easy targets than where the real problems were – for example, the China malls, where products were not compliant.

The second briefing was made by the National Credit Regulator (NCR) on its fourth quarter performance for the period ending in March 2016. The NCR sought to promote responsible credit granting, to protect consumers from abuse and unfair practices in the consumer credit market and address over-indebtedness, to enhance the quality and accuracy of credit bureau information, to improve its operational effectiveness and to ensure effective implementation of the National Credit Amendment Act.

It had conducted workshops on the affordability assessment regulations and where necessary, had taken appropriate enforcement action. It had also visited provinces to monitor credit provider compliance and had achieved its set targets. In the Limpopo and Gauteng provinces it had conducted raids in partnership with the SA Police Service (SAPS) and arrests had been made and criminal proceedings instituted. It had conducted reckless lending investigations and implemented enforcement measures where it deemed it necessary. It wanted to increase and improve compliance within the credit granting sphere.

It had engaged in a number of outreach programmes with its ‘know your credit status’ campaign. This had been focussed more especially on the rural areas, and aimed at the pensioners and other receivers of social grants. The NCR educated them about their rights and created awareness related to the undesirable practices of credit providers, especially retailers.

Members expressed concern that the regulator was accepting settlement amounts that were far too low in relation to credit providers’ serious transgressions. NCR’s targets were too generous, and did not stretch its capabilities. The number of raids conducted had been a drop in the ocean, given the scale of the illegal credit market in SA. They asserted that as long as people were allowed to get away with things such as reckless lending and fraud, they would continue to do so if the penalty was not harsh enough. The NCR needed to start being tougher with people that were ripping off ordinary South Africans.

Meeting report

Briefing by National Regulator for Compulsory Specifications (NRCS)

Mr Asogan Moodley, Chief Executive Officer, NRCS, said the entity’s strategic goals were to ensure an optimally capacitated institution; to develop, maintain and administer compulsory specifications and technical regulations; to inform and educate its stakeholders about the NRCS; and to maximise compliance with all specifications and technical regulations. Its vision was to develop compulsory specifications and technical regulations, and to maximise compliance of products and services. Its aim was to be a credible and respected regulator for compulsory specifications and fair trade.

The NRCS regulates the following six industries: automotive; chemicals, materials and mechanicals; electro-technical; food and associated; legal metrology and building regulations. Examples of the products regulated or services rendered under the automotive industry included the vehicles, replacement components and manufacturers, importers and builders. Cement, chemicals, detergents and personal protective equipment were some examples of the products regulated or services rendered under the chemicals, materials and mechanicals. Under electro-technical, the products regulated or services rendered were electrical appliances and products. Fishery products, canned meat and processed meat were some of the products regulated or services rendered by the NRCS. It calibrated measuring instruments, weights, measures and gaming equipment under the legal metrology. Under building regulations, it ensured a uniform interpretation of the National Building Regulations and Standards Act, and administered the national review board.

The NRCS’s first strategic goal was to develop, maintain and administer compulsory specifications and technical regulations and as part of that goal, its annual target was to deal with ten compulsory specification or technical regulation applications submitted for approval. In its fourth quarter, it had reached its target of three compulsory specification or technical regulation applications submitted for approval. There were two technical papers that had been approved by the NRCS’s CEO for publication.

To maximise compliance with all automotive specifications and technical regulations, the NRCS had an annual target of about 3 200 source inspections, including border inspections, to conduct within the automotive industry. Its target for the fourth quarter had been 640 inspections, but only achieved 501 inspections had been achieved. This was because the NRCS’s focus had been more on the targeted source and retail inspection due to need to eradicate non-compliance. It had a targeted turnaround time of 120 calendar days for approval and processing of applications received, but in the fourth quarter it had processed only about 96% of approvals within the 120 calendar days. This had been due to insufficient documentation submitted for the approval process.

The NRCS had achieved a considerable amount of success in terms of the targets it set itself both annually and in the fourth quarter in the industry sectors it regulated. As an institution, its objective was to be a capacitated organisation with relevant systems to support business and to build an information technology (IT) platform that supported and improved business. To capacitate itself as an organisation, it had used its training efficiently by conducting group training sessions.

Ms Reshma Mathura, Chief Financial Officer, NRCS, covered the financial performance briefing aspect of the presentation. She showed the Committee the year to date revenue, indicating that the NRCS derived 49% of its revenue from levies.

The NRCS’ had collaborated with SARS to share information and system integration at ports of imports, in order to improve its internal control. It was in the process of finalising codes with SARS to enable it to see when a regulated product came in.

Some of the challenges and highlights mentioned were the paraffin stove awareness events which the NRCS had used to highlight the dangers of non-compliance, and the non-compliant products which were coming into SA. SARS had become a crucial partner, as it also informed the NRCS of non-compliant products coming into the country. The NRCS had confiscated over 1.6 million non-compliant products from the market in the Western Cape region. Three weeks ago, it had confiscated about 450 tons of prawns because they were not suitable for human consumption.

Mr Moodley said that there was a huge amount of non-compliant exports wanting to enter SA. The NRCS was faced with operational challenges in respect of border enforcement, as well as revenue challenges. The turnaround time for testing a product was a challenge, as the work was rigorous and there was a high volume of products coming into the country. The cost of the impact to the environment of non-compliant products was also a challenge. The NRCS was also faced with the cost of destroying these products.

Discussion

The Chairperson asked the CFO to explain the matrix of the financial performance overview on page 17, and for clarification on how the NRCS tabulated its figures.

Ms Mathura responded that these were accumulative figures. The first quarter showed expenditure and income, and the second quarter was expenditure inclusive of the first quarter. The NRCS preferred getting the Department of Trade and Industry (DTI) funding in the first six months, due to the fact that its levies were cyclical.

Mr G Hill-Lewis (DA) asked if it was a deliberate strategy of the DTI to use the Letter of Authority (LOA) process as a non-tariff barrier in SA. If that was the case, then they should be upfront about it. The presentation had not told the Committee how long the applications that had not been dealt with in the 120 days had taken to be processed, because he knew of applications that had taken up to six months to be processed. This was causing real bottlenecks and delays in the economy. In terms of the awareness product, he found it odd that service providers had not been appointed timeously. He asked the DTI what the consequences were for under-performance of the annual performance plan (APP) and key performance indicators (KPIs).

Mr Moodley responded that there was no strategy to use non-tariffs as a barrier to trade. The NRCS mandate was very simple, and that was to protect the consumer and the environment from non-compliant products. The NRCS promoted free trade. It was not in the business of promoting or hindering economic development. The NRCS would do its job without fear or favour. He added that there was a huge culture of non-compliance.

Mr Lionel October, Director General of the DTI, responded that the Department was not able to impose non-tariff barriers. SA was an open economy, and SA had had a serious problem since it opened its market from 1994. There had been a massive flood of illegal, incorrectly invoiced, non-compliant goods. He estimated about 10% of the gross domestic product (GDP) was the illicit economy. The DTI was working extensively in putting in place risk-based systems.

Ms Jodi Scholtz, Group Chief Operating Officer, DTI, said that there was a system for managing performance. The Minister met biannually with those who reported directly to him. Under-performance was dealt with at the personal level.

Adv A Alberts (FF+) asked what happened to goods that were imported to SA without LOA’s, but those goods were quite new and unique and did not have set standards. Did NRCS monitor the government’s use or import of goods?  He further asked, in terms of confiscation, what criteria were used to disallow goods from being imported into SA.

Mr Moodley responded that the NRCS worked according to approved technical standards. It monitored all products coming into the country. It got the information from bills of lading, and therefore did not give effect to the person, but to the product. It used compulsory specifications to allow or disallow products coming into the country.

Mr D Macpherson (DA) said that the NRCS was a bad movie on repeat, and the only thing that had changed was going from working days to calendar days -- and that was because of the pressure of this Committee. The NRCS had assured the Committee that the risk-based approach would be up by June, and that had not happened. It was highly improbable that the 29% difference in variance was because of insufficient documentation. What was concerning to him was that the NRCS did not have enough human and financial resources to deal with the work. He knew it was a problem for the DTI, but there seemed to be no pressure on the NRCS. Lastly, he said that it seemed easier to go after the easy targets than where the real problems were – for example, the China malls, where products were not compliant. He asked when the risk-based approach would be up and running, and what the delay had been.

Mr Moodley disagreed with Mr Macpherson’s comments. He said there had been a huge movement in the way the NRCS was doing its job. There had been a significant improvement in the way the NRCS did its work. The frustration from people was because the NRCS was effective in doing its work. He agreed that the NRCS did not have enough resources and if it had, it could probably do more. He would provide information on how many inspections had been conducted at the China malls and other malls.

Mr October responded that the NRCS had had serious problems and the first CEO had been dismissed. He thought that since the appointment of Mr Moodley, there had been a turnaround. The DTI was working to see that the NRCS was working optimally.

Ms P Mantashe (ANC) asked why it was that gaming machines were imported. How was that assisting in the development of the local procurement of goods? Why was the NRCS using only multi-media for its education?

Mr Moodley responded that they did not use only multimedia, but used it to supplement their outreach programmes.

Mr October said that he would look into the issue.

Mr A Williams (ANC) said that he was worried about baby clothes, as clothes were not monitored. Over last year, there had been nearly R100 million of non-compliant products, which was concerning because of the NRCS’s mandate to protect the consumer and environment. He asked for an estimate. He was looking forward to the 14 September meeting. He disagreed with Mr Macpherson about the NRCS being a movie, and said that it should not be protecting the importer, but the environment.

Mr Moodley said the NRCS would take this as an input, and would conduct a feasibility assessment if the baby clothes were inflammable. He added that the R100 million of non-compliant products taken from the markets represented 0.99% of containers. The NRCS had partnered with SARS and the SA Police Service (SAPS). The utilisation of HS codes by SARS would help NRCS considerably.

The Chairperson sought clarification on legal metrology.

Mr Moodley responded that all products needed to comply with legal metrology because almost every product had some sort of measure to it.

For the second round of questions, the Chairperson referred to the issue of heaters that had been raised 18 months or two years ago, and which had been reported as blowing up in faces of users. She said the NRCS had indicated it would look into this, and asked it to share its findings.

Mr G Hill-Lewis (DA) pressed the DG on the answer he had given previously. He said there were contradictions between what the DG had said and Mr Moodley’s response. Again he asked if the DG saw the NRCS LOA application process as being used strategically as a non-tariff measure to keep out imports, or did he see the mandate as being limited to what the CEO had mentioned. He told the CEO that he agreed with the mandate, but it must be done efficiently. If the LOAs were an extremely efficient system, then the complaints would be indication of effectiveness.

Mr October responded that because of the WTO negotiations, tariff barriers were now no longer a legitimate tool, and therefore the DTI had to use a range of other tools to ensure that there were fewer imports into the country. The goal of the DTI was to support local exporters. The DTI used a range of instruments to protect SA from non-compliant goods.  

Mr D Macpherson (DA) asked the CEO what the current backlog of LOAs was, and what was being done. He said people were frustrated about levies because of the inefficiency that existed in the NRCS. It did not provide the continual contact which was needed in business.

The Chairperson wanted to re-emphasise that in the past, the Committee had tackled issues like tyres. Producers did not intentionally produce unsafe products, but maybe weather conditions might make those tyres unsafe. The committee wanted the measures to stay, but were concerned about the potentially negative impact on business per se.

Mr Stefan Sakoschek, Executive Director, EU Chamber, made a suggestion to the DTI and NRCS. He said there was a simple yet effective solution to be used as part of the risk-based programme and that was a verification of conformity of goods prior to the goods arriving in SA. It was a method that was currently used by most bureaus of standards, which outsourced some of their functionalities to conformity assessment committees worldwide.

Ms P Mantashe (ANC) asked who was going to pay for that outsourced conformity board, or committee.

Mr Moodley said his mandate was very clear and that was to protect the consumer and the environment from dangerous and harmful products. The NRCS would come on the 14 September to give a full breakdown.

Mr Macpherson said the DG was being evasive. He again asked if there has been an instruction from the DTI to the NRCS to use LOAs as a non-tariff barrier. To the CEO, he said that efficiency and effectiveness was part of the mandate, and that he was wrong if he thought that it carried no responsibility.

Mr October responded that the DTI had never given any instruction to NRCS, but the instruction the Minister had given was that the NRCS must be tough on sub-standard, non-compliant and dangerous goods. He had never given an instruction that it should be used an a non-tariff barrier.

Briefing by National Credit Regulator (NCR)

Ms Nomsa Motshegare, Chief Executive Officer, NCR, said the Regulator wanted to promote responsible granting of credit, to protect consumers from abuse and unfair practices in the consumer credit market and address the over-indebtedness, to enhance the quality and accuracy of credit bureau information, to improve the NCR’s operational effectiveness and lastly, to ensure effective implementation of the National Credit Amendment  Act.

In order to promote responsible credit granting, the NCR had been conducting workshops to help improve compliance with affordability assessment regulations. It had been going to provinces to conduct these workshops and between 2015/16 its annual target had been to conduct seven workshops on affordability assessment regulations. In total, seven provinces had been visited to monitor credit provider compliance and appropriate enforcement action on non-compliant credit providers had been taken where it was necessary.

The NCR had also sought to increase compliance with regulations pertaining to the total cost of credit. In its 2015/16 annual target it had conducted about 15 investigations into compliance with regulations pertaining to the total cost of credit and had taken appropriate enforcement action where necessary. There were 11 investigations conducted in this quarter in Limpopo and Gauteng. It had also conducted raids in partnership with the SAPS, and some transgressors had been arrested and were facing criminal prosecution.

As part of its objective to protect consumers from abuse and unfair practices in the consumer credit marker and address over-indebtedness, the NCR had conducted reckless lending investigations and taken appropriate enforcement measures where deemed necessary. It had investigated about 40 credit providers and conducted about 21 investigations through its raids. When it conducted raids, it looked at a number of issues, and that was how it had been able to exceed its set targets.

In enhancing the quality and accuracy of credit bureau information, the NCR sought to increase compliance by credit bureaus in respect of consumer credit information. It had investigated two credit bureaux and taken appropriate enforcement action, and both were reported to have complied. 14 credit bureaux’ audit reports had been reviewed, and six entities had been referred for investigation in the first quarter. Instructional letters had been sent, one credit bureau voluntarily had cancelled its registration, and one had been referred to the National Consumer Tribunal (NCT).

The NCR had wanted to improve its operational efficiency through automated processes. Its annual target was 95% of uptime availability on its IT system. It had exceeded that target, as 100% uptime availability had been achieved.

To ensure the effective implementation of the National Credit Amendment Act (NCAA), the NCR had as its objective improving awareness and compliance. It had conducted 40 workshops with relevant stakeholders as part of its annual target and achieved its set goals. It had also conducted 40 multimedia campaigns through TV interviews, newsprint and radio. In the fourth quarter, it had conducted 15 interviews. Eight outreach programmes in the form of exhibitions, mall activities, outside broadcasts, and shows or imbizos in the peri-urban and rural areas had been conducted. It had conducted a raid in the Limpopo province, where 11 entities had been raided or investigated. 11 people had been arrested and criminal proceedings instituted as a result. The NCR had seized 301 identity books, 944 bank cards and SA Social Security Association (SASSA) cards as part of that raid.

To educate the consumer, it had embarked on a ‘know your credit status’ campaign, jointly conducted with credit bureaux at shopping centres, offices of the DTI and the South African Revenue Services. The NCR was working jointly with local tribunal authorities in rural areas such as Qwaqwa in the Free State, Ga-dikgale in Limpopo, Escort in Kwa-Zulu Natal, Taung in North West, George in the Western Cape and Kwa Mhlanga in Mpumalanga. It had conducted imbizos aimed mainly at pensioners and other social grant recipients, to educate them about their rights and to create awareness in relation to undesirable practices of credit providers, especially retailers.

It had referred about 20 matters to the NCT, which had all been concluded, and completed about 72 investigations. It had raided micro-lenders that were overcharging consumers, engaging in reckless lending and retaining bank cards and pins.

In the next two weeks, the NCR would be going to the Northern Cape where its main focus would be the rural areas.

Discussion

Mr Hill-Lewis asked for an update on the big cases that NCR was dealing with, especially the Capfin matter. He said that the settlement amount of R2 million was low for a company as big as Capfin, and for what Capfin had done. He was concerned that the NCR was achieving small settlements for very serious transgressions. The targets which Ms Motshegare has set herself were too generous, and not stretch targets. He welcomed the 11 raids, but this was a drop in the ocean given the scale of the illegal credit market in SA. He appreciated that resources were a problem.

Ms Mantashe said the Committee would be very pleased if the NCR visited all the provinces. She asked if non-compliance was a problem only with loan sharks, and not the traditional banks. She also wanted to know what the NCR did with money collected from royalties if such banks were fined.

Ms Motshegare responded that all provinces would be visited, and the provinces that had already been visited would also be re-visited. Contraventions and non-compliance occurred across the board and across different types of credit providers. The penalties ended up in the state’s coffers.

Mr Macpherson said his concern was that there seemed to be no inter-departmental coordination from SAPS and the National Prosecuting Authority (NPA) in terms of prosecution. He supported the contention that the Capfin settlement had been low, and asked who had taken the decision to settle at R2 million.

Ms Motshegare responded that the Reserve Bank had held the directors liable, with African Bank. The NCR attended to, and prioritised, those cases where persons purported to be debt counsellors, even though they were not registered.

Mr Hill-Lewis provided details of the Capfin settlement. 25 loans had been identified by NCR as constituting illegal loans or reckless lending, and these had been referred to the Tribunal. It had been agreed between the NCR and Capfin that those loans would be written off, the credit listing of those lenders would be deleted and Capfin would pay the administrative fine of R2 million.

Mr Macpherson said he had written to the CEO regarding constant harassment by a lady claiming that the NCR was acting irregularly. How wide was the extent of people purporting to be debt counsellors and ripping people off?

Mr Williams asked why there was a huge R54 million difference between the actual amounts received and the budgeted amounts in the fees section of the financial report.

Ms Ayanda Mafuleka, Chief Financial Officer, NCR, said she needed to qualify that the figures the NCR was presenting were audited figures. The difference between the actual and budgeted figures was R23 million. The NCR had hoped that the regulations would have been published and approved. The NCR had not increased its revenue in 2015/16 and it still wanted to catch up on the benefit of the removal of the threshold. The NCR hoped the removal of the cap from the branch fees would result in more revenue. The NCR would probably not reach the R56 million target, because the regulations had been published late.

The Chairperson asked how the NCR monitored compliance with credit affordability assessments by credit providers. Did it conduct any investigations on the more formal credit providers? He also referred to points raised previously in the Committee about non-compliance by institutions with the 2007 Act, and asked what measures existed so that the NCR could pursue a follow up.

Ms Motshegare responded that the NCR did that through writing to the credit providers and asking for a sample of credit agreements entered into over a period of time, and from that list it selected a sample to test during the raids if proper affordability assessments had been conducted. NCR inspectors would go in during a raid and ask for a sample. It used a number of tools to test compliance with affordability assessments.

She said that the Capfin matter had been referred to the National Consumer Tribunal more than a year ago. At the time of entering into the settlement agreement, nothing had been done. The NCR applied two principles when entering into settlement agreements -- the first was to punish the entity, and the second was to ensure consumer redress. It had received cooperation from Capfin. The R2 million settlement amount had also been based on the fact that Capfin changed advertisement, which now advised that a person qualified for a personal loan only if they could afford it.

Regarding the issue of the targets not being stretched, the same sentiment had been expressed last year, so they had been increased in the latter part of the financial year. She added that issues of capacity had come into play, and the NCR was engaging with the DTI to see where the NCR could increase its resources.

The Chairperson asked what the actual fee was.

Ms Mafuleka responded that it was based on the percentage of the principal debt that had been dispensed by the credit provider.

Ms Mantashe said she wanted the NCR to convince her that it was justifiable to let the people who had conducted irregular deductions on consumers, not to reimburse the people they had ripped off. The NCR took money into the coffers, but what about those poor people who had been ripped off?

Ms Motshegare said that in the instances where there had been overcharging of consumers, the credit providers were told to reimburse the consumer.

Mr A Williams said the R2 million penalty did not sound like a penalty. The fine was a small amount and it should have been much higher.

Mr Hill-Lewis asked for an update on the credit life regulations. Was the NCR was considering joining as an amicus curiae in the Lewis Stores matter? It would be great for the country, as the NCR would get to show the public the work it was doing, and also it would be a test case. He asked the NCR to comment on the discussions that there was a cash flow issue at the Payment Distribution Authority.

Mr Macpherson asked if the NCR was not compelled to criminally charge someone who purported to be someone they were not. For as long as people were allowed to get away with things such as reckless lending and fraud, they would continue to do so if the penalty was not harsh enough. The NCR needed to start being tougher with people that were ripping off ordinary South Africans.

Mr Obed Tongwane, Deputy CEO, NCR, expanded on the Capfin matter. He said that the NCR was very passionate about discharging its mandate, which was consumer protection. After the NCR referred a matter to the NCT, it was out of its hands. The big banks hired top lawyers and got the best legal advice to frustrate the process by raising technical issues. In the interim, there was nothing the NCR could do to stop the credit provider from stopping their transgressions until there was a decision, and the abuse of the consumers continued. The NCR was trying to balance issues, and looked at the legal landscape. The NCR had thought it was feasible to enter into a settlement agreement and that the registrant would desist from the conduct.

The NCR was aware of the Lewis matter and was seriously considering joining as an amicus curiae. The NCR laid criminal charges against those purporting to be debt counsellors and from a regulatory point of view, asked them to register.

The Chairperson asked if the 21 investigations referred to the formal sector. What sort of reckless lending was being talked about? She asked if with each loan, the customer was expected to provide clarity of his income when applying.

Mr Williams said he would like the NCR to make proposals on how this Committee could stop this behaviour. He said there was a principle involved, as the banks could behave as they pleased and pay small amounts of money to keep the government in court because they had the resources.

Adv Alberts agreed with Mr Williams, and said there were two ways the Committee could deal with this situation. The legislation could be amended, and compliance orders could be issued, and the only way to appeal was to go to court themselves. Secondly, the NCR could ask for interim relief at the courts, and get an interdict to stop people from trading, or trading on certain aspects, depending on the problem. He asked the NCR to investigate those options.

Ms Scholtz agreed that the targets were soft and needed to be stretched, but there had to be a balance between capacity constraints and resources.

Ms Motshegare said that reckless lending occurred across all entities, and some were referred to the NCT. The credit providers had to verify the income stated by a consumer in terms of each loan afforded. Credit bureau audits were done once a year, and at eight of those entities no compliance issues had been reported. She added that she accepted what Mr Williams and Adv Alberts had said.

The meeting was adjourned.

Share this page: