The Department of Trade and Industry (DTI) presented a discussion document on the proposed Draft National Credit Policy Review for Debt Relief and the National Credit Amendment Bill, developed by the Portfolio Committee. In the main, DTI recommended changes to the National Credit Act (NCA) that will allow the Minister to prescribe debt relief measures to over-indebted households from time to time. However, Members made it clear that the eligibility criteria had to come from Parliament, and were against giving the Minister discretion to choose who is eligible for debt relief. Members emphasised the importance of the Bill, noting that it dealt with debt and the burden it places especially on low-income earners and the indigent. The Committee pointed out that the debt relief policy’s purpose was not to inculcate a culture of irresponsible borrowing and non-payment of debt. The intention was to relieve people from the pain of over indebtedness.
The DTI highlighted that the proposed debt relief eligibility criteria may include, but not limited to, debt relief for retrenched consumers, victims of unlawful Emolument Attachment Orders (EAOs), victims of unlawful social grant deductions and victims of reckless credit lending. Remedies should be prescribed to alleviate consumer over-indebtedness resulting from prejudicial behaviour by unscrupulous credit providers. In terms of the initial impact assessment, the State would need to establish a fund reserved for debt relief interventions. The fund would be used to subsidise low income consumers who have to undergo the debt review process. In addition, the fund would be used to partially or fully pay off the debt of qualifying consumers, depending on their circumstances. Credit providers would also need to provide debt relief to over-indebted consumers who have already paid a significant portion of their debt.
The second discussion related to the status of the WTO Trade Facilitation Agreements and updates on on-ongoing trade negotiations. Internal ratification and depositing processes in WTO member states were underway, with South Africa’s ratification processes having been finalised. Further, cabinet approved the establishment of the National Committee on Trade Facilitation (NCTF) as well as South Africa’s categorisation list in April 2017. Also, the simultaneous depositing to the WTO of South Africa’s Instrument of Acceptance of the Protocol was underway, and expected to complete before the end of May 2017. Members asked about the implications of Brexit on South Africa, and if South Africa was exploring other avenues to absorb its trade volumes. DTI said implications would be clearer after the UK completes negotiations and exits the EU. Also, ongoing discussions have been held between South Africa and the UK, and the need to provide certainty to traders and investors on various trade arrangements post-Brexit was stressed.
Discussions on amendments to the Southern African Customs Union (SACU) Agreement to facilitate the implementation of the development integration agenda were on-going. Further, South Africa was to chair the Southern African Development Community (SADC) from August 2017-2018, and focus will be the implementation of the SADC Trade Protocol and the industrial work programme.
Lastly, Members expressed their opinions on the Minister’s proposed appointment of Ms Zodwa Ntuli as Broad-Based Black Economic Empowerment (BBBEE) Commissioner. Members unanimously endorsed the Minister’s proposed appointment of Ms Ntuli as B-BBEE Commissioner.
Briefing by Department of Trade and Industry (DTI) on the proposed policy document on debt relief
Mr MacDonald Netshitenzhe, Acting Director-General: Consumer and Corporate Regulations Division, DTI, said that his presentation would be on the proposed draft National Credit Policy Review for Debt Relief (Policy Review) and the National Credit Amendment Bill, 2017 (Committee Bill) developed by the Committee. The Committee requested the technical support and resources of the dti officials within the Consumer and Corporate Regulations Division (CCRD) to complete a Policy Review and a Socio-Economic Impact Assessment (SEIAS), to assist the Committee in the development of the Committee Bill.
The Department recently introduced numerous preventative measures in an attempt to reduce and prevent future household over-indebtedness. The Affordability Assessment Regulations outline the affordability criteria that credit providers must adhere to and came into effect on 14 September 2015. The reviewed Limitations on Fees and Interest Rates Regulations came into effect on 6 May 2016. The Threshold for Credit Provider Registration was issued on 11 May 2016 to compel the registration of all credit providers regardless of size. The Credit Life Insurance Regulations issued on 9 February 2017 will become effective on 10 August 2017. The impact of these will be assessed, a period of three years from the date of implementation is often considered sufficient for this purpose.
The National Credit Act currently makes provision for debt review as a debt relief measure. Debt relief through this measure is provided to consumers, mainly through restructuring of loans to reduce instalment burdens, reducing interest rates to pre-determined levels and waiving of fees by credit providers.
Further, the Debt Counselling Rules System (DCRS) provides for industry agreed concession rules to be used by Debt Counsellors to assist over-indebted consumers within debt review. Overindebtedness however remains a challenge for many South Africans, specifically amongst the poor, many of whom are unable to afford debt review.
Mr Netshitenzhe said the National Credit Regulator (NCR) commissioned a study on the “Feasibility of a Debt Forgiveness Program in South Africa”. The study highlighted international debt forgiveness case studies including amongst others;
-The “Fresh start” scheme by Croatia for low-income customers with no property and no savings. Municipalities, utility and telecoms providers, tax authorities and banks were required to clear some of the debt and absorb the losses themselves.
-The “Debt Waiver and Debt Relief Scheme to Small & Marginal Farmers” by India for over-indebted rural farmers. Farmers pledged land as collateral, within prescribed thresholds to qualify for either unconditional full debt relief or conditional and partial debt relief subject to repayment of the balance. Government recapitalized the loans written off for the full amount.
-The “No Income, No Assets Debt Relief” (NINA debtors) interventions by New Zealand, England and Wales where debtors are unable to pay their debt obligations due to changes in their (consumer’s) circumstances rather than irresponsible borrowing. Debt relief was granted where a debtor had liabilities, assets, monthly and discretionary income which are less than the prescribed threshold. The debt relief was subject to certain restrictions relating to the debtor’s individual behavior, if the debtor adhered to all requirements of the NINA process then their debts were discharged.
He emphasised that debt relief schemes’ purpose was not to inculcate a culture of irresponsible borrowing and non-payment of debt. The intention was to relieve people from the pain of over indebtedness.
He pointed out that the Committee held engagements with numerous key industry stakeholders on the extent of over-indebtedness, the socio-economic impact on society and measures that could provide debt relief. During the engagements with the Committee, the credit industry highlighted their reluctance for a legislated debt relief process outside of the current existing debt review process and the existing voluntary debt relief measures already in place within the industry.
Other stakeholders, in particular Trade Unions and pro-consumer bodies, did however support debt relief for retrenched consumers with no income and insufficient or no credit life insurance to pay off their debts. They also supported debt relief for victims of child support grant abuses, reckless credit lending and unlawful Emolument Attachment Orders (EAOs), amongst others.
The Chairperson highlighted the importance of the Bill, noting that it dealt with bread and butter issues- debt and the burden it places especially on low-income earners and the very poor.
Mr Siphamandla Kumkani, Director: Credit Law and Policy, dti, emphasised the importance of debt relief measures amid challenges the country was facing such as the high unemployment rate, drought and low economic growth margins.
He said DTI recommends changes to the National Credit Act (NCA) that will allow the Minister to prescribe debt relief measures to over-indebted households from time to time. In its current form, the NCA provides no criteria within which the Minister is empowered to isolate specific over-indebted consumers as the eligible beneficiaries for debt relief measures. The NCA should require the Minister to consult with the credit industry before making any such regulations.
Such criteria may include, but not limited to, debt relief for retrenched consumers, victims of unlawful Emolument Attachment Orders (EAOs), victims of unlawful social grant deductions and victims of reckless credit lending. Remedies should be prescribed to alleviate consumer over-indebtedness resulting from prejudicial behaviour by unscrupulous credit providers. Also, the credit industry should participate and recommend to the Committee the criteria within which the Minister may prescribe debt relief measures.
He highlighted that retrenched consumers are not considered for debt relief. These consumers, whether in possession of a Credit Life Insurance policy or not, are often unable to fulfil their outstanding obligations owing to the loss of income. The DTI proposed that, for retrenched consumers, the NCA should provide for the partial or total extinguishing of the credit obligations and prohibit the collection of the outstanding balance, depending on the duration of the agreement and considering the portion already performed.
Further, victims of unlawful EAOs are not considered for debt relief. Such EAOs are as a result of illegal consents to jurisdiction, criminality by clerks of the courts or due to exorbitant recovery fees beyond the normal rates. The DTI proposed that, for victims of unlawful EAOs, the NCA should prohibit the collection of funds resulting from unlawful EAOs. There should be refunds to affected consumers and a fine or penalty for the unlawful act. Where a debt is written-off, the debt should not be later collected on; as such the writing off should have the effect of completely extinguishing all obligations.
Victims of unlawful social grant deductions are not considered for debt relief. The victims become over-indebted where social grants are unlawfully deducted and used for a purpose which is not intended. The DTI proposed that, for victims of unlawful social grant deductions, the NCA should provide for the total extinguishing of all credit obligations and prohibit collection of the outstanding balance, and there be refunds to affected consumers.
Also, the debt review process does not provide the much needed debt relief to lower income consumers. Debt Counsellors are reluctant to assist low income consumers primarily due to financial issues, as the current fee structure provides no incentive for assisting such consumers. The DTI proposed that the debt review process be incentivised to encourage Debt Counsellors to assist more low income over-indebted consumers.
Mr Kumkani rounded up by indicating that Parliament should consider granting retrospective relief from the date the prohibition provisions came into effect.
Ms Zandile Nkonyane, DTI, took the Committee through the Socio-Economic Impact Assessment Report for the Bill. Debt relief options considered in the initial impact assessment report relate to targeted consumers who would receive debt relief assistance from the State and credit providers. These include partial or full debt discharge for low-income consumers, debt review for low-income consumers and debt relief in unforeseen loss of income.
Ms Nkonyane said in terms of the initial impact assessment, the State would need to establish a fund reserved for debt relief interventions. The fund would be used to subsidise low income consumers who have to undergo the debt review process. In addition, the fund would be used to partially or fully pay off the debt of qualifying consumers, depending on their circumstances. Credit providers would also need to provide debt relief to over indebted consumers who have already paid a significant portion of their debt.
She identified risks associated with the options. These include beneficiaries of debt relief creating new debts, and other consumers who have not benefited defaulting on their repayments deliberately in anticipation of benefiting from the debt relief interventions. The risk would be managed through education and awareness for consumers to act responsibly where credit matters are concerned.
Also, debt relief measures could affect access to credit where credit providers reduce lending to beneficiaries of the debt relief. Debt discharge would reduce revenue of credit providers and this may result in job losses. However, debt discharge would be applied in cases where the outstanding amount does not jeopardise business sustainability.
She said the Committee would need to consider the involvement of other Parliamentary Committees such as the Portfolio Committees on Human Settlements, Social Development, Justice and Correctional Services and the Standing Committee on Finance, amongst others, considering that greater debt relief may be achieved with their involvement and input.
Mr A Williams (ANC) said it appeared as if credit providers; who were actually the source of people’s credit, were getting off the hook. He felt the private sector should contribute to the debt relief fund as well. They must take some responsibility for the over-indebtedness of South Africans. He asked what would happen if people fell outside the debt relief bracket as the eligibility criteria appeared to be very specific. He asked how incentivisation of debt review would be stopped as he felt the incentive scheme could be abused.
Ms P Mantashe (ANC) felt the Committee had to be cautious in subsidising credit providers. She was not comfortable with the provision of having the state being liable for compensation instead of the credit providers who are the beneficiaries of profits from loanable funds.
Ms S Van Schalkwyk (ANC) pointed out the risk of possible job losses. She asked if there was any research in determining the extent of job losses and the severity of same. She highlighted the need for awareness campaigns especially in rural areas as people should know their rights.
Ms L Theko (ANC) asked how DTI was going to address the issue of language as a barrier. She asked if the policy documents would be translated to other local languages so that people read about their rights in own language.
Mr D America (DA) asked about the time period for the provision of debt relief. He asked how sustainable the measures would be in the absence of predetermined and clear timeframes.
Mr Netshitenzhe replied to Mr Williams and said in the main, DTI was proposing a section in the Act that would empower the Minister to isolate specific over-indebted consumers as the eligible beneficiaries for debt relief measures. Therefore there was no timeframe per se. Issues would be dealt with as they arose.
On awareness campaigns, he said DTI was embarking on a sensitisation exercise that would see the programme being taken to communities as per the Department’s annual performance plan. He indicated it would not only be government that would be asked to contribute to the debt relief fund. Credit providers would also be required to make contributions. Also, the NCR would have a robust and strict criteria to prevent abuse of the incentive schemes.
Mr Kumkani said the outlined eligibility criteria list was not exhaustive and prescriptive. An exhaustive list would be compiled in the coming regulations after the passing of the Bill.
Ms Nkonyane said no research had been done in respect of job losses. However, DTI was mindful of the fact that having a full profile of indebted consumers would better inform the debt relief timeframes, and research would be carried out.
The Chairperson asked for the parliamentary legal advisor’s opinion on the DTI’s proposals.
Adv Charmaine Van der Merwe, Parliamentary Legal Advisor, said her understanding was that the Act would provide for certain criteria and guidelines, and empower the Minister to isolate specific over-indebted consumers as the eligible beneficiaries for debt relief measures in the regulations. The task of the Committee would be to set out a clear framework that the Minister acts within. Regulations will be limited by the Act.
Mr Williams remarked that DTI had to understand that this was a Bill proposed by Parliament. The Committee was against giving the Minister discretion to choose who is eligible for debt relief. The Committee had clearly spelt out the eligibility criteria and DTI had to include them in the proposal. He emphasised that the indigent must benefit from the mooted debt relief scheme.
Ms Mantashe emphasised that the policy was directed to the poorest of the poor. She asked if the NCR had capacity to carry out extensive awareness campaigns even in the remotest of communities.
Mr A Alberts (FF+) agreed with Mr Williams that giving powers to the Minister was not the way forward. Members were in contact with people on the ground and had a better sense of people’s needs, and were in a better position to determine the eligibility criteria. He pointed out the need to differentiate between small and big business as it was important not to add an extra burden on small businesses, which could ‘kill’ them.
Mr America was pleased with the eligibility criteria brought forward. He asked about the costs to be incurred in implementing and enforcing the policy. He said a new administrative layer to deal with implementation would have to be put in place to ensure compliance. Existing infrastructure is not geared towards dealing with a flood of applications, and a cost-benefit analysis had to be done.
Mr Netshitenzhe said awareness campaigns were going to be carried out by the DTI and its agencies. DTI had met with agencies to discuss resource-sharing to ensure effectiveness of the campaigns.
He agreed that DTI was there to assist the Committee in drafting the Bill, and the Bill was being crafted by Parliament itself. The suggestion to empower the Minister was not in any way an attempt to usurp Parliament of its determination powers. He identified the need to strengthen awareness campaign strategies around unsolicited credit via SMS and other platforms which entice consumers to borrow irresponsibly.
Ms Nomsa Motshegare, CEO, National Credit Regulator, said the NCR had been to all provinces and continued to engage the public. There was need to provide debt relief without doing away with the culture of borrowing and debt repayment. This would be made possible through rigorous enforcements and consumer education.
Mr Netshitenzhe said the National Credit Regulator was mindful not to kill small business but to encourage their growth by assisting in the creation of a conducive business environment.
The Chairperson said the Committee still had much work to do on the Bill. She emphasised the need for a debt relief eligibility criteria that would best deal with South Africa’s unique challenges.
National Treasury said it welcomed the debt relief policy. However, stakeholders had to be clear about who the policy intends to rescue. National Treasury wants a sustainable credit market going forward.
The Chairperson said the Committee did not want to create an impression that the debt relief policy was meant to reward non-compliance. This was not the case.
Update on WTO Trade Facilitation Agreement (TFA)
Ms Niki Kruger, Chief Director: Trade Negotiations, International Trade and Economic Development Division, dti, gave an update on the WTO Trade Facilitation Agreement. She highlighted that Trade Facilitation negotiations began in July 2004 and WTO members were mandated to clarify and improve GATT Articles V (Freedom of Transit), VIII (Fees and Formalities connected with Importation and Exportation), and X (Publication and Administration of Trade Regulations).
Currently, internal ratification and depositing processes in WTO member states were underway, with South Africa’s ratification processes having been finalised. Further, cabinet approved the establishment of the National Committee on Trade Facilitation (NCTF) as well as South Africa’s categorisation list in April 2017. Also, the simultaneous depositing to the WTO of South Africa’s Instrument of Acceptance of the Protocol and South Africa’s Category A commitments process was underway, and the process was expected to be complete before the end of May 2017.
The Chairperson pointed out the importance of WTO negotiations for South Africa. It was a matter of great concern that some sections do not see the importance of trade as an instrument in transforming developing economies.
Ms Mantashe asked about the implications of Brexit and the US president’s attitude towards the WTO on South Africa. She asked if South Africa was looking into other avenues to absorb its trade volumes.
Ms Kruger replied that implications would be clearer after the UK completes negotiations and exits the EU. Ongoing discussions have been held between South Africa and the UK on the need to provide certainty to traders and investors on various trade arrangements post-Brexit and how excess export volumes would be absorbed.
Update on South Africa’s Trade Negotiations
Ms Niki Kruger highlighted that discussions on the amendments to the Southern African Customs Union (SACU) Agreement to facilitate the implementation of the development integration agenda were on-going.
She noted that South Africa was to chair the Southern African Development Community (SADC) from August 2017-2018, and focus will be the implementation of the SADC Trade Protocol and the industrial work programme.
Further, Instrument on Movement of Business Persons (MBP) was being negotiated. An inter-departmental taskforce, with the Department of Home Affairs (DHA) leading the negotiations, and DTI and Department of Labour providing technical support to DHA were underway. The aim was to finalise Instrument by June 2017.
Mr America asked if there was any intention to have an Africa-wide free trade zone through engagements with other blocs such as the Economic Community of West African States (ECOWAS). He asked about the impact of Brexit on South Africa’s trade deficit.
Mr Williams asked if South Africa was currently a signatory to agreements that put it in a less favourable position, and when such agreements expired.
Ms Mantashe asked how the Economic Partnership Agreements affected African regional integration.
The Chairperson asked Ms Kruger to respond on a later date due to time constraints.
Briefing by the DTI on the appointment of the Commissioner of the Broad-Based Black Economic Empowerment (BBBEE)
The Chairperson asked Members to express their opinions on the Minister’s proposed appointment of Ms Zodwa Ntuli as Broad-Based Black Economic Empowerment (BBBEE) Commissioner.
Mr Lionel October, Director-General, DTI, indicated that due process was followed in finding a person suitable for filling the position of B-BBEE Commissioner. DTI received 66 applications, with none of them meeting the required criteria. It embarked on a head-hunting exercise within government departments and entities, then a decision was made to second Ms Ntuli, the Deputy Director-General for Consumer and Corporate Affairs for the position. In 2015, Ms Ntuli was fully endorsed as Acting Commissioner, and DTI was asking for confirmation to appoint her permanently as she was carrying out her mandate effectively.
Ms Mantashe said she interacted with Ms Ntuli on various occasions during parliamentary engagements and had no reservations with her proposed appointment as B-BBEE Commissioner.
Mr America said the Democratic Alliance was in support of the confirmation of Ms Ntuli.
Mr Alberts said he knew Ms Ntuli as a conscientious and hardworking person, and appropriate to occupy the position.
Ms Theko said she knew little about Ms Ntuli, as she was new to the Committee but was in support of the Committee’s decision.
Ms Van Schalkwyk said Ms Ntuli had proven her competence and has excellent credentials. She supported her appointment.
The Chairperson affirmed the unanimous support by Members of the Minister’s proposed appointment of Ms Zodwa Ntuli as B-BBEE Commissioner.
The meeting was adjourned.