Debt Relief Committee Bill: consideration

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Trade, Industry and Competition

25 October 2017
Chairperson: Mr A Williams (ANC) (Acting)
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Meeting Summary

The Committee received a short briefing from the Parliamentary Legal Advisor on some considerations on debt relief. The policy issues raised by the National Treasury would slow down the process of the Bill, such as the transfer of the powers of the NCR, allowing the NCR to declare reckless credit agreements, and the quasi-judicial of the NCR to administrative function. Other policy issues that would not take a long time at all if included in the Bill were:
• To make credit life insurance mandatory on all credit agreements of six months or longer;
• Criminal liability applicable for unlawful lending and reckless lending
• Selling prescribed debt
• Offering credit life insurance in situations where it is not required.

Member said the Committee should take a strong stance on criminalisation, and ensure that fines imposed on financial institutions for reckless lending are hefty enough to hurt in order to get them to refrain from such behaviour. The Committee decided to look in depth at the criminalisation of reckless financial institutions, as well as creating a reporting mechanism to make it easier for consumers to report illegal credit lending. The in duplum rule was discussed.

Meeting report

Mr A Williams (ANC), Acting Chairperson, noted that Adv van der Merwe was requested to look into policy matters that could be included in the Committee Bill, at the request of the Department of Trade and Industry (DTI),  and report back to the Committee.

Parliamentary Legal Advisor report back
Adv Charmaine van der Merwe, Parliamentary Legal Advisor, noted that when the Committee started this process,  DTI had requested that other policy issues be considered as well as their review of the National Credit Act would still take some time. When one looks at its policy document it becomes clear that the timelines to formulate some of these policy matters would take a long time. One of those would be providing more administrative powers to the National Credit Regulator (NCR) allowing it to declare credit agreements reckless and allow the NCR to suspend the reckless credit agreement rather than wait for it to be adjudicated on by the National Consumer Tribunal (NCT). The reason that extending this function would take a long time is because the functions are being swopped from a quasi-judicial approach to an administrative function done by the Regulator. More research would need to be done before that can be changed. The same concern was the policy matter of hearings before the Tribunal. This would take a long time to consider and change.

However, there were some matters that would not require a lot of work to be done, and public participation would suffice. These include:
• To make credit life insurance mandatory on all credit agreements of six months or longer. There might be implications in terms of cost of credit, but public participation would be sufficient to provide the Committee with enough information to take a stance on the matter;
• Selling prescribed debt
• Offering credit life insurance in situations where it is not required such as selling credit insurance to a pensioner.
These are the only policy items that can be included in the Bill that would not delay the Bill.

Ms P Mantashe (ANC) asked about the implications of the cost of credit.

Mr D Macpherson (DA) stated that credit life insurance is a form of debt relief, however employees are not sufficiently informed about the products that they pay for and employers have a duty to embark on some form of educational awareness about finances. It would be helpful when people are being retrenched, that the employer can ensure that someone looks at their credit agreements and life insurance and advise whether they would qualify to claim against that insurance. Whether it is something that must be made mandatory, he would have to dig deeper to get more information on that.

He was disappointed about there not being enough time to include the policy matter of allowing the NCR to suspend reckless credit agreements until they are adjudicated; this is not something that should be difficult to legislate, and public participation would suffice. He asked Adv van der Merwe to look into this. In the African Bank case, for instance, people are still paying interest on reckless credit agreements to the South African Reserve Bank (SARB). These should have been suspended, the Regulator should have stepped in and investigated the matter, relief should be provided to those people and perhaps Adv van der Merwe can look into this and see if it is something that can be included in the Bill or not.

Mr J Esterhuizen (IFP) said it seems as if the Committee is dwelling on pretty much the same points. His concern was about refinancing. The debt is not being rearranged to assist consumers but rather banks are refinancing the debt, and that is a problem. If a consumer goes to a debt counsellor, the payment period is often extended for a longer period and the amount gets exacerbated due to interest – in some instances consumers would still fail to repay the debt in full. The financial institutions must also be protected and banks have already started to build in measures and protection and it is becoming more and more difficult for consumers to obtain credit.

Adv van der Merwe replied about credit life insurance having an effect on the cost of credit, saying perhaps the NCR is better suited to address that question because this is more about the practical implications of the Bill. If credit life insurance is mandatory, it will increase the costs of providing credit, this cost eventually comes down to the consumer. Any requirement placed on the credit provider will be transferred to the consumer – the credit life insurance will be a premium which means that the consumer will be paying more for that agreement. The intention is to help people who are retrenched but that also affects a whole spectrum of other items such as purchasing a vehicle. On the suspension of a reckless agreement by the NCR, she advised that she will need more time to look into this, if the Committee allows, she would get back with the results on this. As for refinancing, she does not think this will be a quick fix because it is basically changing a practice; but if there are specific instructions from the Committee she can also look into this.

The Chairperson stated that the powers of the NCR will not be addressed in this level, that power will be addressed in the departmental Bill, the Committee wants a bill that will alleviate debt on the poorest people and it does not want to be held up by changing powers of the NCR, even though it is needed. The Chairperson asked the members whether they think criminalisation is the way to go or rather impose hefty fines, because criminalisation seems a bit too much.

Mr Macpherson stated that Adv van der Merwe should be given space to look into the powers of the NCR, and whether that should be included in the Bill, and that will not slow down the Bill.

Mr Macpherson referred to criminalisation, saying the Act is very clear that anyone that is found to be lending money recklessly, and it is adjudicated to be reckless lending, that credit agreement is extinguished. That in itself is fine, it is a penalty in itself but it does not stop people from lending recklessly. Where the problem comes in, is that the NCR has the power to impose penalties on financial institutions that are lending recklessly, and those functions are somewhat fast-tracked in negotiations which then allow these institutions to get away with this far too easily and the fines are lenient. He suggested that one needs to impose minimums or percentages of turnover for reckless credit lending – this would be a good place to start. Before the African Bank collapse, there was billions of rands of reckless lending, and government absorbed that bad debt book but who must pay for it – different models can certainly be looked into to address this.

Mr Esterhuizen stated that the NCR needs to take some responsibility as the rearranging or refinancing of debt comes down to the poor subsidising the rich.

Ms Mantashe stated that imposing fines and criminalisation are synonymous; the Act must be enforced and the NCR needs to assist in this.

The Chairperson asked whether Members agree that they go for fines or criminalisation.

Ms Mantashe suggested that Members agree on the minimum fine that can be imposed.

Mr Macpherson stated that he will do some research on it, and look at other examples from overseas and some practice models. For institutions that have been found lending recklessly, the option to negotiate the fins must be off limits. Secondly, it needs to hurt financially to the point that there is no consideration to do it again. Financial institutions make a lot of money and if you tap into fining them a percentage of their turnover then they will stop, but there must be a minimum fine that is non-negotiable. In addition, the Committee needs to ensure that it does not make lending prohibitive and make financial institutions be overly cautious. The financial lending system needs to be interrogated on whether it is still allowing money to be lent to people that do not qualify for credit. He requested that the Committee gives him some time to do some research on this and get back to the Committee.

Mr Esterhuizen stated that financial institutions are already so heavily regulated but they must not get away with reckless lending, he requested some time to look into this.

Ms Mantashe asked about the legal implications of a debt being suspended.

Adv van der Merwe replied that once a debt is suspended, the consumer does not have to make further payments, the obligations stop and the credit provider is not allowed to charge any interest on the principal amount (debt). Further, the credit provider’s rights can not be enforced in a court of law during the period of suspension. Once the suspension is lifted, the debtor’s obligations and the creditor’s rights again take effect. As for the extinguishment of an agreement, this means the debt is completely shut off – it stops and will not be revived later on.

Mr Esterhuizen asked if the in duplum rule applies if a debt is being rearranged or refinanced.

Adv van der Merwe replied that it always applies, but she is not certain how it works in practise. On the date of the rearrangement, upon completion of the debt, the interest could have doubled the amount owing.

The NCR representative stated that in duplum runs from the date the consumer defaults, once the interest balance reaches the principal amount, the credit provider is not allowed to charge anymore interest on the capital amount up to the date of default.

Mr Macpherson stated that any revision to debt counselling is going to slow down this bill. This whole system of debt counselling needs to be reformed - this will be time consuming. Dealing with unscrupulous lenders is the crux of the matter. This is where there is an opportunity for tough criminal sanction and it is the one section where this bill has a glaring gap. One needs to deal with illegal lending in situations where some lenders take the borrower’s ID books.

Mr Esterhuizen said that the in duplum rule is nonsense, people are forced to go to these reckless lending institutions, because the registered banks take advantage of them. The Regulator is also much to blame and it criticises people who speak out on the African Bank matter and Ellerines.

Mr Macpherson said to the Regulator that the number of people who have been criminally charged for providing illegal credit are very few. A mechanism is needed for people to report illegal credit lending. People do not report it. In some instances these institutions take people’s IDs and people are immediately discouraged to report these mafia acts. A safe space needs to be created for people to be able to report these crimes. The Committee needs to look at how SAPS can be involved in the reporting process to bring this reckless lending behaviour to a halt.

Mr Esterhuizen emphasised that there are already so many laws protecting consumers but those laws are not being implemented – this is problematic.

The Chairperson suggested that at next week's meeting, Mr Macpherson provide feedback on his research on some of the matters that he had raised.

Adv van der Merwe explained that the reason unlawful lending is not reported to the police is because it is not an offence. It is illegal in the sense that it contravenes an Act but not illegal enough to be a crime that can be reported to the police. She requested that she draft something on today’s discussions and report back to the Committee.

The meeting was adjourned.


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