The Parliamentary Legal Advisor responded to the comments made on the Debt Relief Committee Bill by the National Credit Tribunal, the National Credit Regulator, National Treasury and the Department of Trade and Industry the previous day.
As the Bill would have to make provision for the credit provider to be heard, the legal advisor supported the proposal by the National Credit Tribunal that the rule of “audi alteram partem” be applied, i.e. that both sides had to be heard, but without stopping the process by using the “rule nisi” which would allow the application to continue during that process. A valid point that needed to be made very clear in the Bill, was that any consumer rejected for debt relief should be referred for debt review. In response to several comments about adversarial systems versus inquisitorial systems, the legal advisor explained that both systems were formal, legal systems which had formal procedures, followed formal evidence rules and allowed lawyers to attend. That did not meet with the concept of a motion process that the Committee was considering.
National Treasury had spoken about different solutions for different categories but the intention of the Amendment Bill was intended to be a solution to one of the categories. The proposal by Treasury to reduce the criteria to qualify for extinguishing of a debt from R10 000 to R7 500 was supported by the legal advisor. She recommended that the Committee apply its mind on whether it should accept the affordability criteria of 25% of household income, as suggested by Treasury.
The National Credit Regulator had spoken about the missing group of consumers who could not afford to get out of debt review. How did one get out of debt review if one was unable to pay one’s debts? The legal adviser would investigate what happened in the debt review process. She noted that the more awareness about the Prescription Act was needed. The recommendation to ensure the enforcement of the in duplum rule would require consultation with the Department of Justice and Correctional Services.
The Department of Trade and Industry (DTI) had referred to unlawful lending and reckless lending but the legal advisor explained that such debt would be excluded as collecting on those debts was already unlawful.
Members were concerned that R7 500 was still too high for debt relief. They suggested that people with an income of above R 5 000 should be pushed into debt review before they were considered for debt relief.
The Chairperson worried that the Committee was stretching the Bill beyond what they had intended, which was to target the most vulnerable people. The main concern was the criteria and how to do it. The Committee had now been working on it for well over a year and the same points were repeated endlessly. Concern was raised about credit providers, especially in the retail sector, that would have to bear the cost of the extinguished debt. However, it was pointed out that those creditors would not be getting their money in any case because the people targeted did not have the money to pay. Members were concerned about powers being given to the Minister to declare debt relief. A Member suggested that the Bill should be a stand-alone Act, and not linked to the National Credit Act. It would contain only the measure for an immediate, once-off debt relief measure where there was a cut-off date. It should exclude giving powers to the Minister to declare debt relief. This would be investigated.
Debt Relief Committee Bill: response to Treasury, DTI, Credit Regulator & Tribunal
The Parliamentary Legal Advisor responded to the comments made comments made on the Debt Relief Committee Bill by the National Credit Tribunal, the National Credit Regulator, National Treasury and the Department of Trade and Industry the previous day.
She addressed the main points that had been raised, but said she would take all the inputs and see which ones she could include in the Bill.
Adv van der Merwe noted that the National Credit Tribunal had made a proposal that the process for the NCR to alert the Tribunal about debt relief applications could be a compliance notice process. She explained that those details would be covered in the regulations. The DTI would have to confirm that the regulations would be ready when the Bill had been passed by both Houses. The Tribunal had asked for a role for the NCR rather but there was already a capacity challenge at the NCR. She did not know if that was something for the Bill or whether it fell outside of the Bill itself.
She noted a Committee member's concern that the provision for an affidavit by the credit provider at the outset of the process would allow credit providers to slow down the process. The Tribunal had proposed that the rule of “audi alteram partem” be applied, i.e. that both sides had to be heard, but without stopping the process by using the “rule nisi”. Therefore she would take the affidavit process out of the Bill but the credit provider would have to be notified at the commencement of the process that it had begun. She added that there was not much that the credit provider could say as the process would be simply involve a tick box exercise where, if all the boxes were ticked, the person qualified. The credit provider’s input would, therefore, be more about the veracity of the information provided by the consumer. There might be a need for the credit provider to submit the credit agreements so that the Regulator could check for credit life insurance and insurance in general. The credit provider was already obliged to provide the income of the consumer and other personal information so, by adding the agreements, the Regulator would have the full picture.
The Bill had made provision for the Regulator to reject an application for debt relief, following which a referral for debt review would apply, but the Regulator could also refer the matter for debt relief if the person had qualified for debt review. The Tribunal had proposed that those matters also be dealt with by way of referral. It was a valid point that the Bill needed to make it very clear that any rejection for debt relief should be referred for debt review.
The legal advisor raised the fact that there seemed to be a misunderstanding about adversarial versus inquisitorial systems. Both systems were formal, legal systems which had formal procedures, formal evidence rules and allowed lawyers to attend. The only difference was that in an adversarial judicial system, the judge or the presiding officer did not participate in the proceedings other than to allow or deny the submission of evidence. The person was objective, did not control the proceedings and could not ask questions other than questions of clarity. This system was only unequal when one party had a lawyer and the other party did not but, in practice, the unrepresented person was assisted by the judge in respect of law. The judge also tended to protect an unrepresented person from badgering by lawyers.
The inquisitorial system also had evidentiary rules, also allowed lawyers but the judge or presiding officer played an active role, decided what evidence was relevant and asked questions to gain an understanding of the situation. The problem was that if the judge did not agree with the complainant, there could be suggestions of bias and it was a lot more difficult to protect against bias in such a situation. The CCMA process had been raised as a suitable system in several inputs. The CCMA did not prohibit lawyers but there had to be consent for them to attend. Companies often sent legal advisors. She warned the Committee against looking for a simple process on paper which did not work. She reminded Members that lawyers found loopholes. She suggested that perhaps getting rid of lawyers was a different process. However, depending on what process was decided on, it could require extensive consultation and would delay the Bill.
The Tribunal did not want to play the part of an investigator or be part of an inquisitorial system. A negative aspect of an inquisitorial system was that the Tribunal member would have to be involved in all the processes and that could extend the time period. She did not think that the Tribunal would need to take part as the investigator as the orders should be step-wise, i.e. orders would follow a particular process. The Tribunal had spoken about tax deductions as an incentive but, as far as the legal advisor knew, companies would automatically qualify for tax rebates as they would write the amount off as a loss. SARS could advise.
Treasury had debt counselling concerns but that would probably be part of the National Credit Act review. Treasury had mentioned international studies. The Committee should request Treasury to provide those studies so that Members could see whether they were the same as, or different from, research that the team had already studied.
Treasury had spoken about different solutions for different categories. Adv van der Merwe understood that the Debt Relief Committee Bill as an Amendment Bill to the National Credit Act (NCA) was the solution to one of the categories. She did not know what could be done to stop the attachment of the borrower’s assets. The debt review process should stop all executions until the end of the process but the Department of Justice and Correctional Services could advise whether anything could be done to stop the attachments. The Bill was already being developed and the matter of principles, as suggested by Treasury, could be considered at the end. The Committee had discussed the intention of the Bill and why it had to be an Amendment Bill to the NCA and not a stand-alone Act. An Amendment Bill would allow for the protection of the other measures in the Act.
On Treasury's point about the reserves that banks had to hold, the legal advisor suggested that the Reserve Bank be invited to give input. Suspended debt would certainly have an impact. She would reduce the criteria to qualify for extinguishing of a debt from R10 000 to R7 500, as advised by Treasury, if the Committee agreed. Vehicles would be classed as tools of trade, if the vehicle is used for that purpose. On the identification of categories, the idea was good. However, it depended if, for example, the criteria for a SASSA beneficiary was in line with the consumer that the Committee intended to assist. The sub-committee had started its work by looking at the way in which municipalities identified indigent. The definition of indigent differed from municipality to municipality and, therefore, the Act would not have equal measures as it would depend on where the person lived.
The legal advisor intended to exclude municipal debt from debt relief and if the person was indigent in terms of the municipality’s criteria, that municipal debt would be referred to the municipality. The Committee would have to apply its mind as to whether the affordability criteria of 25% of household income was what it wanted. She agreed with Treasury’s recommendation that there be a requirement for the credit provider to provide credit agreement documents within a deadline and that the veracity of those had to be ensured.
Debt relief was a once-off measure and therefore had to have a cut-off date, so only one application could be brought. If the Minister provided for extinguishing of a certain debts as a result of a disaster, there could also be only one application brought against that provision. Sequestration usually happened once. Very seldom if one was sequestrated, was there a repeat application, but if there was, it would only happen after ten years. However, she was not sure about personal liquidation.
Adv van der Merwe addressed the input by the National Credit Regulator. The Regulator spoke about the missing group. Could someone qualify for debt relief if the person was in debt review? How did one get out of debt review if one was unable to pay one’s debts? She would have to investigate what happened in the debt review process. On the point about prescription, the legal advisor read excerpts from the Prescription Act, noting that raising awareness about the Prescription Act would be advisable. On the in duplum rule [arrear interest ceases to accrue once the sum of the unpaid accrued interest equals the amount of capital outstanding at the time], she recommended consultation with the Department of Justice and Correctional Services. An application had been made for a declaratory order about the in duplum rule so that attorney fees could be included as part of the in duplum rule. The Law Society could issue a directive about the interpretation of the Prescription Act and compel attorneys to comply.
Adv van der Merwe turned to the input by the Department of Trade and Industry (DTI) and stressed that unlawful lending and reckless lending would be excluded as collecting on such debts was already unlawful. Debt relief could not include unlawful debt. Only legal debt would be considered for debt relief. The Committee needed to take account of DTI’s concern about the Tribunal processes but the DTI should perhaps publish an urgent Bill on the capacity and nature of the NCR and Tribunal. The Department of Justice and Correctional Services could be requested to advise on processes necessary to change the function and capacity of a quasi-legal body.
The suggestion that current remedies of the Act had to be exhausted before the consumer could move onto debt relief, had to be discussed by the Committee.
The Chairperson explained that Parliament was stretched as a result of bereavements and medical leave and as there were so few Members in attendance, they could ask as many questions as they wished. Time was on their side.
Mr Macpherson asked about the adversarial versus inquisitorial systems. He felt that the process was still a long, drawn-out process. He did not think that system could be fair with only one person making a decision. He had previously suggested that either two or three people should make the decision. The Tribunal was not a court and did not have judges, although its members were legally qualified to listen to proceedings. It was still unclear how the process would work when a consumer came from the NCR to the Tribunal with a referral. He would really like a timeline for a case and how it would play out and be adjudicated. On the classification of indigent, he felt that R7 500 was too high and that people with an income of above R 5 000 should be pushed into debt review. People should not be introduced into debt relief unless they had been through debt review. The debt review process had an exceptionally high success rate. The Committee had to remember that engagement in the debt relief process would lock out a consumer for a period of five years.
Mr Esterhuizen said that it was very important to hear both sides. The aim of the Bill was to create a consumer-friendly credit system for people that were previously disadvantaged, and for everyone, but the Committee had to protect the lender side. The other side had to be heard. It was crucial because if the financial side of the country fell flat, there would be a disaster. There were already laws that were not being implemented. People were forced to go to loan sharks who were unscrupulous.
The Chairperson agreed with Mr Esterhuizen but what worried her was what was their intention when the Committee had decided on a Committee Bill. Were the Members stretching the Bill beyond what they had intended? If they were going beyond that, they had to stop. The Bill was intended to target the most vulnerable people. The main concern was the criteria and how to do it. If the Committee moved beyond a Committee Bill, it would take three years to develop the legislation. The Committee had given themselves one year to eighteen months but had been working on it for well over a year. It had become a talk shop repeating the same points endlessly. What were the key points that the Committee had intended to address? What were the principles that the Committee agreed on? Members needed to go back and ask themselves if they had it right. The more lawyers who got involved, the longer the process would take. The Committee could not go down that route. Many of the things that Members had originally wanted had involved the Portfolio Committee for Justice and Correctional Services and that Committee had already turned its part of the problem into an Act. The Committee simply had to agree on a purpose and principles and Members had a compass for that: the terms that were approved in the National Assembly. The Chairperson appealed to Committee Members to get through with the Debt Relief Bill. They had two other Bills waiting for their attention. She asked Adv van der Merwe to respond.
Adv van der Merwe noted that Mr Macpherson had expressed a concern about the involvement of lawyers. She understood that the Committee wanted things to go as quickly as possible. The Committee had to understand that debt relief was not something that could be considered in an hour by the NCR. That was an unavoidable delay. By the time a case came to the Tribunal, things had to go quickly, which was why she had proposed a motion process. If the Bill included the issue of an order, after which the credit provider could come back to object or to present its side, the Bill was already limiting what could happen on the day that the application was heard for the first time. The Tribunal would have to advise on process. The timeline had considered a two-week process at the NCR and two or three days at the Tribunal as long as the Tribunal had sufficient capacity in terms of debt relief officials. As it was going to be a once-off process that would end in 4 to 5 months, it was probable that the Minister could ensure that capacity.
Mr Macpherson asked what would happen once an applicant had put in an application. What were an applicant’s responsibilities and how was the hearing conducted?
Mr Esterhuizen pointed out that the intention was to consider the poor. They could not be selective. Even companies and municipalities needed relief. Municipalities had a collective debt of R11 billion.
The Chairperson asked the legal advisor for a flow chart. The Committee had already agreed on a tick box approach. If a person had lied on a form, that person had committed fraud and could be charged. Surely it did not take longer than five minutes to check the application form? How long would it take from the submission of the application until a person was given debt relief?
Adv van der Merwe explained that regulations would deal with operational matters such as the steps. The steps were: Forms would be available at DTI regional offices; applicant would complete the forms; DTI would do a pre-screening; forms would be emailed to an office in Pretoria; applicant’s income would be checked; letter would be posted; applicant would use the letter to stop collections; NCR would refer the application to Tribunal; Tribunal would allocate a presiding officer; orders would be served to the credit provider; response from credit provider; hearing; debt relief granted. She did not see the need for a lawyer. The process could be done in chambers but an open court would be more transparent.
She proposed that the qualifying criteria would be an income of up to R7 500 but a special measure in the Bill would require the Regulator to first consider debt review for applicants who earned between R5 000 and R7 500. NCR had, in the past, had a fund to pay for a debt review subsidy.
The Bill currently excluded legal persons as there were measures in place to address insolvency and so on. The legal advisor assured the Chairperson that she had stuck to those principles that had been in the mandate.
Mr Macpherson asked if someone was legitimately granted credit and something happened, such as losing one’s job, and one did not have credit life insurance, was it fair to the credit provider to be penalised when he had given credit legally and in terms of the law? That credit provider was penalised by being required to extinguish credit for something beyond his control. The first course of action should always be to assist a consumer through the debt review process. The Committee would have to engage banks, lenders and retailers on how they were going to be funded because they were going to have to account for the debt. Would bad debt provision spiral out of control and would credit providers have to increase bad debt provision? That was the big question he could not answer. Once the Bill had gone out for public comment, it could be addressed but he wondered if credit providers should not be consulted before the Bill went out.
The Chairperson stated that banks and retailers had been consulted the previous year and the exercise could not be repeated. The Chairperson requested a file be compiled of all that information and Committee Members should study it. The secretariat must provide full documentation to Members so that everyone was up to speed. They had commented that the Bill was not looking at every client and was not intended to penalise creditors but that the focus was on those who had been retrenched, etc. Their point was that the credit providers would not be getting their money in any case because the people that the Bill was targeting did not have the money to pay. There was a process for debt review. The Committee was dealing with debt relief and the criteria were very important. The Committee had to resolve the question of criteria to define the vulnerable group.
The Chairperson noted that one Member had been concerned about the powers being given to the Minister. One Minister might be great and have real integrity but the Committee did not appoint Ministers and another Minister could abuse the power. That was a matter to be resolved.
The Chairperson asked who could the Committee address the matter speedily. It took 48 hours to get a loan from the bank so why would it take so long to get debt extinguished. She reminded Adv van der Merwe that an electronic format of documentation was not valid and so perhaps both an electronic and paper format would be required. The Chairperson asked if there was there a fund, somewhere, that could help to pay for the debt extinguishment. The Committee had considered using funds from the UIF but she did not know that child-headed households would qualify under UIF funding. What fund could be found to refund the credit providers? Who would refund a company for a fridge? The Committee had not even considered whether a fridge was an essential item. She did not think so.
She asked the Committee to consider the powers being given to the Minister, keeping in mind that the process had to be swift. If the National Assembly was concerned with other parliamentary matters, would debt relief be addressed swiftly? Did Members have any questions on the powers of the Minister?
Mr Macpherson asked if it was it a once-off debt relief measure, or was it ongoing? If it was ongoing, he asked about the frequency of the measure. He could not support the Minister having the liberty to offer a debt relief measure any time he felt like it. If it stayed in, he would recommend that the Minister be required to offer debt relief at specified intervals. Alternatively, the Minister's debt relief measure should be put to Parliament for approval, when required.
Mr Esterhuizen did not want the Bill to create the impression that it was debt forgiveness or everyone would be writing to the Minister for forgiveness of their debt.
Adv van der Merwe stated that currently the Bill was providing for two measures. The one measure was an immediate, once-off debt relief measure where the debt incurred would have a cut-off date and all applications should be submitted and processed within six months. The second measure was for the Minister to be able to prescribe a debt relief measure under certain circumstances. Did they want the Minister to be able to do this? Those circumstances would not occur at regular intervals. The only one that would be ongoing, was an informal liquidation or sequestration measure to allow people to be sequestrated where there could be no benefit to creditors. The question was whether there should be additional criteria or even whether it should be a Ministerial Bill. The Committee had discussed whether the Committee should give the Minister permission to introduce a measure but, if that were the case, the Minister may as well take a Bill to the National Assembly as it was the same as the Committee taking a Bill to the House. She had not received a clear instruction from the Committee to go one way or the other.
The other circumstances that had been considered, and which would not occur with particular regularity, were adverse conditions, such as retrenchments or a disaster. The measure would be linked to events and not a time period. The sub-committee had determined circumstances such as an exogenous shock that caused widespread job losses or a regional disaster. Relief measures for child-headed households would be ongoing.
The Chairperson indicated that no decisions could be taken as there were only four Committee Members present and so these matters would be taken to the Committee meeting the next day.
Mr Macpherson thought that if the Minister could bring a Bill that spoke to a specific item such as the one to bail out Eskom and SAA, then the Bill should be a stand-alone Bill and not linked to the National Credit Act. If the Committee removed Section 88(e) from the Bill, there was nothing stopping the Committee or the Minister bringing another Bill when required.
The Chairperson would raise two or three issues, including the differences between a stand-alone Bill and an Amendment Bill amending the NCA, at the meeting the next day. Adv van der Merwe was requested to provide Members with a document noting the differences between the two forms of legislation. She could provide the one that she had previously presented to the Committee.
The minutes of 1 and 2 August 2017 were adopted.
Meeting was adjourned.