The Committee invited the Members of the Portfolio Committee of Arts and Culture to join it for a briefing by the Department of Trade and Industry (DTI) on the Copyright Amendment Bill and the Performers Protection Amendment Bill. It was also briefed by the National Treasury on debt relief.
The DTI provided the background leading up to the amendments to the Bills. Due to a public outcry from the creative industry in 2009, the President had convening a meeting with representatives from the industry to discuss why South African artists were still economically impoverished, whereas the creative arts was a significant economic driver in other countries. The issues relating to the collective societies in the music industry stood out. The Minister of Trade and Industry had established a Copyright Review Commission (CRC), headed by retired Judge Ian Farlam, to investigate the collective management of musicians’ rights. A report by the CRC made the recommendations which later informed the 2013 Policy on Intellectual Property.
Internationally, the Beijing Treaty on Audio Visual Performances governed issues of rights related to the audio visual arts. The DTI would be seeking consent from the Committee in order to solicit South Africa’s membership to the Treaty. The Amendment Bill would address issues such as repeat fees for material replayed in subsequent years, with only the author and the directors being paid continuously, and the actors being left out. The Farlam Commission had observed that the contracts between the musicians and the users of their art were unfair and economically exploitative on the musicians due to their lack of organisation and bargaining power. It had been recommended that the Minister should provide for certain minimum requirements in such contracts. There was a need to regulate “needle time” and collective societies, and also to update the standards of protection to the level of those provided by various international bodies and implemented in other countries.
The Bill proposed various amendments, such as an increased list of definitions, the scope of the Bill, a general exception with regard to fair use for educational institutions and galleries, and the establishment of an Intellectual Property Tribunal. However, it was noted that the Bill did not repeal any existing legislation related to copyright law.
The Performance Protection Bill proposed similar amendments in the definition section. It provided for the right to receive royalties for any transfer of rights to which the performer had consented. It also provided for the equitable remuneration of the performer, composer or producer of a phonogram. The Bill sought to strengthen the position of performers in the audio visual industry by giving a clearer legal basis for the international use of audio visual productions.
Concern was expressed that some Members without a legal background may not be in a position to appreciate what the new Bill proposed, and the DTI should provide a more detailed analysis in the future. The Department had also highlighted only those areas where it would need funding, but had failed to provide any financial estimates relating to the implementation of the Bill. The Committee stated that it would not be in a position to pass the Bill without being informed of the cost implications for its implementation.
National Treasury highlighted a number of issues to be considered when dealing with debt relief. These included the need for banks’ debt relief to go beyond making accounting provision for losses, and that there should be recognition that the National Credit Act was adequate and needed only be used effectively. It also focused on the need for action against the various abuses involving debt collectors, and against financial institutions which rigged auctions to the detriment of those who were indebted. It proposed that international case studies on how debt relief had been implemented should be considered, and said that systemic risk should not be an excuse for doing nothing, or doing too little.
A committee was currently working with the Department of Justice (DoJ) on the Debt Collectors Amendment Bill and the Courts of Law Amendment Bill to amend the Magistrate’s Court Act, which had recently been approved by the Portfolio Committee. The National Treasury was also working on the Insolvency Bill with the DoJ. It was noted, however, that there should be follow-up programmes for over-indebted people, with the objective of offering them the necessary counselling to empower them financially to manage their finances better. All parties found complicit in procuring and effecting illegal garnishee orders, especially those in regulated professions such as attorneys, should be reported to their respective professional bodies for disciplinary action. There was also a need to develop more specialised statistical data on indebted consumers in order to identify the cause of indebtedness and develop an appropriate response for each category of individual. A database for individuals going through debt relief should be created to make credit providers aware of their financial status and limit any future loans to those who were over indebted.
The Chairperson welcomed the Members of the Portfolio Committee on Arts and Culture to the meeting, and thereafter invited the Department of Trade and Industry (DTI) to make a presentation on the Copyright Amendment Bill.
Department of Trade and Industry (DTI) on the Copyright Amendment Bill
Mr MacDonald Netshitenzhe, Acting Deputy-Director General (ADDG): Consumer and Corporate Regulation Division (CCRD), DTI, said that copyright, as intellectual property (IP), was a work of the mind. IP was divided into two main domains, copyright and industrial property, such as patents, trademarks, designs and geographical indications. In other countries, copyright and related rights were normally under the purview of the Department of Education or the Department of Arts and Culture. In South Africa and at the World Intellectual Property Organization (WIPO), both copyright and industrial property were collectively classified as intellectual property. South Africa had the Copyright Act and the Performers’ Protection Act, but in other countries, copyright was considered as a sub-chapter under performers’ protection.
In 2013, the draft policy on Intellectual Property was published, having received 118 written submissions on the policy and 112 submissions on the Copyright Amendment Bill. There had been a public outcry from the creative industry in 2009, which had led to the President convening a meeting with representatives from the industry to discuss on why South African artists were still economically impoverished, whereas the creative arts was a significant economic driver in other countries. It was then agreed that each government department should do whatever it could, within its mandate, to alleviate the plight of the creative industry.
The issues relating the collective societies in the music industry stood out. The collective societies were organisations formed with the mandate of giving musicians bargaining power when negotiating with stakeholders in the music industry. The Minister for Trade and Industry had established a Copyright Review Commission (CRC), headed by the retired Judge Ian Farlam, to investigate the collective management of musicians’ rights. A report by the CRC had made the recommendations which later on informed the 2013 policy on Intellectual Property.
The DTI had also addressed issues relating to the audio-visual arts in South Africa. Internationally, the Beijing Treaty on audio visual performances governed issues relating to rights pertaining to audio visual arts. The DTI would be seeking consent from the Committee in order to solicit South Africa’s membership to the Treaty.
The Amendment Bill would address issues relating to repeat fees where, for example, when movies were replayed in subsequent years, only the author and the directors got paid continuously and the actors were left out. The Farlam Commission had observed that the contracts between the musicians and the users of their art were unfair and economically exploitative of the musicians. It was recommended that the Minister should be given certain minimum requirements for such contracts.
In 2010, the DTI had commissioned a study through the WIPO to research the benefits coming from the copyright-based industries in South Africa. It had been observed that in the United States of America (USA), copyright-based industries contributed to 11% of the country’s GDP and endured even when the country’s economy was declining. It was noted that with the correct implementation of support systems, the industry could lead to a 5% increase in growth. However, the industry lacked funding for the support structures due to a lack of statistics showing the industry’s direct contribution to the economy, which would have justified any significant budgetary allocation towards the enforcement of copyright. The lack of economic statistics also presented a challenge when persuading the government and police to dedicate resources towards enforcement.
With the exception of video and cinematographic works, copyright in works accrued automatically without the need for registration if the author was also a qualified person. In the USA, they had resources and could register all types of copyrightable works, but South Africa lacked adequate resources for registration. There was, however, a voluntary registration where authors could deposit copies of their books in a central database which would thereby allocate an International Standard Book Number (ISBN) for the book. However, this form of registration was not required by law.
The duration of copyright in South Africa was for the lifetime of the author, plus 50 years after his death. However, other countries had provided for up to 75 years after the author’s death. A copyrightable work had to be original and reduced to a material form, such as reduced into writing, produced, recorded, or represented as digital data. Copyright was transferable through assignment in writing, and signed by the assignor.
Performers’ Protection Amendment Bill
A lot of music was being transferred upon payment of a one-time lump sum amount to the musicians, thus creating a problem. The Performers’ Protection Amendment Bill had three categories of related rights -- performers such as actors, musicians and dancers; producers of phonograms; and broadcasting organisations.
Statistics had shown that musicians earned their income mainly through live performances. The Bill did not in any way restrict or affect the rights provided by any other law relating to copyright in literary and artistic works. It guaranteed that royalties would be paid to the owner of the copyright for performances, depending on agreed contractual terms.
However, due to the lack of bargaining power, musicians and other creative artists were vulnerable to exploitation. The concept of “needletime” royalties had emerged during the gramophone period, and was to the effect that artists were to be paid every time their work was used. Due to the poorly drafted contractual agreements, artists did not get paid, as the lack of regulation of needletime created an environment whereby local music was played by broadcasters without any payment to the artists.
The lack of organisation in the sector through collective societies compounded the problems faced by the artists. The Farlam Commission recommended that there should be some form of formalisation to enable artists to access resources better at the national or provincial level.
Counterfeits and piracy remained a significant challenge to the creative industry. However, most of the abusers were not necessarily the ones in the street, but large corporations. The sale and distribution of infringing copies of copyrighted works was also a significant challenge, as it deprived the artists of potential revenues. There was a need to recognize the importance of payment of royalties to artists through the recognition of their moral and economic rights. Membership of international treaties would allow artists to benefit from the concept of reciprocity. Reciprocity allowed for the expatriation of revenue earned from the consumption of intellectual property in a foreign country, to the country of origin, allowing the artists to financially benefit from foreign revenue.
The Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement, the WIPO Performances and Phonograms Treaty (WPPT), the Rome Convention for the protection of performers, producers of phonograms and broadcasting organisations, and the Beijing Treaty for Audio Visual Performances (BTAP), among other conventions, informed the provisions of the Bill. However, South Africa was not a member of some these conventions, and it therefore needed to ratify the treaties.
Other conventions that informed the Bill were the WIPO Copyright Treaty, which deals with the protection of literary and artistic works such as writings and computer programmes, original databases, and musical works, among others; the Marrakesh Treaty, which dealt with the facilitation of access to published works for persons who were blind, visually impaired or otherwise; and the Berne Convention, which dealt with the protection of literary and artistic works.
The Bill sought to adopt what was being done in other countries such as France, the USA and Kenya, among others. Therefore, the Committee should facilitate the ratification of these treaties. There was a need to recognise the issues relating to broadcasters and recording companies, as there had to be a balance. There should also be empirical studies showing what was happening in the country.
Clauses of the Bill
Ms Meshendri Padayachy, Deputy Director: Intellectual Protection Law and Policy, Consumer and Corporate Regulation Division (CCRD), DTI, said that the definition section of the Act had been amended to add on more definitions, such as a person with disability, accessible format copy, audio visual fixation, and copyright management information, among others.
Clause 2 of the Bill described the scope of copyright protection which lists the works that were not protected by the Copyright Bill. It was informed by the Digital Treaty, otherwise known as the WIPO Copyright Treaty. The Bill also amends section 6 of the Act relating to state-funded intellectual property. This basically addresses issues relating to the state’s access to its funded, controlled or directed intellectual property. It would create a pool whereby the state would have open access to such intellectual property without infringing on copyright. This was in line with the constitution, as intellectual property was property and therefore there should be a register that the state funded.
Clause 4 of the bill also amends section 6 of the Act, and relates to the communication of a musical work to the public. Communication to the public covers all types of works, and adds on to the wording of how that communication occurs.
Clause 8 of the Bill substitutes section 9A of the Act relating to the payment of royalties. It embodies a variety of additions and amendments pertaining to the payment of royalties and the consequences of non-payment thereof.
Clause 9 was an insertion into the Act, and relates to the resale of royalty rights. It seeks to address the non-payment of royalties to artists for any future reselling of their work, and an increase in value of the work upon resale. This was based on the UK model, and introduces a fixed rate which would be discussed with the Minister of Arts and Culture in order to establish a fixed rate to be published in the Gazette upon public consultation.
Clause 10 of the Bill amends section 12 of the Act, and introduces a fair use exception of copyright works and provides limited criteria for the work to be considered as fair use.
Clause 11 of the Bill inserts section 12A and 12B into the Act, and provides for the general exceptions to copyright protection and for parallel importation via an international exhaustion regime. There would be a limited list of works that could be used, whereby it would not be considered as an infringement of copyright.
Clause 12 of the Bill inserts section 13A and 13B into the Act and proposes general exemptions for academic use of copyrighted works. It allows that any copies made for academic purposes would not be an infringement of copyright. It also amends section 19B of the Act, and provides for general exceptions regarding the protection of computer programmes, and allows any person who uses computer programmes for academic study not to need authorisation from the rights holder.
Clause 18 of the Bill inserts section 19C and 19D of the Act, and brings general exceptions regarding protection of copyright work for archives, libraries, museums and galleries. It allows them to transfer the format of artworks stuck in old, outdated technological forms into a digital format without infringing copyright.
Clause 19 of the Bill amends section 20 of the Act, and provides for moral rights for artists. This would guard the reputation of artists and guarantees that their work would be treated with respect.
Clause 20 of the Bill amends section 21 of the Act relating to the commissioning of work. It provides that in the absence of a contract, the commissioner would own the work, but the creator would have a licence to use their work.
The period of assignment had been limited to 25 years under Clause 22 of the Bill, which inserts section 22A of the Act. Clause 23 of the Bill creates a new chapter 1A in the Act, providing for the registration and regulation of all collecting societies under the Act. This was informed by the recommendation in the Farlam Report. The collecting societies would be allowed to collect only for their registered members and thereby improve the collective management system of royalties.
Clause 24 of the Bill amends section 23 of the Act in order to introduce tougher penalties for the infringement of copyright and the non-payment of royalties. Technological protection measures had been amended under clause 25 of the Bill and section 27 of the Act. This would enhance the protection of copyright works in the digital environment.
Clauses 29 and 30 of the Bill propose the establishment of an intellectual property tribunal and address the current lack of adequate judges with specialized experience in Intellectual property. It would allow access by everyone to the tribunal, and act as a court of first instance.
Clause 32 of the Bill amends section 39 of the Act dealing with the regulation of the powers of the Minister, and the minimum contractual standards to be developed. This would also address issues of artists’ lack of bargaining power by introducing minimum contractual standards.
Clause 33 of the Bill inserts section 39B, which would render any restrictive contract beyond the minimum standards under the Act, unenforceable. Under clause 34 of the Bill, it provides for translation licences for reproductions of copyright works.
The Performance Protection Bill proposes similar amendments in the definition section. It provides for the right to receive royalties for any transfer of rights to which the performer had consented. It also provides for the equitable remuneration of the performer, composer or producer of a phonogram. The Bill also seeks to strengthen the position of performers in the audio-visual industry by giving a clearer legal basis for the international use of audio-visual productions. It adopts the provisions of the Beijing Treaty and would be new to the extent that it would be giving performers four new economic rights to increase their revenue stream, and also provides for their moral rights.
Ms Nkosinathi Mkhonza, Intellectual Property Law and Policy: CCRD, DTI, said that the socio-economic assessment had the objective of assessing the policy and legislative development process. It addressed the implementation requirements in terms of the administration of copyright works, the enforcement of parallel importation of moral and economic rights, the registration of collective societies and the administration of copyright for fair use.
The cost implications for the state were related to the establishment of the Intellectual Property Tribunal and the public education programmes to create awareness, in order to allow all stakeholders to understand what was required of them. The state would also incur costs for the compliance monitoring by the DTI and the Companies and Intellectual Property Commission (CIPC) in the enforcement of provisions such as those relating to the circumvention of technological protection mechanisms. There would be cost implications relating to people who would be ensuring compliance with the contractual requirements between the parties, and also in the management of the collection of royalties by the collective societies, and also the use of orphan works, since they would now be regulated.
One of the highlights of the Bill was ensuring that benefits accrued to both parties, and not just one party. However, it did not provide a lot of power to photographers in a commissioned work without a contract, since the ownership would rest with the person commissioning the work. There would also be a need for a lot of enforcement capacity for digital works, and also a database for the checking and recording of transfers of artworks.
Mr Netshitenzhe said the education and awareness programmes would have the objective of getting the stakeholders to know their rights, and also to ensure the correct enforcement of the rights. They would also address situations where broadcasters used artists’ intellectual property but failed to pay any amount of the royalties because they were suffering a financial crisis.
The Farlam Commission had observed that the amount of local content being aired was very small, which translated to small revenues for local artists. It recommended that public broadcasters should play 80% of local content and private commercial radio stations should play 60% of local content. It was also noted that the payment tariffs were too low. This could be remedied through regulations by the Departments of Communications, Trade and Industry, and Arts and Culture. The Bill did not repeal any existing legislation and only sought to enforce the rights of vulnerable groups in the industry.
The Tribunal was not a new issue, since there already was the Copyright Tribunal. It would involve a structure similar to other tribunals, and would not necessarily be constituted by lawyers only. Inasmuch as it provided for the recognition of rights of owners of copyright, it created exceptional circumstances under which the public would be allowed to use copyrighted works without infringing on the owner’s rights. It did not provide for absolute rights as it allowed for the use for the public good, which was also in line with international agreements and conventions.
The Chairperson thanked the DTI for the presentation and commented that it had been a great idea for the Committee to work jointly with the Committee on Arts and Culture.
Mr A Wiiliams (ANC) asked to what extent the sector was organised in other countries, and how the implementation of the Bill would be affected by South Africa not being a member of the international treaties highlighted. He also requested more practical examples for the sections from page 15 to page 30 of the Bill. He expressed his concern that the presentation had been too general, and requested that in future more detail should be provided with respect to the specific amendments.
Adv A Alberts (FF+) agreed that the presentation was too general. He also expressed concern that some Members may not have a legal background and may not appreciate what the new Bill proposed, so there should be a more detailed analysis in the future. There was a provision in the Bill to the effect that the royalties of the work of a deceased copyright holder would become the property of the state. He enquired whether the provision was still present in the Bill, as it was not clear in the presentation. The Committee did not have the power to ratify the proposed treaties, nor did it have the onus to instruct the executive to ratify a treaty, and therefore the Department should appeal to the right forum. He enquired about the particular provisions of the treaties which the Bill relied upon, and what those treaties provided. He also proposed that an economic impact assessment of the Bill should be done in order to inform the Committee, and get a second independent opinion.
Mr D Macpherson (DA) expressed his concern that two Bills were being presented at the same time. There was no clear distinction or separation between the two. The Committee should therefore deal with each Bill separately, since a lot of the information was being conflated in the two bills. He requested more information concerning the Department’s responses to the submissions received from the public concerning both bills, and what it was doing so far regarding them.
The Chairperson commented that it had been the Committee’s own decision, and not the Department’s, to consider the two bills. The Committee had begun by considering the Performance Protection Amendment Bill, but had noticed that there were too many references to the Copyright Amendment Bill. This had made it necessary for the Committee to look at both Bills in order to assess the impact and the relationship between the two Bills.
Ms P Mantashe (ANC) appreciated that the Bill sought to address the various disadvantages of the actors as far as royalties were concerned. She enquired why the benefit in terms of royalties did not devolve to the beneficiaries of a deceased copyright owner, and ended 50 years after the death of the copyright owner. She also enquired how the Bill would be implemented and monitored at the grassroots level. Considering the economic position of the Department, would the implementation require new people to be hired?
Ms X Tom (ANC), Chairperson of the Portfolio Committee on Arts and Culture, said she appreciated the invitation to her committee. She expressed her concern that the Department had highlighted only areas where it would need funding, but had failed to provide any financial estimates related to the implementation of the Bill. The Committee would not be in a position to pass the Bill without being informed of the cost implications of the implementation. It was not the mandate of the Committee to ratify the treaties, and the Department should brief the Committees on the road map on how that should be implemented. There were existing structures in the Department of Arts and Culture (DAC) which organised artists, and the DTI should seek information on them.
Ms E Louw (EFF) requested that the Committee get the various reports mentioned by the DTI, to enable the Committee make an informed decision on the Bills. The Department should also look at what other departments had done with regard to organising artists. How would the Bill protect the resale artworks done by local artists in the flea-markets, to enable them get royalty rights for the reselling of their artwork?
Mr J Mahlangu (ANC), Arts and Culture Portfolio Committee, said that the DAC had raised issues concerning the Marakesh Treaty, and commented that local artists where not getting the same benefits that artists in other countries were getting. It was recommended that the government should process the ratification of the treaty in order to secure the protection of artists. He enquired to what extent the implementation of the Bill would improve the lives of artists and alleviate their current financial disposition. He said that most South African artists were not formally educated, and may therefore be challenged by proceeds in a tribunal, which could complicate the process of redress for artists further. He proposed that artists should be protected to the same level that other artists around the world were.
Mr Netshitenzhe said the Department could offer the practical examples requested to the Committee in writing. Regarding the implementation of the Bills without membership of the international treaties, it was practicable to implement them. However, the sections in the Bills which had been adopted directly from treaties may need further interpretation that would be offered to member states through international seminars. South Africa would therefore miss out on the building up of capacity building for enforcement of intellectual property, for example, since it would not be a member state to the treaties and would not qualify for any legislating training provided.
He added that countries were allowed to ratify treaties with reservations to certain articles that conflicted with their domestic policies. However, under international law, they may not opt out on provisions that would defeat the purpose of the treaty.
It was an observation of the Farlam Report that the artists were not organised. However, there were other institutions, such as South African Maritime Industry Conference (SAMIC) in the DTI, among others. Despite their existence, there was still a lack of structures on the ground which had been observed by the Farlam Commission.
With regards to the socio-economic impact of the Bill to artists, it provided for the equitable sharing of revenue in terms of royalties, which would allow artists to get better remuneration than they were getting presently. There would also be monitoring to ensure that stakeholders honoured their commitments to artists. The recognition of royalties for the resale of artwork would also ensure that South African artists received more value for any appreciation of their artwork upon any subsequent sales.
With regard to the tribunal, it would be an informal structure and made accessible and approachable to artists. On the issue of the Bill’s impact assessment, this should be done before the Bill was taken to the Cabinet, since it was the Cabinet that came up with the policies and regulations. Intellectual property upon the death of the author would be treated like any other property, and may be devolved to beneficiaries through a will in the event the deceased died testate.
Mr Williams enquired to what extent the sector was organised in other countries, and how they were organised.
Mr Mahlangu commented that most artists were vulnerable and may not know the worth of their artwork. He proposed that there should at least be a period where artists could sign away their work, and the Bill should address issues in relation to artists whose work had been taken away or acquired irregularly or illegally. He added that there were government institutions that used artist’s music as ringtones, and enquired whether the respective artists were remunerated for this.
Mr Macpherson said it had been observed that the state did not have the right to dictate what the public hears or listens to. The South African Broadcasting Corporation (SABC) interim board on 13 April had also reiterated that the local content policy should be discarded. He enquired about the rationality of the DTI recommending the viewership policy, despite the fact that the public broadcasting corporation had opposed it.
The Chairperson clarified that the SABC had not discarded the entire principle of viewership of local content, but had objected only to the proposal of a 90% local content requirement.
Mr Netshitenzhe said that the Independent Communications Authority of South Africa (ICASA) should withdraw the licences of those institutions which did not pay the artists’ royalties. The issue on the assignment of rights would be addressed by the regulations that would be developed by the Minister and thereby create a mandatory minimum standard for contractual terms. The Bill would address issues of irregular assignments, although it could not be applied retrospectively.
Ms P Mantashe (ANC) sought clarification on the retrospective application of the Bill.
Mr Netshitenzhe said that in 2002, the DTI had engaged Parliament on the issue of royalties. A regulation had been developed in 2006 but had never been implemented. The Bill would seek to address issues relating to when the regulations came into force, and therefore it would not be operating retrospectively.
The Chairperson requested that the DTI should provide the requested written documentation to ensure that the Members of the Committee were up to date on all the necessary information. She said that it was important to have the Portfolio Committee on Arts and Culture present, and the Portfolio Committee on Communication should also be invited to engage in the discussions. She added that there was a need to have a training workshop on the issues raised before the public hearings from 27 to 29 June 2017.
Debt Relief: Briefing by National Treasury
Ms Katherine Gibson, Senior Advisor, Market Conduct: National Treasury (NT), said she appreciated the support from the Committee on the issue of debt relief, and sought more clarification on its previous recommendation that debt relief should apply to the poorest of the poor.
According to the summary reading of the Portfolio Committee’s meeting, the questions posed to the NT were to the effect that the bank’s debt relief should go beyond the relief of an accounting provision for losses, which was what was currently happening. There had been recognition that the National Credit Act was powerful and should be used effectively, as well as that there were various abuses regarding the collection of current debt. Questions had been raised on the cost to the economy and the sector of debt relief, and there had been recognition of international case studies which had seen debt being reduced in a number of different countries in many different ways. There were also potential constitutional challenges pertaining to the perception that it involved expropriation, and there was a need to balance relief against financial stability. The point had also been made that systemic risk could not be an excuse for doing nothing or doing too little.
Treasury had also been asked for additional information regarding a legal opinion relating to the constitutionality of whether it was forcing debt expropriation, and an analysis on the solvency and implication of debt forgiveness. There should be a clearer definition on debt relief and its objective. It had also been asked to share its experience of the public-sector audit of garnishee orders and some of the outcomes.
A National Treasury spokesperson said there had been ongoing concern over consumer indebtedness. In December 2013, Cabinet had authorized the Minister of Trade and Industry to take measures to assist over-indebted households and prevent them from becoming over-indebted in the future. This concern had also been raised by the Department of Public Service and Administration, which had also embarked on a debt relief programme for public servants.
Because of the many government agencies involved, there had been an oversight committee constituted of members from the DTI and the NT, the Department of Justice (DoJ), the South African Reserve Bank, the Financial Services Board, the National Credit Regulator (NCR) and the National Consumer Commission. Some of the initiatives already implemented included the affordability criteria, which had been implemented in September 2015, the revised cuts in interest and fees implemented on 6 May 2016, and the garnishee order solution for public servants implemented by the NT in July 2016.
The committee was currently working with the DoJ on the Debt Collectors Amendment Bill and the Courts of Law Amendment Bill, which had been recently approved by the Parliamentary Portfolio Committee. The National Treasury was also working on the Insolvency Bill with the DoJ. The committee currently met only as and when required.
Some of the objectives to be implemented in the short term were the review of the consumer credit insurance framework. The NT had also developed a road map, to be released in June 2017, which would be used to address market conduct failures and consumer credit insurance.
The DTI had also developed credit life insurance premium cuts, and the national payment systems department was working on reforming the debit order form collections by allowing the consumers to first confirm their debit order before it went from their accounts. The Treasury was also involved in an investigation into the legitimacy of the Emoluments Attachment Orders (EAOs) currently in the public sector, which would hopefully be introduced to the private sector, to test how it could be implemented.
Ms Gibson said that since the projects were coming to an end, the only question that remained was whether the projects should be reconstituted in order to re-evalutate the timelines and the deliverables. The EAOs had attracted various comments from some of the Cabinet Ministers and it was recommended that action should be taken against the perceived EAOs. To this end Government, through the Treasury, had appointed a service provider to investigate all EAOs issued to public sector employees. This audit had been conducted on all EAOs issued and had tested them against various parameters to assess whether each of them was authentic or not. In the event where they were not, the credit provider was engaged to withdraw. The next phase would be to set up a system to check on all the orders that were currently coming through.
This did fit under the Department of Public Service and Administration’s process of debt relief, which had not gained much traction and had not progressed to its envisaged potential. Nothing had yet been done with respect of debt relief and rescue, but the financial wellness programmes had been developed.
Due to the 5% collection that had been facilitated through employers, Treasury facilitated through the EAOs and that amount now went to the service provider, which makes the net impact to be zero. In the period from July 2016 to March 2017 it had recorded R142 million allocated to employees and a decrease in the number of deductions by R118 million.
The Chairperson asked about the difference between emolument attachment orders and administration orders.
A NT spokesperson said that the emolument attachment orders were commonly known as garnishee orders, while the administration orders were where one had an administrator appointed to pay off the creditors with the money allocated to him, and who took a portion as his fee.
Ms Gibson said that the decrease in the number of deductions could be explained by either a decrease in the balance, excessive fees or interest, fraud, contravention of the in duplum rule, or the EAO had been issued without the necessary jurisdiction.
She said that there was a challenge in getting the credit provider to stop the EAO and also to pay it back, so Treasury was exploring new ways to make the settlement better. However, due to privacy issues, unclaimed assets could not be paid back into the accounts.
Employees with the largest level of exposure had instalment values ranging between R1 200 and R6 500. The departments with the largest collection exposure were the SA Police Service (SAPS), the Department of Education (DoE), the Department of Health (DoH), and the Department of Correctional Services (DCS), at both the national and provincial levels, with SAPS having the largest exposure.
Cases had been identified by the audit where there were no EAOs issued at all, or no evidence of any issuance existing. Most credit providers, after the identification of the wrongdoing, fixed the problem voluntarily. However, there were some who were not doing so, and this had necessitated litigation in court.
A lot more could be done, in consultation with the Portfolio Committee, to help work out what the appropriate responses would be. A couple of interventions should be outlined with regard to who should benefit from the relief plan. This should mainly refer to the people who had no money or assets, or low income and low assets. It could also be informed by the interventions adopted by other countries, considering whether the debt was to be written off completely or whether it should be restructured. A write-off should apply to people who were poor and should never have been given the loan in the first place. Other cases could involve people who were only insolvent at the moment, and therefore needed only a debt restructuring plan.
Public policy circumstances should also inform the objectives of debt relief in terms of what the direct policy objective was, and whether it was purely a social protection mechanism. There was a need to take care of the moral hazards in the measures implemented and tailor the measures to try and change the behaviour of lenders who lent recklessly in the first instance, and that of borrowers who borrowed recklessly as well.
There was a need for correlated action due to the fact that there were different actors and regulators involved over the various entities involved. There was also a need to recognise the change in the financial regulatory side, where the Treasury did not have power yet, but would have through the “twin peaks” programme, such as power over the debt collectors and banks. There was also a need to understand how debts were incurred by different South Africans in order to identify the most appropriate remedy among the options that were available.
The systematic monitoring and evaluation of all interventions was critical, and required improvement in the outcomes. This should entail an impact assessment of the outcomes on the people expecting results. The proposals from the DTI should also not be overlooked as these other interventions continued.
Mr G Hill-lewis (DA) commented that the programme run by Treasury was good, and was a sign of what was possible. There were only 85 000 garnishee orders in the entire public service, and he asked whether this was only national and provincial staff or if it extended to local government staff. He enquired on what intervention or follow-up measure took place in the scenario where there were about 23 garnishee orders for one public servant. He proposed that there should be follow-up programmes that provided counselling so as to prevent people from getting back into debt in the future. He also enquired about the names of the top ten debt collectors, as they should be on public record and should be summoned for questioning by the Committee.
He said that some of the debtors were going to court against the creditor provider, and proposed that action should be taken against the collector as well, since they were the ones who entered into the illegal garnishee, and not the credit provider. In most of the cases, the credit provider sold the debt to the debt collector and it was the debt collector who procured the garnishee order.
He enquired whether there had been any law suits against attorneys implicated in the cases and criminal sanctions against them under the Stellenbosch Law Society precedent. He proposed that the NCR should be provided with the information on the debt collectors in order to provide a remedial intervention to them as part of the lenders in the economy. By using the powers that the National Credit Act provided, the Treasury could still effect meaningful and significant debt relief in cases where consumers had been exploited through irregular rates.
Mr Macpherson asked about the progress regarding the fraudulent EAOs, and if there was a list of the deregistered regulators who were still operating.
Mr Williams said that the Committee needed more information in order to give some clarity on where they should aim their focus on the people with the greatest need for debt relief.
Adv Alberts enquired if there was any behavioral science research on whether people who were given debt relief would still acquire more debt. Action needed to be taken against banks which tended to rig auctions and sell properties significantly below their market rate, to the advantage of their friends, and thereby leaving debtors with no assets and with outstanding debt.
The Chairperson commented that financial institutions should not be allowed to break the spirit of the law with impunity.
Ms L Theko (ANC) asked whether intervention measures should be started off as pilot programmes.
Ms Louw enquired whether a statistical investigation had been conducted on the top debtors in relation to their gender and racial disparity.
The Chairperson asked how many teachers were involved in the debt crisis, since there were some who resigned in order to get their pensions to pay off their debt. The purpose of pensions should not be to pay off debt, but to cater for retirees’ welfare.
Ms Gibson said that data existed which could be used to create an analysis of income distribution, among other parameters. The names of the debt collectors would be made available to the Committee. On the complaints against the advocates, the law society had been engaged, although the progress of that intervention had been slow considering the fact that it was seeking to balance its role as a regulator and also as a membership body. Consideration should also be given on what appropriate counselling programmes would be effected in order to address the various needs of debtors and prevent any future debts. On the issue of rigged auctions, although banks had been complicit, consumer conduct needed also to be addressed since some consumers failed to manage their debts.
Ms Charmaine van der Merwe, Parliamentary Legal Adviser, said the Committee should take note that not everything that debt collectors did, and was frowned upon, was illegal. Any person in a regulated profession should be reported, especially attorneys. However, issues of reckless lending could not be reported. On the issue of the auctions, there would be a meeting with the DoJ, to see whether the banks could, at some point, stop the deductions and help the customer pay the debt.
Ms Nomsa Motshegare, Chief Executive Officer: National Credit Regulator (NRC), said that on the sale of debt, debt collectors were required to register with the NCR so as to allow monitoring. Repeat over-debtors should be flagged on a list in order to make credit providers aware of their situation.
Mr Netshitenzhe said that there were some issues that could not be resolved without the intervention of the DoJ and Parliament, so coordination remained critical.
The Chairperson said that the Committee would engage with the DoJ, and any further information needed from the National Treasury would be requested in writing in future. It was a matter of serious concern when housing was used as collateral, and ways were needed to enable consumers to retain their housing.
She reminded the Members of the workshop on 27 and 28 June 2017, and the Committee meeting on 29 June. Regarding the committee’s study visit to Croatia, the Committee should also consider Wales or India. However, Members who were not attending the Committee meetings would not be considered.
The meeting was adjourned.