The Committee received submissions from the Black Sash, Summit Financial Partners, and the National Clothing Retail Federation of South Africa (NCRF), on debt relief measures to deal with over-indebtedness in the country.
The Black Sash said that the impact of the credit market on the quality of life of the poor had for decades been deteriorating, and was a deeply concerning issue. The level of debt may have been under-reported, because submissions by the Banking Association of South Africa (BASA) had not included SA Social Security Agency (SASSA) beneficiaries, who held 10 million bank accounts involving 17 million beneficiaries, and 22 million persons, according to biometric data. SASSA beneficiaries had not had a choice when the EasyPay cards had been introduced. Only 40 000 of the 9.9 million SASSA beneficiaries had their own bank accounts into which money could be directly deposited. SASSA beneficiaries were at risk of paying unnecessary deductions from their SASSA bank accounts.
Summit Financial Partners submitted that the National Credit Act of 2005 had many measures that provided consumers with debt relief, but it was poorly enforced or not considered. The inability of the National Credit Regulator (NCR) to enforce effective remedies within the NCA, the low number of cases referred to the National Credit Tribunal (NCT) and the even lower success rate of such cases heard at the NCT, needed to be investigated. The weak Regulator was the problem, and not the Act.
Summit urged that the powers, role and involvement of the NCR be reduced for greater enforcement of the current NCA.
The NCRF represented six large clothing companies: Mr Price, Queenspark, The Foschini Group, Woolworths, Edcon, and Truworths. Credit on retail was often the first line of credit that a consumer sought out. If consumers did not pay their retail credit accounts, there was a dual negative impact for retailers, as they lost money on credit that had been granted, as well as a loss of profit on the merchandise. Debt relief measures were not provided for in the NCA, and these therefore needed to be personalised and customised, as well as a debt counselling rules system implemented.
Mr A Williams (ANC) gave a report from the sub-committee on debt relief, which had met on November 16 and 23, and had engaged with various stakeholders. At the last meeting, they had met with the Debt Collectors Association of South Africa and the African Bank for clarity on inputs they had presented to the sub-committee during a recent public hearing. The African Bank had developed a voluntary debt relief programme that would help indebted people to overcome debt through debt relief counselling, and they would pay for such counselling. The sub-committee would go through a memorandum for ways to address debt relief in the country, and it would be presented to the Portfolio Committee next week for adoption.
The Chairperson asked if it was possible for Mr Williams and his sub-committee on debt relief to give the Committee timeframes.
Mr Williams said the Subcommittee would be meeting on 29 November and 30 November.
Black Sash presentation
Mr Elroy Paulus, National Advocacy Manager: Black Sash said that in 2014 he had presented to the Committee on the amendments to the Credit Act Policy Review Framework. At that time the National Credit Regulator (NCR) had reported a total gross debt of R1.33 trillion, and in just four years the amount had increased by almost 25%.
The impact of the credit market on the quality of life of the poor had for decades been deteriorating and was a deeply concerning issue. The lack of access to credit and also the exploitation by those with economic power over people who either struggled to access credit, or were struggling to cope with debt payments, had been phenomenal and unprecedented. This was before the Cash Payment Services (CPS)-SA Social Security Agency (SASSA) contract had been declared constitutionally invalid.
Mr Paulus said that debt may have been underreported, because in both submissions by the Banking Association of South Africa (BASA), their presentation had not included SASSA beneficiaries who held 10 million bank accounts, involving 17 million beneficiaries and 22 million persons. These figures were according to biometric data.
The SASSA card and the EasyPay card had both been designed by Grindrod Bank. The SASSA card could be used only at Grindrod facilities, since they had the technology to access it. The EasyPay Everywhere card could be used at any till point, and most SASSA beneficiaries had either been forced or unknowingly transferred to the EasyPay Everywhere cards. It was a SASSA-branded CPS-Grindrod-MasterCard bank account. CPS was owned by Net1, and Net1 also owned Moneyline, Manje Mobile Solutions, EasyPay, Smartlife and other companies, thereby making SASSA beneficiaries at risk of unnecessary deductions. These subsidiaries, and other third parties, benefited from disputed deductions off SASSA bank cards that included loans. The nature of the bank accounts was such that all SASSA beneficiaries were at risk. It was very difficult to close the EasyPay bank accounts and revert to the SASSA bank accounts, but Black Sash was serving on the Ministerial task team to tackle the deductions from SASSA beneficiaries.
It was imperative to establish whether the statistics reported by BASA also included reported data from Grindrod Bank, which was part of the Payments Association of South Africa (PASA). Further evidence or intelligent guessing would show that it seemed as if Grindrod Bank was “flying under the radar,” because respected reporters had listed the five big banks, and Grindrod Bank did not feature. Grindrod Bank should have been the second biggest bank on those lists, in terms of retail customers.
SASSA beneficiaries did not have a choice when the EasyPay cards were established. Only 40 000 of the 9.9 million SASSA beneficiaries had their own bank accounts into which money could be directly deposited.
In conjunction with other government entities, such as the National Treasury, Black Sash suggested that the Committee work toward preventing reckless lending, especially where there were no affordability tests, or other National Credit Act (NCA) violations were taking place.
Mr Paulus said that the corruption taking place in the banking sector was sky rocketing, while the majority of the population who were SASSA beneficiaries ended up in debt.
With regard to legal and other challenges that could arise, Black Sash commended the Committee for facilitating public participation in the law making process. Legal challenges could include providing the NCR with more capacity to ensure the effective Implementation of the NCA.
Key recommendations included:
- Request Grindrod Bank, Net1, Cash Paymaster Services, SASSA and DSD to present their initiatives at reducing indebtedness amongst SASSA beneficiaries, and ask what they are doing to stop fraudulent, illegal, unlawful and immoral deductions.
- The Committee investigate EasyPay Everywhere accounts and the circumstances under which grant beneficiaries were conscripted.
- Develop a framework and plan to indicate their plans for further legislative reform.
- Prioritise policy amendments to strengthen authorities.
- Offenders to be criminally charged.
- Develop responses that respond swiftly to practices that create great harm.
- Ensure that a rights-based approach, and the tenets and constitutional imperatives, trump market concerns and the concerns of only the privileged and elite.
Summit Fnancial Partners presentation
Mr Clark Gardner, Chief Executive Officer (CEO): Summit Financial Partners, said that out of 85 million outstanding credit accounts, 31% of those were in arrears. Summit aimed to present on enforcing laws for debt relief.
Statutory debt counselling remained crucial for addressing many of the debt cases in the country. According to 2007 statistics, 700 000 people had applied for debt counseling. People needed to be able to walk into court and present their case that they were indebted, and that they had measures in place to pay their debt. Approximately 10 million consumers were not accessing debt relief solutions.
Unsecured debts varied by year because of the up-front initial fee that was paid at the starting month, and the legal fees for indebted people alone tended to exceed the debt, and therefore people could not pay off their debt.
The National Credit Act of 2005 had many measures that relieved consumers of debt relief, but these were poorly enforced or not considered. The National Credit Regulator (NCR) should be analysed and not necessarily the NCA. The inability of the NCR to enforce the effective remedies within the NCA, the low number of cases referred to the National Credit Tribunal (NCT), and even the lower success of such cases heard at the NCT, needed to be investigated. The weak regulator was the problem, and not the Act.
A proposed solution included enforcing action against reckless lending more effectively. If there was no change in circumstances and a consumer could not afford their debt instalments, then one of the consumer’s lenders was guilty of reckless lending. If the reckless loan was challenged, then the consumer would be able to afford the remaining credit obligations.
The credit provider was guilty of reckless lending, according to section 80 of the NCA, if they failed to conduct an assessment required by section 81 (2), or if they conducted an assessment and entered into the credit agreement, despite the fact that the preponderance of information available was that the consumer did not understand or appreciate that the risks, costs or obligations, of entering into the credit agreement would make the consumer over-indebted.
The remedies available when challenging reckless lending included:
- If reckless lending was because of not conducting a proper assessment or entering into an agreement where the consumer did not generally understand the risks, the tribunal could set aside all or part of the consumer’s obligations under the agreement, or suspend the force and effect of that agreement until a certain date;
- If it was reckless as a result of entering into a credit agreement that resulted in an over-indebted consumer, then the court or tribunal could suspend the force and effect of the credit agreement until a certain date, and restructure the consumer’s obligations under any other credit agreements.
These remedies meant that the consumer would have reckless loans written off in full, or parts of their debts owing being suspended until a date that it became affordable to repay.
As an example, Mr Gardner said he was dumb-founded by the withdrawal of Capitec’s referral to the tribunal, on the back of Summit’s complaint, without any explanation or involvement requested. Summit had urged the NCR to provide notice of the referral subsequently, to allow them the opportunity to approach the tribunal directly, but with no response to date. This meant that Summit could not access justice in those cases, as any civil claim required an NCT certificate confirming the breach of the NCA. No person could approach the NCT without first initiating a complaint, allowing the NCR to refer the case to the NCT. Summit could not pursue the NCT without a notice of non-referral.
The greatest hindrance to holding credit providers accountable to harmful and unlawful behaviour was the need to make use of the NCR. Summit desperately required that the powers, role and involvement of the NCR be reduced for greater enforcement of the current NCA, and not to increase such powers.
Summit was urging the Committee to allow them to enforce the NCA and provide effective and sustainable debt relief through challenging the reckless lending by:
- Creating an easily determined affordability rule for unsecured personal loans;
- Reducing the involvement of the NCR and increase direct access to the tribunal and civil claims at any court;
- Allowing any third party to approach the NCT with credit provider behaviour, processes or similar to obtain a declaratory on whether it was reckless or not; and
- To ensure credit providers were guilty of a criminal offence when refusing to provide consumers with credit agreements.
Mr Gardner said that the inherent weakness with statutory debt counselling was that credit providers were treated the same as those who initially provided the debt.
Mr Williams said that he welcomed the Black Sash presentation, and that the Committee would call Grindrod Bank and Net1 to present to the Committee and explain their situation. He said that Summit was implying that current legislation should be enforced, but also that regulators should have reduced powers. He was not sure what Summit was implying, because if regulators had reduced powers, how could they enforce legislation?
Mr G Hill-Lewis (DA) said that the Committee was considering a piece of amendment legislation, which had been the purpose for the invitation for stakeholders to present to the Committee. To his knowledge, the consideration was to propose a general laws amendment bill that amended several pieces of legislation with one law. Some of the submissions by the Black Sash did not speak directly to trade and industry, but to other departments within government.
He said that the picture Mr Gardner presented was ‘angering’ or ‘infuriating,’ and what the Committee was considering was transferring some of the powers from the NCT to the NCR so that the identified bottleneck was addressed. The Committee was aware of the meltdown of service delivery by the NCT and the response there, so the Committee was seriously considering some transfer of powers so that the consumer could go directly to the NCR.
He was confused that Summit was saying they did not want amendments to the legislation, since sections 80 and 81 were empowering and well written, but that they were dissatisfied with the services they were receiving from the NCR and the NCT. The Committee was also dissatisfied with the services, and would rather propose realigning the division of responsibilities between the NCR and the NCT. As much as he was a fan of section 80 and 81, it was clear that if a consumer lied, it was considered a full and complete defence, but Summit disagreed. He wanted to know why Summit was against that section.
Mr N Koornhof (ANC) asked if the Black Sash had laid criminal charges against people who used SASSA funds to pay off loans. Why was Summit picking on Capitec Bank only, as if other banks were perfect? He asked Summit if they were a non-governmental organization (NGO), if they were funded by other people to carry out their job, or if they sold services to the public and what services those were.
Mr B Mkongi (ANC) said all the third parties that had been implicated in Black Sash’s presentation should be requested to present to Parliament.
He said that when people died, the money remained with the banks, and he asked if that money could back-tracked to 1960, for instance, to pay for outstanding debts. How much did Summit charge a consumer for taking their case? What kind of speak-out campaigns did the Black Sash envisage?
The Chairperson said she would like a balanced approach to the recommendations that Black Sash had made -- rights being balanced with responsibility. She asked Summit for specific examples instead of the broad examples they had given during their presentation
Black Sash response
Mr Paulus said that with regard to a balanced approach, in court matters they often defined human rights. It was about using the spirit of the law, and the implementation of human rights did not often occur. The Black Sash had tried to lay criminal charges once, and the resolution had been that the lawyers from both sides had reached an agreement and the case had not gone to court. He said that the knock-on effect of bad behaviour did not affect only the poorest of the poor, but it also the national economy.
Ms Colleen Ryan, Regional Manager: Western Cape, Black Sash, said that the speak-out campaigns involved engaging with communities as well as through citizen-based monitoring of SASSA sites. At present, they were monitoring ten SASSA sites. The speak-out campaign was called “Hands Off Our Grants.” It was only through engagements with communities that they found out about such cases.
Mr Gardner said that the law disempowered consumers, because it was not delivering the services they were supposed to be delivering to consumers in debt. The NCR was not fulfilling its role and Summit would like direct access to the NCT, or to engage with the courts directly.
He had referred to no change in the law because he saw a trend of hiding behind laws, and if they were not enforced then they were not useful. He was proposing the right laws which were not ambiguous.
Summit was a profit organization, and a consumer could retain them and pay them only for services offered, or for providing protection, as well as offering solutions for debt relief.
Although he was targeting Capitec, he was aware of all the different lenders and credit facilities. Targeting Capitec was purely because of the volume and harm that was taking place at those institutions. Summit would like right laws that were easily enforceable. At the moment, Summit was required by law to access a civil claim in court, and by the cutting of powers, they would like to have access made easier.
Mr Hill-Lewis said that he would like to see Summit challenging 10 000 cases per month.
Mr Williams said that the Committee would need to invite Grindrod Bank, Net1 and other parties to present to the Committee, as well as invite Black Sash to be present at that meeting.
The Chairperson thanked Summit Financial and Black Sash for their presentations.
Mr Hill-Lewis asked where the NCR delegates were.
Ms Wendy Appelbaum, Owner and Chairperson: De Morgenzon Wine Estate, said that one of the biggest problems was the NCR. There were volumes of complaints to the Public Protector about the NCR. Nnothing happened at the NCR and she often wondered if the CEO, Ms Nomsa Motshegare, even reported for work.
The Chairperson said that that issue had been addressed, and Ms Appelbaum had not been present. An apology had been forwarded to the Committee in Ms Appelbaum’s absence. The Chairperson said that Ms Motshegare had been present at Committee meetings many times.
A representative from the NCR said that the NCR executives were debriefing the Minister on Trade and Industry via video conferencing on the way forward.
National Clothing Retail Federation of South Africa (NCRF) presentation
Mr Michael Lawrence, Executive Director, NCRF, said that the federation represented six large clothing companies: Mr Price, Queenspark, the Foschini Group, Woolworths, Edcon and Truworths.
Ms Jane Fisher, Managing Director: Financial Services, the Foschini Group, said that credit on retail purchases was often the first credit line that a consumer sought out. If consumers did not pay their retail credit accounts, there would be a dual negative impact for retailers, as they lost money on the credit that was granted, as well as a loss of profit on merchandise. It was in the best interests of retailers to offer debt that was affordable for consumers, as well as personalised and customised payment options.
Debt relief measures were not provided for in the NCA and therefore these should be personalised and customised, as well as a debt counselling rules system. Debt relief considerations, with the implementation of any new measures, should include responsible credit, voluntary processes, credit bureaux and consumer obligations. Responsible credit lending helped consumers and helped to grow the economy. There were different reasons for consumers becoming over-indebted, and the legislation needed to allow for customised and personalised repayment solutions to be implemented, as opposed to a prescriptive set of measures.
The No Income, No Asset (NINA) debt relief concept was not currently provided for in the NCA. This concept had been implemented only in England, Wales and New Zealand. In South Africa, retailers had an active role in the lending of credit to both the formal and informal markets, which was a different market to where NINA was currently being applied. The size of the informal market in South Africa would make it difficult for consumers and credit providers to prove who would be eligible for NINA. NINA was therefore not appropriate for the South African market.
The NCA covered all aspects of responsible credit lending, and legislated remedies existed for customers if they became over-indebted. Government-funded debt relief programmes that offered relief to a predetermined group of customers had been shown to have had the unintended consequence of changing the behaviour of the group affected. Customised debt relief solutions were required at an individual customer level.
Mr Koornhof asked if NCRF went into business with other banks in order to offer credit, or if they offered credit to consumers themselves.
Mr Williams said that clothing retail companies were the biggest sources of debt. He said that retail companies were recklessly lending money to consumers, and credit was often increased without the permission of consumers.
Mr Mkongi asked if the NCRF thought it was reckless for clothing companies to hold exhibitions at universities and schools, since the consumers there were students who often had to pay student loans. How was the NCRF dealing with reckless lending?
The Chairperson said that the sub-committee looked at criteria, debt caps and ideas, and the aim was not to incentivise debt but rather to follow cases.
Mr Hill-Lewis referred to the matter of the court challenge, and said it seemed inexplicable that some retailers would like to offer credit to consumers without wanting to know their personal information.
Ms Fisher said that the NCRF was not underwritten by any bank. They were credit providers themselves. Credit facilities were not easy to obtain and consumers had to go through an affordability process. Students and other groups took up credit in order to establish a record of good payment behaviour, but the NCRF was very careful about how they gave loans to students.
Ms Fisher said that formal markets were cases where consumers had bank statements and retail stores could follow a record of stable income. Informal markets included street traders, or any person who the retailer would not be able to identify easily where their income was coming from.
With regard to the court case, the NCRF was committed to responsible lending and that was why the clothing stores which were not requesting personal information before offering credit were being taken to court.
Mr Gary Barnard, Divisional Director: Credit, Truworths, said most people took a face value approach to their understanding of credit. There were massive unintended consequences of face value decisions when dealing with debt involving many sectors of the community.
The Chairperson thanked the NCRF for their presentation.
Mr Hill-Lewis said that it would be helpful for Members to attend a workshop hosted by the Universities of Cape Town and the Witwatersrand on 6 December.
Consideration of minutes
The minutes of 11 November 2016 were adopted, after Mr Mkongi had explained that he had attended the meeting but had not signed the register.
The minutes of 17 November 2016 were adopted with no amendments.
The meeting was adjourned
- Summit financial wellbeing for life – Debt relief measures to deal with over-indebtedness
- Micro Finance SA proposal – Debt relief measures to deal with over-indebtedness.
- Black Sash Submission – debt relief measures to deal with over-indebtedness.
- National Clothing Retail Federation of South Africa – Debt Relief Measures to Deal with Over-indebtedness.