Debt relief measures: Proposals and reports from various stakeholders

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Trade and Industry

15 November 2016
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Committee met with various stakeholders who provided comments on and suggested other options around debt relief.

Congress of SA Trade Unions (COSATU) submitted that there were various categories of people who needed to be considered in the debt relief process, particularly vulnerable persons, those who had lost employment, social grant recipients, university students, and victims of criminal and reckless lending. Some debt relief measures would be ideal, but it was not expecting that there should be a complete debt write off. COSATU recognised that debts must be repaid, but it was suggesting that  there should be some form of alternative mechanism, such as extending loans. The problem was that many banks were linking their interest rates to the repo rate, shifting the losses on to the consumer. COSATU felt strongly that loan sharks should be put out of business, by banks becoming more accessible and affordable. The comment was made that although the existing laws are quite progressive, they fell down in enforcement. Some areas of the presentation did not fall under the purview of this Committee.

The Chamber of Mines (COM) is working on its own indebtedness programmes and concluded that debt is a key factor in poor labour relations and unrealistic salary demands by the unions. Over-indebtedness was leading to employee turnover, absenteeism, fraud and on-the-job accidents, and had been cited as a prime reason behind the Marikana uprising. More consumer education was needed, particularly around emolument attachment orders. Some of its initiatives were described, including joint efforts with unions. COM agreed that the legislation was largely good but that more focus was needed on good enforcement. Debt counselling had proven restrictive and unsuccessful. The National Credit Regulator (NCR) should be more effective in respect of reckless lending and affordability assessments. The root cause of debt must be identified through analysis of emolument attachment orders. The COM did not support the proposal for set-off debt from retirement funding. It believed that retrenched workers from the mining and steel sector should be included, was inquiring into debt forgiveness for students, and suggested that no income, no assets debt relief must be explored. ~

Banking Association of South Africa (BASA) did not support the principle of debt forgiveness, pointing out that the foundational principles behind lending were to ensure efficient and lawful lending of money, and to collect repayments, and failure to observe this would have severe consequences. Existing voluntary debt relief measures and current and pending legislative reforms were discussed. These voluntary measures aimed to ensure that the consumer could repay the debt, and a flexible approach was needed. The particular risks to banks from certain scenarios were outlined.  BASA proposed that the uptake and utilisation of Debt Counselling Rules System be prioritised.

Standard Bank set out some of its initiatives and said there should be a clear distinction between purposeful lending and consumption lending. Where children headed households, there would not be repossession of homes, and students were being given grace to repay loans. It was a believer in putting support mechanisms in place to assist people to become self-sufficient.

Members pointed out that many banks do not lend for development and it was suggested that the fundamentals of the banking system had to be strictly observed. It  commented that it seemed that some banks were granting credit too easily and asked how sales in execution were currently managed.

Large Non-Bank Lenders Association noted that it was a voluntary association consisting of members whose products included unsecured loans, credit facilities and developmental credit. Although several measures were being introduced by government, some were not effective. It was suggested that there should not be legislative debt-relief, without a proper assessment of credit providers, and said the NCR research was insufficient.

Debt Counsellors Association of South Africa set out some statistics of who was applying for debt and debt review, and suggested what a successful debt relief programme should contain. It was suggested that it should be compulsory for credit providers to confirm compliance on all certificates of balance statements or when selling books in duplum and minimum expense norms. The DCRS was seen as an effective system, but needed further improvements.

Members asked how the poor could be included in all systems, and how some consumers were still receiving credit whilst under debt review. They were critical of bail-outs at taxpayers' expense. They asked what awareness campaigns were being run. They noted that a subcommittee was looking into the issues and what was being discussed in this meeting was in line with international trade practices. They commented that the linking of rates to repo rates had the effect of shifting the burden to the poor. Members asked if COM informed its laid-off workers of the right to credit life in retrenchment situations, asked the presenters what they would like to see by way of amendments, asked about alleged bribes by Clerks of Court, and what could replace debt counselling as a solution. They asked if people entered debt arrangements for living expenses or for luxury goods. They expressed support for granting greater powers to the National Credit Regulator to declare a credit agreement reckless. Members were against the suggestions for total debt write offs and believed that there was already significant debt relief built into the Act, although most agreed that it did not work in practice for poorer consumers, because the debt counsellors would not make money out of them. They wanted comment on the possible “no income, no assets” approach. The point was made that the demand for credit would not lessen if the banks became stricter. 

Meeting report

Debt relief: engagements with various stakeholders on measures
Congress of SA Trade Unions (COSATU) submission

Mr Matthew Parks, Parliamentary Coordinator, COSATU, noted that COSATU shares the concern of the Committee over high levels of debt in the country. The country is facing challenges of unemployment, poverty, inequality, numerous retrenchments and low growth rates. COSATU is mindful of the fact that the Department of Trade and Industry has made  a number of laws, but is frustrated over poor enforcement.
Marikana was one instance of what could happen when credit laws are not enforced and loan sharks gain a hold. COSATU is trying to look into gaps of existing laws, based on feedback of its members.

COSATU agreed that some debt relief measures would be ideal, but it was not expecting that there should be a complete debt write off. Retrenched workers fall into the category of the most vulnerable people, and most loans have a provision around retrenchments, but COSATU suggested that it might be possible to insist that all loans should encompass also a compulsory affordable retrenchment policy. Social grant recipients are another category of vulnerable persons, but the municipalities are already offering some assistance to indigent households. There is currently a crisis facing the university students and their families who are not able to afford student loans of about R100 000 every year. Another category would be families who have several loans, for house, car, and so forth. Should they default, even by reason of a death or other tragedy, the banks may still attach and sell the property for a fraction of its value, meaning that the defaulter in fact remains for ever in debt. COSATU recognised that debts must be repaid, but it was suggesting that in these circumstances there should be some form of alternative mechanism so that rather than selling under the debtor, there is a possibility for the bank to consider extending the loan.

Another category who need to be considered are victims of criminal exploitation or reckless lending, and through auctions, many people lose their property needlessly as unscrupulous individuals will put the property on auction, where it is sold for a very low price, then the purchaser in the auction will immediately sell at a profit. When banks link their interest rates with the repo rate, it shifts to the consumer, thus depressing the economy. Loan sharks should be put out of business, and therefore banks should become more affordable and accessible so that people do not resort to loan sharks. Banks seem to engage in anti-competitive behaviour in that charges are similar. There is also a worrying income gap seen, where a Chief Executive Officer of a bank will earn millions in a year and a bank teller earns about R200 000 a year. 

Overall, Mr Parks also said that the existing laws are fairly progressive but lack enforcement, and it is disappointing to see that lenders are not being more closely monitored.

The Chairperson remarked that debt relief is an important initiative given the current economy and the situation has to be addressed jointly.

Chamber of Mines submission
Ms Sue Fritz, Deputy Head: Legal, Chamber of Mines, gave an overview of the Chamber's own  indebtedness programme, in which it is working in conjunction with other stakeholders. The Chamber of Mines (COM) established a task team to investigate and determine employee indebtedness in 2013, in recognition that debt is a key factor of labour relations and unrealistic salary demands by the unions. Over-indebtedness was leading to employee turnover, absenteeism, fraud and on-the-job accidents.  More so, indebtedness was identified as one of the key catalysts of the Marikana tragedy. There is a lot of work that has to be done in educating people about on emoluments attachment order. In some instances, employees actually ended up with zero income by the time all the attachments had been deducted.

COM was running multiple initiatives, for instance, on provision of financial literacy training, assistance with legal queries, active exclusion of micro-lenders from the mine properties, and retirement planning workshops.  The Mine Workers Provident Fund also conducted a study on the level of indebtedness of employees. She believed that the legislative reforms that the mining chambers had lobbied for were being addressed.

She shared other presenters' views that the legislation was for the most part good, but there should be more focus on proper enforcement. Debt counselling has not been a successful process, and she rather held the view that if there were to be more focus on preventing reckless lending, debt counselling problems will be avoided. There is sufficient scope for the National Credit Regulator (NCR) to be more effective in respect of reckless lending and affordability assessments.

COM acknowledged the Constitutional Court judgement on section 65J of the Magistrates’ Court Act, which is important in the mining sector. There had been joint initiatives with the unions, which resulted in decreased Emolument Attachment Orders (EAOs), financial literacy, more employees becoming eligible for home loans, and increased debt management by employees.

A significant potential remedy would be to determine the root cause of debt. Unemployment has resulted in increased indebtedness, as well as emergency expenses. Employers should share their EAO audits with the NCR, to identify reckless lenders. Some stakeholders proposed that individuals whose indebtedness exceeded 50% of their monthly income should be subject to a debt review until the debt has been paid, and should not be permitted to access further debt. The COM did not support another proposal for a once-off set off of debt from the retirement fund saying that this was firstly not possible in terms of the law, and secondly would fly in the face of Treasury initiatives on retirement reform.  The COM had noted the suggestion that retrenched workers in the mining and steel sectors should be included and that the Unemployment Insurance Fund (UIF) and NSF should fund the programme. The COM would like to have further details in respect of any student loan “forgiveness programme”, such as applied in the USA, in order to obtain a mandate from members.

She further noted that debt counselling is a costly mechanism not accessible to the poor, and instead the “no income no assets” debt relief has to be explored, where the debtor’s over-indebtedness has resulted from a change of circumstances rather than excessive borrowing. In 2013 Ecometrix undertook a study of the economic impact of EAOs being limited or abolished. It was found that no repayment was costing the economy about R7.9 billion, or 72 800 jobs. The COM noted that it was unable to comment on the economic impact of debt relief measures at this stage, but would have to take the World Bank’s study on India as an example.

The Chairperson mentioned that a sub-committee was established to look into the issues.

Discussion
Mr B Mkongi (ANC) mentioned that what is being done in this meeting is being done is in line with international trade practices. It is a moral and ethical responsibility of any nation to intervene and save the vulnerable. The fundamental issues that COSATU is raising should be taken seriously and he appreciated the references to the relationship between the interest rate and repo rate, as well as resolution to wipe out loan sharks, whom he felt should be criminalised. He noted that Reserve Banks increase repo rates which is then shifted to the poor by the banks.

Mr G Hill-Lewis (DA) enquired whether the Chamber of Mines informs its laid-off workers about their right to credit life. It has been reported to the Committee that many of the employees who were laid off took retrenchment coverage packages, which does entitle them to credit life insurance on their loan. The COM had outlined a number of ways in which relief was already possible, in terms of the National Credit Act. He enquired if it was suggesting that any legislative changes are necessary to improve debt relief, and if so asked for further details. The COSATU presentation covers a wide range of topics, although some of them are not in the purview of the Committee. He asked Mr Parks also if he would like to see any amendments being made in order to assist in debt relief.
Adv A  Alberts (FF +) asked the Chamber of Mines to elaborate on the alleged bribes by Clerks of the
 Court and whether the Chamber of Mines would like the Committee to liaise with the Department of Justice in that regard. He noted the suggestion that debt counselling is not really a solution and asked the Chamber of Mines to elaborate on ways then to improve the system. He wanted to know if there had been any findings about the reasons for entering into debt – if this was purely for survival or in order to purchase luxury items.

Mr N Koornhof (ANC) asked the Chamber of Mines to provide details to access the Econometrix. He asked if there were any studies conducted on how many people against whom action was taken actually do lose their houses and cars.

Mr J Esterhuizen (IFP) remarked that he disagreed with using pension funds to pay off debts. The bad news for the South African economy is that consumers are consistently driven, under the current financial environment, to spend, and then desperate measures are necessary. There is really not much that can be done if a consumer decides to borrow against his or her pension fund. He also believed that debt relief is not an option – the impact of this has already been seen in relation to Ellerines. Over the weekend the media carried an article noting that the Foschini Group mentioned that proof of payment is unnecessary, and this, to his mind, was very surprising.

Mr D Macpherson (DA) noted the comment that loan sharks should be criminalised. He picked up on the comment by the COM about forgiving student debt, and was wondering if the COM was referring to all types of loans, or just to the loans offered by the National Student Financial Aid Scheme (NSFAS). If it was the latter, then the funding available to all students through the Scheme would be severely compromised. His colleague Mr Hill-Lewis had indicated, in a prior meeting, that as a populist reaction the “debt must fall” could become a popularist protest. If this was done along the lines of the proposals by the Department of Trade and Industry (dti) then every single group in the community could be demanding that their debts must be written off. He said that there was a need for extreme caution and he asked how the debate could be narrowed.

The Chairperson noted that the COM had mentioned empowerment and financial literacy. This should have been done when the National Credit Act came into force. She added that it was clear that financial houses had, in their reckless lending, been ignoring the rule of law and the Constitution. The sub-Committee is already looking at the target groups mentioned by COSATU. However, she agreed that some of the areas referred to by COSATU are not in the purview of the Committee.

Mr Parks agreed with Mr Mkongi and Mr Macpherson. In regard to the student loans, he agreed that NSFAS did cater for many students, but there remained the problem of the “missing middle” which was visible in the recent protests. A balanced approach was needed, to avoid collapsing the economy. He thought that debt cancellation should apply for victims of reckless lending and victims of criminal behaviour. Debt relief should be targeted for indigent persons on car loans, home loans and business loans. More so, there should be an appeal mechanism where a consumer defaulted, as well as a similar mechanism applying to auctions. He repeated that loan sharks should be put out of business and banks should be accessible. Anti-competitive behaviour by banks should be looked at as well.

Ms Fritz responded that during financial literacy training, employees are informed of the credit life rights and COM will additionally enquire from employers as to whether that has been dealt with during retrenchment processes. The Chamber of Mines is largely satisfied with the existing legislation, but it dos believe that there should be more focus on enforcement, particularly of section 80 of the NCA. Some of the outsourced companies have reported the Clerks of the Court asking for bribes, although the COM was not in a position to comment on the extent of the figure. Debt counselling had not worked. 11 000 clearance certificates have been issued since 2007, and the COM is therefore not in a position to determine whether it is working well. Indebtedness did go to survival, particularly when individuals maintain more than one home. A study had been done and it had been found that there is a tremendous amount of debt on luxury goods. The Chamber of Mines would prefer an approach to debt relief that has less impact on the economy. The Head of Skills at the Chamber of Mines is looking into studies on debt relief for student loans.

Mr Hill-Lewis said one of the legislative amendments being considered was empowering the NCR by giving it the authority to declare a credit agreement reckless . This would give effect to wider powers in terms of section 80. It would ensure that NCA had wider powers and ensure quicker enforcement than approaching the courts, although in the case of disagreement, the lenders would have an option to approach the court later.

Banking Association of South Africa submission
Mr Cas Coovadia, Managing Director, Banking Association of South Africa, said that the Association (BASA) did not support the principle of debt forgiveness. One of the foundational principles behind lending was to ensure efficient and lawful lending of money, and to collect repayments. Any failure to perform according to these principles will have severe consequences for the industry and economy. BASA’s view on debt relief illustrates the extent of debt relief provided through existing voluntary debt relief measures and talks to current and pending legislative reforms aimed at assisting indebted consumers. The voluntary debt relief measures not provided for in the NCA are the Debt Counselling Rules System (DCRS), payment holidays, debt consolidation, bank assisted sales, bespoke arrangements and settlements campaigns.

The underlying principle of the voluntary debt relief measures offered by the banks is that the consumer is able to repay the debt, or repay in the near future when circumstances changes. BASA is of the view that that it was not possible to set uniform criteria as to a  targeted group of debtors who will be eligible for debt relief, a period over which the debt relief measures will apply or the manner in which debt relief measures must be applied. He emphasised that having flexibility and non-prescriptiveness in respect of the types and application of debt relief measures and debt relief criteria will play a significant role in ensuring a suitable debt relief. A “suitable” debt relief measure should be one that is appropriate to the consumer’s needs and personal circumstances.

He noted that the banking system has, as one of its foundations, an undertaking by borrowers to repay the loans that they obtain from banks. Any compromise to the system will have severe consequences for the industry. Any further pressure introduced by the proposed introduction of legislated debt relief and criteria will add to the negative business environment, with consequences to inclusive growth. In order to maintain financial stability, banks need to demonstrate that they are able to recover monies lent to consumers, thereby ensuring depositor and investor confidence.  Any restrictions on banks’ ability to recover monies lent will result in a loss of revenue and erosion of return on capital for investors. There is a risk of banks incurring a ratings downgrade as a consequence of any reduction vitality to earnings. Foreign outflows are likely to increase even further if debt relief measures and criteria are legislated.  Debt relief will accelerate irresponsible borrowing, and applying standardised debt relief to targeted consumers may be seen as discriminatory and unconstitutional. Consumers who previously repaid their debts could become dis-incentivised. Legislated debt relief measures will also make it impossible for credit providers to adequately price for the risk of consumers, and access to credit will decrease.

BASA proposed that a workable solution would be to increase the uptake and utilisation of DCRS by transfer of ownership to the NCR, management by an independent third party and amendment of the conditions of registration by the NCR, to enforce and increase the utilisation of DCRS.

Standard Bank submission
Mr Thabani Ndwandwe, Head: Retail Banking, Standard Bank, noted that Standard Bank is part of BASA and is of the view that indebtedness of consumers is something to be taken seriously. Standard Bank is in full support of initiatives to resolve the issues. There has to be a clear distinction between purposeful lending and consumption lending. Standard Bank has been involved in multiple engagements with several stakeholders where couple of solutions and suggestions have been put forward. One initiative is that repossession of homes, where children are the heads of households, will not take place. In addition,  those with student loans who cannot find employment are being given grace periods to repay, until they do find employment. Internally, teams have been set up who will assist consumers who are going through difficult times. Standard Bank believes that things can be done without having to enact legislation. It is important to put programmes in place to support retrenched persons, and to assist them into becoming self-sufficient consumers, rather than removing their debt. Standard Bank has put together a fund of R400 million for the Enterprise Development programme.

Discussion
Mr Mkongi  remarked that amongst the issues to be debated is that of selectivity. One of the banking fundamentals is risk control and monitoring of the clients, which goes to the root of who is being given the loans. The question of consumption is a strategic problem in South Africa, in that most of the banks do not lend for development, and for this reason, Mr Mkongi thought that there should be no selectivity on the fundamentals that govern the banking system. Voluntary debt mediation services are unsustainable, because he did not know what might happen if, for instance, one of the banks did not intend to volunteer. He suggested that consideration should be given to compulsory debt relief programme for specific households, based on the categories that looked at sustainability.

Mr A Williams (ANC) noted the comment that if debt relief goes ahead the cost of credit will increase, and he asked why the cost of credit did not increase when the economy collapsed. It appears that this concept is being used as a “threat”. In order to address the problem, the source of the problem has to be identified. The main source of indebtedness in South Africa is the banks. He asked what BASA and Standard Bank think of the “no income no assets” system.

Adv Alberts expressed the view that banks seemingly grant credit quite easily, despite all the legislative interventions, Banks have embarked on an aggressive approach to give credit. He asked what steps banks take when assets are sold in sales of execution, to ensure that the assets are sold for a market related price.

Mr Esterhuizen commented that it would be completely wrong for financial institutions to just write off debt and said that South African financial institutions are already burdened with legislation and regulations.

Mr Hill-Lewis mentioned that when Banks lend money to consumers to purchase a house, the consumers are charged an interest rate that includes a risk premium. However, in South Africa the situation is that there is no risk in home loans, in that even if the consumer does default, the home will be repossessed and the consumer will be liable for the shortfall. He also enquired whether the banks will be willing to take the risk in mortgage agreements.

Mr Hill-Lewis thought the debt counselling process has incredible potential to assist indebted consumers to rearrange their debt, have interests rate reduced to zero and so forth. It is significant debt relief that is already built into the Act. However, it never worked for poor consumers because debt counsellors cannot make any money out of them, so that only the middle income earners in practice had access to debt counselling. He further asked what initiatives banks can take to make debt counselling more accessible for consumers.

Mr  Macpherson remarked that the impression had been created of an “economic Armageddon” and asked if banks are being a-historical. There is a big misunderstanding between the banks and smaller credit providers, which are willing to take more risk than the banks. He asked what was the rate of reckless lending by smaller credit provider,s as opposed to by the banks.

Ms S van Schalkwyk (ANC) asked Standard Bank at what stage the bank decides not to repossess a child headed home, pointing out that there are situations where a home loan is approved just before the death of the parents. She asked what happened to the debt if the home is not repossessed.

Mr Coovadia clarified that the impression that banks are selective in their fundamental principles are not entirely true, in that the fundamentals mentioned pertain to the discussion at hand. If the NCR takes over, DCRS will then make the system of voluntary mediation sustainable. More so, consumers are borrowing money because jobs are not being created, and if banks do not provide the credit, then consumers resort to loan sharks. The demand for credit will not go down if banks do not provide credit. Banks are not creating indebtedness, it is instead the economic environment that is doing so. During the economic crisis, the cost of credit increased, and credit actually dried up because the cost of giving credit became too great. The notion of “no income no assets” is something that BASA is still investigating. Banks have been cooperative with the NCR and dti, to ensure that proper processes are followed before providing credit. Banks are heavily regulated, and therefore cannot give credit too easily. There is work being done on sales in execution.

Mr Esterhuizen  mentioned that the EU is/yet to implement a policy to force banks to build defences, so that before a loan goes sour they have to build in a reserve which will affect their capital.

Mr Coovadia responded that South Africa did not go through a financial crisis, but an economic crisis. There is a system whereby, for certain types of business, certain reserves are required. BASA is of the view that the voluntary mediation system is better than debt counselling. The banking sector needs to look at extension of credit in the context of the global regulatory factors of banks and the economy. If it continues over a period of time, banks begin to be impacted, which may result in a downgrade.

Mr Ndwandwe mentioned that it is not in the interest of banks to engage in irresponsible lending, and there are processes in place to ensure that there is no reckless lending as a result of receiving complaints that they were not lending enough. Realisation of the security of child-headed households is on a case-case basis.

The Chairperson remarked that the BASA presentation speaks of responsible lending and borrowing, but the regrettable fact is that there are both irresponsible lenders and borrowers. She had recently been told about a major bank offering loans to clear up loans, when someone was unemployed. Several financial institutions had ignored the provisions of the NCA.

Large Non-Bank Lenders Association submission
Mr Rudolph Willemse, Chairman, Large non-Bank Lenders Association, explained that this Association (LNBA) is a voluntary association comprising of member entities whose products include unsecured loans, credit facilities and developmental credit. He mentioned that there was very short notice given to appear before the Committee, and therefore he had not had a chance to get detailed mandates. The issue is complex and requires detailed research and consideration. The organisation is compassionate towards the poor and the indebted. There is an existing statutory solution in the form of debt counselling. Several mechanisms are being introduced by government, all of which are directed towards assisting with indebtedness. However, there were many gaps in the legislation, and there were problems which are being resolved through industry task teams. Debt counsellors and the NCR were working through the Credit Industry Forum to make debt counselling effective. DCRS is an important element and LNBA is supporting initiatives in this regard.  Various measures had been introduced by government which had or could impact on over indebtedness, and of these, some had an impact and others did not.  LNBA suggested that there should be no legislative debt relief unless there had been a proper assessment on credit providers. NCR research does not provide a basis to move forward on debt relief. Debt relief must not have the effect of causing additional losses for credit providers. Credit providers have absorbed a considerable impact, and any other further impact will affect credit provider sustainability, economic growth and systemic risk consequences. Credit providers developed mechanisms outside the NCA to assist their customers in paying debt. There is already informal debt relief in the industry and significant amounts of bad debt are written off by the credit industry annually, as a result of non-payment. Debt relief is not a desirable option.

Debt Counsellors Association of South Africa submission
Mr Paul Slot, President, Debt Counsellor Association of South Africa, noted that the Association (DCASA)   is responsible for about 75% of debt applications in the country at the moment. A solution for the high level of household debt in South Africa is needed. Research conducted on 30 000 consumers who applied for debt review found that 92% had a monthly income between R3 000 and R20 000. A high percentage of consumers had not applied for debt review. In a recent survey of 5 500 consumers who have not applied for debt review, it was found that their average income was R15 500, and average spending on monthly debt repayments was 64% of after-tax income.

He noted that a successful debt relief programme should convince consumers in trouble not to consider more debt; show consumers that there is “light at the end of tunnel”; and reward good debt behaviour.  The NCA had a profound and positive impact, but he suggested that it could be improved in various areas. He suggested that it should be compulsory for credit providers to confirm compliance on all certificates of balance statements or when selling books in duplum and minimum expense norms. DCRS is an effective system which has to be improved upon. Usage will improve when the use of DCRS is made compulsory, and all courts accept negotiated repayment plans. The proposed model has to consider fairness to the consumer and credit provider, the financial position of the consumer, the future financial position, immediate debt relief for a consumer without any means to pay, and an investigation on the impact on secured assets and how they should be treated. DCASA was proposing out of court debt relief agreements. Successful implementation of out of court order debt relief will result in a living budget for the consumer, reduced cost of collection, a positive impact on the cost of credit, and will assist with  repayment on non-NCA debt and reduction of consumer debt.

Discussion
Mr Hill-Lewis  remarked that DCASA provided a possible solution to be considered for debt relief. He further asked Mr Slot to explain the ways in which the poor will be included in the system. He asked for clarification on how consumers are still receiving credit while under debt review.

Mr Mkongi remarked that according to the World Bank, nearly all financial crises that had occurred globally had been resolved by bail-outs at tax payers' expense. Information asymmetry is a problem between the credit provider and the borrower.

Adv Alberts asked Mr Willemse to provide figures of the write-offs mentioned in the presentation. He asked Mr Slot to elaborate on how DCASA makes consumers aware of DCRS.

The Chairperson noted that she had not previously been aware of LNBA, and asked for clarification of gaps left by the legislation in the presentation. Losses have been incurred from borrowers, so that it is not only credit providers who are suffering losses. This emphasised the point that there has to be responsible lending.

Adv van der Merwe explained that in duplum rule is to the effect that interest should not exceed the capital of the debt.

Mr Willemse agreed that the poor must be assisted, but that the mechanism is different. It is in the interest of credit providers to inform consumers of credit life.

Mr Slot agreed that poor consumers find it difficult to apply for debt counselling, and a problem around this was the payment of legal fees. The out of court mechanism has been proposed in order to  cut costs. The other problem with low income earners is that they are usually married in community of property, and so it is impossible to get the affidavits signed. In DCRS the credit providers are making concessions in respect of interest rates and fees. DCRS always the first option offered to consumers who are seeking a debt review.

Mr Willemse indicated that he could not get information on the extent of debts written off but he would estimate that for every R100 received by a credit provider, R20 goes towards bad debt.

Mr  Hill-Lewis did not agree with the comment that it was difficult to prove recklessness. This was clearly provided for in the NCA. He saw the problem as being that it would take too long to get the credit agreement declared reckless.

Mr Slot agreed that proving recklessness in itself is not difficult, and the main issue is that it is a long and expensive process.

Mr Willemse noted that until there is full information, there will always be debate.

The meeting was adjourned. 

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