Debt Relief Framework for Committee Bill: legal principles

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Trade and Industry

13 September 2017
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Committee received a briefing from the Parliamentary Legal Advisor on the legal principles that needed to accompany the National Credit Amendment Bill on debt relief. There were contestations as to whether debt constituted property or not of a creditor. The Constitution was not clear on its definition of property and there was a 99% chance that debt would be regarded as property. In that case, rights to property could be affected by deprivation of property according to section 25(1) of the Constitution, and also expropriation, section 25(2). Debt relief could not fall under expropriation because the state had no ownership over people’s debt.

The law of general application was important to consider. These laws ensured fairness, transparency and protection against the exercise of arbitrary power by public officials / in State action when dealing with similarly situated persons alike, and imposed the same penalties on the governed and governors, and accord them the same privileges.

The framework for the Committee Bill currently proposed that debt relief measures start with an application process. The application would be investigated by the National Credit Regulator (NCR) who would make a recommendation to the National Credit Tribunal. The Tribunal would make a decision to grant the measure or not and is given a discretion to order one of a number of measures as may be determined by the circumstances of the debtor, including suspension and extinction. Other measures could be prescribed by the Minister, but under strict conditions.

Members were concerned that the Bill would not be helping the poorest of the poor who are often indebted to illegal creditors. Some Members suggested senior counsel advice was needed before they proceeded. They asked about the implications of a debt relief application process on an already overstretched NCR and National Credit Tribunal and felt the Committee was rushing the process without considering the ramifications.

 

Meeting report

Debt Relief: National Credit Amendment Bill - applicable legal principles
Adv Charmaine van der Merwe, Parliamentary Legal Advisor, said that there were legal principles that needed to be considered, and the Committee needed to give her guidelines as to what to include and remove so that she could prepare a Bill that they could start pulling apart.

Adv van der Merwe said that the Committee needed to understand how the Bill would impact on the Constitution. One way it would impact would be if debt constituted property (of the creditor) for the purposes of section 25 of the Constitution. If it were property, the question would then be: would the debt relief measures constitute deprivation as in section 25(1) or expropriation (section 25(2). And if it were either of the two, what would then be required to ensure the right was legally limited.

On the question of whether debt was property, there was no case that told legislators that debt was property. Property was defined as assets that were moveable or fixed. The Constitution did however state that property was not limited to land. Debt was likely to be found to be property, and the advice was that there was a 99% chance that debt would be regarded as property by a court of law for the purposes of section 25 of the Constitution.

Rights to property could be affected by deprivation of property according to section 25(1) of the Constitution, and also by expropriation. The clause stated a lot more on expropriation. No one could be deprived of property except in terms of law of general application, and no law could permit arbitrary deprivation of property. Property could only be expropriated only in terms of law of general application – for a public purpose or in the public interest, and subject to compensation as agreed to by those affected or decided on or approved by a court.

In the case of AgriSA v Minister of Mineral and Energy, the court ruled that custody was not sufficient to constitute expropriation. For expropriation, there needed to be takeover of ownership by the state. Looking at debt relief, there was no ownership taken by the state.

On deprivation, the law of general application was important to consider. These were laws that referred to the rule of law such as fairness, transparency and protection against the exercise of arbitrary power by the state. The law needed to ensure equal treatment to similarly situated persons alike and should impose the same penalties on the governed and governors, and accord them the same privileges. Those who enforced the law needed to do so in terms of discernible standard. The law needed to be precise enough to enable individuals to conform their conduct to its dictates, and the law also needed to be accessible to the citizenry.

There needed to be a process of applications to create legal certainty. An investigation process was necessary to conduct hearings on both sides for creditor and debtor. And the final decision needed to be made by an independent body such as the National Credit Regulator (NCR).

Adv van der Merwe said that the Framework Bill currently proposed that debt relief measures start with an application process. The application would be investigated by the NCR who would make a recommendation to the National Credit Tribunal. The Tribunal would make a decision to grant the measure or not and it was given a discretion to order one of a number of measures as may be determined by the circumstances of the debtor, including suspension and extinction. Other measures could be prescribed by the Minister, but under strict conditions.

Other decisions required once the Committee agreed to a draft bill were: the category of debtor qualifying for relief – maximum salary, maximum value of assets, maximum debt; exact steps and requirements of the application process; requirements for the NCR investigation; orders that the NCT would grant for the debt relief measure; consequences of receiving debt relief; and the criteria for the Minister to prescribe.

The Chairperson said that the Committee had arrived at this stage with the Bill when there was a request that the banks needed to be consulted. The Committee had received permission from the National Assembly to go ahead with the Bill. She said that in the 13 September 2017 meeting, the Committee would be deliberating.

Discussion
Mr A Williams (ANC) asked what legislation compelled the Committee to give the creditor a chance to challenge the application for debt relief, because this seemed like a road block for assisting the poorest of the poor.

Mr D Macpherson (DA) said that he was concerned that the Committee was having these discussions without the research they had requested to inform their discussion so they knew who the people receiving debt relief would be. Were they people who had debt with financial institutions or with illegal credit providers?

Mr Macpherson was hesitant to have a Bill drawn up without knowing for whom it was meant. He wanted to hear advice from senior counsel before they proceeded with a Bill. A committee Bill could not be done without looking at other legislative changes that would be made. For example, someone was needed to adjudicate the claim, and if it would be the NCR, then its office would be overstretched. Who would fund the NCR? The National Credit Tribunal was also overstretched and it took years before cases could be adjudicated. The Committee was rushing the process without considering the ramifications based on the empirical research they had requested.

Mr G Cachalia (DA) said that he suggested considering alienation as well when referring to debt relief, instead of focusing only on deprivation and expropriation alone. He was interested in the implications on the Committee Bill. How would the Committee pass constitutional muster?
                       
Mr J Esterhuizen (IFP) said that debt forgiveness was the wrong word to use. Financial institutions should not take advantage of debt relief and debt counselling by applying additional credit on longer terms for the poor.

The Chairperson said that the Committee decision that went to Parliament was to look at the most vulnerable. Its Subcommittee on Debt Relief found it opportune to look at other categories of debt relief.

Response
Adv van der Merwe replied that one of the basic principles of fairness, openness and transparency included allowing the creditor to submit an application and investigate. The framework of the Committee Bill was based on the legal principles she had presented. Senior counsel would be asked for an opinion once the Committee had agreed on a Bill to ensure that it complied with the principles. One of the ideas expressed in the framework was that of lending excessive debt.

Adv van der Merwe replied about alienation, saying deprivation of property was the catch-all and it dealt with any way that one’s right to property is infringed. Expropriation was a subset of deprivation. Alienation was therefore covered under deprivation.

The Chairperson said that the meeting was not earmarked as deliberation, but rather clarification.

Mr Macpherson said that the Bill was intended to deal with the poorest of the poor, and he was not sure how the framework would be dealing with that. The Committee used different terms interchangeably such as debt relief, debt forgiveness, and debt measures, and he was not sure if the Committee had actually decided what the title of the Bill would be to form the preamble of what they were trying to achieve.

The Chairperson said that the reality was that the Committee took a decision informed by the size of the debt they were briefed on by the Department of Trade and Industry (DTI), NCR, and National Treasury. The Committee had collated its information from those three sources. The Committee never gave the Bill a name. The NCR was clear that it did not want to include all the actors and the Committee agreed that they would not include all actors but they would ring fence particular areas.

Adv van der Merwe replied that the framework bill was drafted with a Nina-type process in mind that focused on government and private credit lenders. They had looked at different countries and NINA was the most effective process focusing on government and private credit lenders.

Adv van der Merwe noted that the Committee could tell her specifically what they wanted the Bill to include or she could give the Committee a draft Bill as a base document which would help to focus the Committee’s mind. Institutions would have to be consulted as the Committee still needed to ask a lot of questions but a draft Bill would help in this process.

The meeting was adjourned for more discussion the following day.
 

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