Debt Relief Bill: deliberations on Subcommittee recommendations

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Trade and Industry

07 November 2017
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

Debt Relief Committee Draft Bill not handed out to the public
The Sub-Committee on Debt Relief reported back to the Portfolio Committee on its 1 November meeting to address flagged concerns in the Debt Relief Committee Bill. The National Credit Regulator, National Consumer Tribunal and the Department of Trade and Industry attended the meeting to give guidance and input in their areas of expertise. The Committee was briefed on the recommendations made by the Sub-Committee.

A new clause for insertion in the Bill places an obligation on credit providers, when assessing the consumer’s affordability, if a credit agreement is found to be reckless, that agreement must be reported to the National Credit Regulator or Magistrates Court. An obligation is also put on debt counsellors to similarly report reckless credit agreements. The offence of failing to report a reckless lending agreement was seen to be serious. The Committee agreed that such an offence should attract an administrative fine of either the greater of 10% of the respondent’s annual turnover or R1 million.

It was agreed that the beneficiaries of the debt relief should be poor people earning a monthly salary of less than R7 500 and note should be made of child headed households, woman headed households or disabled people in the Bill. The Sub-Committee proposed that there should not be a requirement for proof of over indebtedness for a person to qualify for debt intervention, if their monthly salary is under R7 500. This proposal was accepted by the Committee and inserted in the Bill.

For a person to qualify for debt intervention, they must not be in possession of realisable assets. The Magistrates Court Act stipulates that there are assets than cannot be executed, and the value of those assets should not exceed R2 500. The question was whether this should be added to the Debt Relief Bill. Some of the assets that may not be executed include household furniture, necessary bedding, food, pension fund and retirement annuity, clothing, professional books and necessary tools of trade, but these are be limited to a maximum of R2 500 per category. A disagreement ensued on the maximum value of professional books and tools which must be excluded. Some considered R2 500 was too low considering the market value of items such as laptops. The DTI expressed great concern that tools of trade should be limited to R2 500 as this affected a person’s ability to earn a living. The Committee flagged realisable assets.

The debt of the person applying for debt relief may not exceed R50 000. The R50 000 includes the total of all unsecured debts from every single credit agreement. The Committee agreed that developmental credit agreements such as NSFAS loans, should not be extinguished by applying for a debt intervention.

The National Consumer Tribunal could make the following debt intervention orders:
The applicant does not qualify; refer applicant to a debt counsellor for debt review; cap charges, fees and interest for a period not exceeding 12 months; suspend the credit agreements for 12 months; extinguish a percentage of the debt or the entire debt depending on circumstances of each case.

The Committee noted the Sub-Committee recommendations that the Tribunal may also impose certain conditions. These conditions include the attendance financial literacy or budgeting skills programme and the limitation of the applicant’s right to apply for more credit for a set period.

The Committee agreed that a person receiving debt intervention may be rehabilitated after having paid the full amount of debt and the interest as determined by the Minister. The rehabilitation application must be supported by a confirmation letter from all credit providers stating that they have been paid or reached a settlement agreement with the consumer.

A debate ensued on the powers of the Minister to prescribe a debt intervention for household debt due to a significant shock that caused job losses or natural disaster. The Sub-Committee had recommended that the Minister must consult the Minister of Finance, Minister of Justice, National Consumer Tribunal, credit industry and table a report in National Assembly that has to be approved. A notice must be published in the Gazette allowing 30 days for people to comment. The Sub-Committee felt that it would not be appropriate to give the Minister too much power on debt intervention measures. The reason for these strict requirements was debt relief may have serious consequences on the economy. However, the Committee could not agree on whether the Minister should be given the power to bring a special Bill or if the powers should be prescribed in the current Bill on how the Minister should exercise such powers. This matter was flagged.

A new clause providing for credit life insurance was inserted on the Sub-Committee. The provision stipulates that where a credit agreement exceeds six months, and the principal debt does not exceed R50 000, the credit provider and the consumer must take out credit life insurance for the duration of the credit agreement. The credit life insurance is made mandatory by the newly inserted provision. The Committee could not agree on the amount for the cover which had been proposed as R4.50 for every R1000 of the debt. This was flagged to be reconsidered later.

It is an offence for a person to provide credit services without being registered. The Sub-Committee submitted that section 161 of the National Credit Act already lists this as an offence and provides for a fine or imprisonment for a period not exceeding 12 months or both. The question was whether the same penalty should be incorporated in the Bill. Adv van der Merwe proposed a maximum of 10 years since this was a serious offence. Some Members vehemently disagreed stating that a jail sentence would be inappropriate for people who have not committed violent crimes. It was acknowledged that prisons are overcrowded there was the view that this white-collar crime is a serious offence. The crime may not involve physical harm or blood on the perpetrators’ hands, but it has severe consequences for the victims and such criminals. The Committee could not reach an agreement on an appropriate penalty and it was flagged to be discussed the following day.

An offence was created for submitting false information in a debt intervention application or presenting information with the intent to mislead the Regulator or Tribunal. The Parliamentary Law Advisor suggested a maximum sentence of 10 years imprisonment because it is a serious offence. Some Members said this would be too harsh. They proposed a fine depending on the amount of debt relief applied for or the Tribunal could consider the penalty on a case by case basis.

Meeting report

Opening Remarks
The Chairperson thanked Mr Williams for acting on her behalf while she was overseas. She noted that a while back she had attended a joint meeting of the Committees of Trade and Industry and Finance where Members had disagreed on the statistics used to measure Gross Domestic Product (GDP). She had read an article on GDP while overseas and realised that the issues facing South Africa are not unique and other countries are confronted with the same problems. The central question in the article was what the factors are that a statistical officer uses when measuring GDP. She posed the question whether there is a need to revise how GDP measured in South Africa. She advised the Committee to also look at what is happening in other countries to broaden their outlook.

Report back by Subcommittee on Debt Relief Bill
Mr A Williams (ANC) stated that the Sub-Committee had met even though very few members attended. Since there was no quorum and only ANC members had attended, it was therefore wiser to go through the clauses again. Mr Macpherson made a written submission which was considered during the proceedings. The Sub-Committee was close to consensus on nearly all the issues, only a few were remaining. He proposed that the Committee should therefore go through all the clauses in the meeting.

The Chairperson agreed. She then recognised the representatives from the Department of Trade and Industry (DTI), National Credit Regulator (NCR) and National Consumer Tribunal (NCT). She asked the Parliamentary Legal Advisor to lead the Committee in discussing the clauses that needed attention.

Failure to report a reckless credit agreement and administrative fine
Adv Charmaine Van der Merwe, Parliamentary Legal Advisor, said the Sub-Committee considered a new clause for insertion in the Bill. It places an obligation on credit providers, when assessing the consumer’s affordability, if a credit agreement is found to be reckless, that agreement must be reported to the National Credit Regulator or Magistrates Court. An obligation is also put on debt counsellors to similarly report reckless credit agreements.

A question that came up in the Sub-Committee was whether failure to report the agreement by the credit provider or debt counsellor is a criminal offence? Should it result in the suspension of the licence of the credit provider or should it attract an administrative fine? The administrative fine provided for in section 151 of the National Credit Act is hefty. Section 151(2) provides that an administrative fine imposed in terms of this Act may not exceed the greater of 10% of the respondent’s annual turnover during the preceding financial year or R1 million. This is the maximum fine in the National Credit Act for not reporting reckless agreements. The Sub-Committee proposed that this administrative fine would a reasonable penalty which must apply to debt relief. The Committee may however make proposals to change the penalty or amount.

The Chairperson asked Mr Williams if there were specific issues that the Sub-Committee had flagged and needed the Committee’s attention. She asked if the administrative fine needed to be discussed or should be flagged and considered in another meeting.

Mr Williams replied that the reason he had proposed the Committee go through all the clauses is few members of the Sub-Committee attended and there was no quorum. There are some sections that the Sub-Committee agreed to refer to the Committee and the administrative fine was not one of them. However, he felt that the Committee should engage on all the clauses that the Sub-Committee dealt with.

The Chairperson said that she had received a report from the Sub-Committee which had some flagged issues. However, she asked Adv van der Merwe to continue briefing members on the clauses that needed the Committee’s attention.

Mr Williams reminded the Committee that a decision should be made on the amount for the administrative penalty for those who do not report reckless lending.

The Chairperson asked for comment on the administrative fine.

Ms S van Schalkwyk (ANC) said the administrative penalty is hefty and it should be applicable to those not complying with the law.

The Chairperson said there should be cross reference to understand what section 151 of the National Credit Act provides for. She asked Adv van der Merwe to assist with an interpretation of section 151 on the administrative penalty.

Adv Van Merwe replied that section 151 provided for administrative fines and it states that the fine may not exceed 10% of the annual turnover or R1 million. Therefore, it could be any amount from R1 to R1 million

The Chairperson asked if that amount would be regarded in the courts as reasonable.

Adv Van Merwe replied that the concern for failure to report a reckless lending agreement was that debt counsellors came across a lot of these agreements in practice. What happens in practice is that a consumer may report it if they choose to do so, but in most circumstances the agreements are not reported since the consumer is also part of the negotiations with the credit provider. The problem with not reporting reckless agreements was that credit providers may continue to enter more reckless agreements with the consumer. Therefore, the new Bill will make reckless lending an offence and the failure to report makes it a serious offence. Hence, there should be a consequence for such an offence. The administrative fine will be a deterrent measure. A burden was not being placed on credit providers, since it was fair and easy to report these agreements.

The Chairperson said there is a link between the Consumer Protection Act, National Credit Act and the Bill under discussion on the administrative penalty. She asked the National Credit Regulator (NCR) and the DTI Deputy Director General to comment on the administrative fine.

Ms Nomsa Motshegare, NCR Chief Executive Officer, said the section on administrative fine stipulates that the penalty imposed should either be the greater of 10% of the annual turnover or R1 million. Therefore, the amount could either be R1 million or more, depending on what the 10% is and which is greater.

The Chairperson thanked Ms Motshegare for providing clarification

Mr MacDonald Netshitenzhe, DTI Acting Deputy Director General: Consumer and Corporate Regulation, said the DTI interpretation of the section was the same as that of the NCR. He proposed that if the interpretation of the Committee was that the section only stipulates for R1 million to be the maximum fine, it should be revised because R1 million is not a deterrent and must be increased to serve the purpose of the Bill.

The Chairperson said the Committee agrees with that interpretation.
Adv van der Merwe agreed with the interpretation provided by the NCR and the DTI. She said it was not an unfair penalty since it could either be R10 or more depending on what 10% of the annual turnover was.

Categories of targeted beneficiaries of debt relief
Adv van Merwe stated that there were two categories of targeted people. One was child headed households and the other households with a monthly income of less that R7 500. The question that came up in the Sub-Committee meeting was whether women-headed households and persons with disabilities should be included. The list of possible target groups started increasing. Another question on child headed household was whether children who are beneficiaries of a trust and well taken care of, should be included. The Sub-Committee agreed that the target should be poor people whose monthly income is less than R7 500. Therefore, the proposed change now reads the person who is an applicant should be South African citizen, permanent resident, natural person and has no income of more than R7 500 per month and has no realisable assets and is not subject to debt review contemplated in section 86. She had added a minor, disabled person, a minor heading a household, or woman heading a household. The Sub-Committee wondered if there should be a separate category for child headed household and another category for people whose monthly income is less than R7 500.

The Chairperson said by adding the word ‘minor’ all children headed households would be included.

Mr Williams said if there is a list of everyone who should benefit from the debt relief measure, it would be problematic. He suggested that they limit the scope to only to those with a salary of less than R7 500 to avoid abuse. Whether it is a child headed household, woman headed or disabled person, if the monthly income is less than R7 500, then the person would qualify for the debt relief. By including ‘minor’ would ensure that the right people who should benefit are aware that they qualify for debt relief.

The Chairperson said before the meeting she had discussed with the Secretariat about engaging with the media. Each Member would be given an opportunity to speak on radio about debt relief to ensure that people are aware of this information. Radio is one of the best mediums to ensure that information reaches the most vulnerable people.

Adv van der Merwe noted the Sub-Committee discussed if the R7 500 threshold should be a net or gross amount. The Sub-Committee agreed that it must be the gross amount and not net. She had therefore already ‘gross income’ into the Bill. The problem with making the R7 500 a net amount is it may defeat the purpose of the Bill in targeting a specific group of people.

The Chairperson asked for comment but no one disputed that R7 500 should be the gross income.

Requirement for over indebtedness
Adv van der Merwe referred to whether the person who applies for debt relief should be over indebted. The percentage of instalments being paid against income is important to determine. Should it be 20 or 25%? If you look at a salary of less than R7 500, any percentage would cause over indebtedness. Therefore, the Sub-Committee proposed that there should not be a requirement of over indebtedness for a person to qualify, if their monthly salary is under R7 500.

The Chairperson asked for comment but no one disputed this including DTI, NCR and NCT.

Realisable assets
Adv van der Merwe said for a person to qualify for debt relief, they must not be in possession of realisable assets. But there are exceptions to this requirement. In terms of the Magistrates Court Act, there are assets that cannot be executed, but the value of those assets should not exceed R2 500. The question is whether the assets stipulated in the Magistrates Court Act should incorporated into the Debt Relief Bill. Some of the assets included household furniture, necessary bedding, supply of food and drink, clothing, professional books and necessary tools of trade, but these must each be limited to a maximum of R2 500. The Sub-Committee proposed that the assets which must be limited to R2 500 are tools of trade, professional books and household furniture. However, bedding and clothing, food and drink should not be limited. Tools of trade and professional books may be more expensive than R2 500 and one cannot live without these. However, for the purpose of qualifying, their value is limited to R2 500.

The Chairperson asked if the R2 500 not too low. Someone may have three children at matric level who need financial calculators and three calculators may amount to R1000. One may have a laptop or motorcycle which accumulatively would be more than R2 500. She asked Mr Williams if the Sub-Committee had considered these factors in its discussion on necessary tools and professional books. She expressed her concern that the amount was too low.

Mr Williams replied that the Sub-Committee had considered her concerns, but the decision was informed by the fact that people may abuse the system when they have realisable assets, but still apply for debt. Some people may own or inherit realisable assets which they can sell to pay off their debts, but still apply for debt relief. The aim of the Bill is to focus on poor people. The Sub-Committee felt that the amount was sufficient.

The Chairperson asked the Committee was she was the only one who felt that the amount was too low

Mr D America (DA) replied that he agreed with Mr Williams that the purpose is to target poor households. However, he had been to poor households with assets worth more than R2 500. He suggested that a category be included in the Bill to include the poor households who earn less than R7 500 per month and have assets worth more than R2 500. He proposed that the amount be increased to R3 000 to address the imbalance.

The Chairperson said who will determine the value of the assets? Some second-hand shops may be willing to buy the same item for a different price depending on how the seller has negotiated. She repeatedly expressed her concern that the amount was too low.

Ms Van Schalkwyk said she had expressed her view to the Sub-Committee that R2 500 was too low especially if one considers the market value of very small items like a small fridge. The market value of a small fridge is R2 500, and people may be forced to sell this which is essential for living. In her view, R2 500 was an unreasonable amount

The Chairperson asked the Committee to rethink the amount.

Mr Williams replied that the R2 500 amount did not include bedding and clothing but only applies to specific items. He advised the Committee to propose a figure. Some people may inherit property which can be realised to pay all their debts, but still apply for debt relief. The focus is on poor people and the Committee should not lose track of that fact. He proposed that R5000 may be reasonable.

The Chairperson said the Bill will published for the public to comment, and there will be more time for the Committee to discuss the figures.

Mr Netshitenzhe said the amount for necessary tools of trade should be excluded. He passionately argued that tools of trade are used for generation of income. If tools of trade are taken away from people, they may never be able to earn income again. He asked how necessary tools of trade can be equated to a value? People need to earn a living.

The Chairperson suggested that realisable assets be flagged and discussed later.

Adv van der Merwe proposed that the Committee could be advised by the Department of Justice since it was suggested the amounts in the Magistrates Court Act. A sheriff cannot attach tools of trade or anything which has a value of less than R2 500. The person from DoJ who advised the Sub-Committee should brief the Committee on this. She added that the Magistrates Court Act provides that ammunition or a gun needed for one’s employment such as a police officer may not be attached. However, as we are looking at a gun free society, a gun as a tool of trade was taken out of the Bill.

Maximum amount of extinguishable debt
Adv van der Merwe said the Sub-Committee considered the clause that states the debt may not exceed R50 000. The R50 000 includes the total unsecured debt. Therefore, every single credit agreement forms part of the R50 000 whether it forms part of a court order, developmental credit agreement etc. However, when it comes to the actual relief, that relief may not be granted in respect of the matter before the magistrates court. If the magistrate feels that it is necessary to refer the credit agreement for debt relief, the Bill provides for such a referral.

The Sub-Committee discussed whether a developmental credit agreement should be subject to a debt intervention. A developmental credit agreement includes an educational loan or for acquisition of low income housing or anything that the Minister may prescribe. The question is whether loans for education or for starting a small business should be extinguished by debt intervention. The Sub-Committee agreed that developmental credit falling under section 10 should not be extinguished by applying for debt intervention. The reason is that credit providers may stop giving that type of credit to consumers.

Possible orders that the Tribunal may grant
Adv van der Merwe stated that a clause provides for possible orders that the Tribunal may grant. These include a debt intervention order or an order that a person does not qualify for debt intervention or refer the applicant to a debt counsellor for debt review. If the Tribunal believes that the applicant can pay the debts, it may impose an order to cap charges, fees and interests for a period not exceeding 12 months. After the 12 months, the applicant can return, and the Tribunal will review the agreement to assess whether to make another order or refer the applicant to a debt counsellor, whichever order it deems fit.

The question discussed in the Sub-Committee was whether the period for capping of interest and other charges should be six or 12 months. The proposal from Mr Macpherson was six months. However, the Sub-Committee felt that six months was insufficient and it places a burden on applicant to go to the Tribunal twice and on the Tribunal to review the application twice. Therefore, it was agreed that 12 months would be sufficient and reasonable, since the applicant’s personal circumstances might have changed.

The Chairperson asked the NCT Executive Chairperson for his opinion on the period.

Prof Joseph Maseko, NCT Executive Chairperson, replied that 12 months was a reasonable period to avoid overburdening the Tribunal and the applicant as well

The Chairperson asked the Committee if everyone agreed and no one objected.

Adv van der Merwe said that if the Tribunal decides that a person qualifies for debt intervention, it may suspend the credit agreements for 12 months. Before the expiry of the 12 months, the consumer must return for the Tribunal to review the financial position of the applicant and if the Tribunal deems it fair, it may extend the period again for another 12 months or extinguish the debt if the financial circumstances have become worse. The clause allows a Tribunal to extinguish a certain percentage of the debt and the Tribunal will determine the percentage on the case before it. The question discussed in the Sub-Committee meeting was whether, it should be a specific percentage or a flat amount. The Sub-Committee agreed together with National Consumer Tribunal that the Tribunal should look at specific circumstances of the applicant because each consumer’s circumstances and financial position are different. Therefore, the Tribunal could extinguish 20% or 100%, whatever the Tribunal deems fit.

The Chairperson asked if one member of the Tribunal could make that decision. How many members of the Tribunal needed to make such a determination?

Adv van der Merwe replied that a concern in the Sub-Committee meeting was that a single Tribunal member could be biased. During that meeting, she had explained to the Sub-Committee the difference between an accusatorial and an inquisitorial system. Bias is more relevant and likely in the inquisitorial process where the person presiding over a matter participates in the process and is active. However, the system used in South Africa is accusatorial, meaning that the person who presides does not take part in the action actively and does not choose the evidence to be placed before them. Further, the requirements for a person to preside in a Tribunal are fair. There are also single judges that preside over such cases. The understanding from the Sub-Committee was that one Tribunal member would be sufficient and that could make the process faster.

The Chairperson said there is an element of objectivity that comes with the accusatorial system. She asked if there are countries where debt relief was being dealt with using an inquisitorial process.

Adv van der Merwe replied that Wales, New Zealand use adversarial and other countries that have the same colonial history as South Africa. Some countries that follow the Roman-Dutch law use the inquisitorial process like Sweden.

Adv van der Merwe stated that when the Tribunal makes any of the prescribed orders, it may impose certain conditions such as attending a financial literacy or budgeting skills programme. The Sub-Committee was in favour of such a programme, but it was acknowledged that currently the programme was not offered. Therefore, the Sub-Committee agreed that the programme must be made mandatory and inserted in the regulations. In those regulations, the Minister must make provision for such a programme. However, Ms Mantashe had expressed her concern about putting such a burden on the Minister. It was then decided that the programme is made discretionary for the Tribunal to decide whether an applicant should attend the programme once it is set up. Therefore, the Sub-Committee agreed that attendance of the programme cannot be mandatory but optional for a Tribunal to make the order.

Limitation of the right to apply for more credit
Adv van der Merwe said that another condition that the Tribunal may set is the limitation of the applicant’s right to apply for more credit for a period decided by the Tribunal. The Tribunal has discretion to limit the period that a person is not allowed to apply for credit. However, developmental credit is not affected by this limitation. The Tribunal may extend the period in which a recipient of debt intervention may not apply for more credit. The question for the Committee to decide was whether the extended period should be mandatory or left to the Tribunal’s discretion. The other question was whether there should there be a specific time frame or the Tribunal should have discretion to impose any timeframe.

Adv van der Merwe said if the Tribunal sees that person qualifies for applying for credit, it may still suspend the right to apply for credit for 12 or 24 months. Again, from the date of extinguishing a debt, the Tribunal may impose a 36 month period to limit the right to apply for more credit. However, these periods are proposals and not final. Therefore, the Committee should decide whether the periods are fair and whether the Tribunal should have discretion to impose any period.

The Chairperson said the Committee should think about the credit limitation periods and Adv van der Merwe will provide further feedback.

Adv van der Merwe stated that there is one credit limitation exception. The debt intervention recipient may apply for developmental credit and public interest credit. The Sub-Committee’s decision was that people should be allowed to apply for developmental credit.

Rehabilitation
Adv van der Merwe said the question was asked what would happen if someone who has been under a debt intervention order won the lotto and could repay all the debts. Despite being able to pay the debt, such a person would be limited to apply for more credit. It was agreed by the Sub-Committee that a person can rehabilitate him/herself so a new provision on rehabilitation was inserted in the Bill. If a person has managed to pay all the debt, such a person may be allowed to apply for more credit.

The Chairperson agreed that there are cases where people can suddenly get money and repay all their debts. In such circumstances, they should not be barred from applying for more credit if they have been rehabilitated.

Prof Maseko, NCT, said that the poverty is a mental issue and even though a person has a lot of money, they should know how to use money. People may have money but if they are unable to use it wisely, they may still end up in debt. The Committee should consider educating children from primary school about financial intelligence and savings. He emphasized that people who win lotto lose the money quickly because they are not rehabilitated.

The Chairperson agreed with Prof Maseko and said that educating young people on financial literacy should be prioritised because debt is a psychological challenge. Therefore, the mandate should not just be about debt relief, but encouraging savings as well.

Adv van der Merwe stated that rehabilitation as contemplated in sequestration processes has a component of interest. For a person to be rehabilitated, they should pay interest as from the date of sequestration. Therefore, the Sub-Committee considered whether, for purposes of debt relief, a person should pay only the principal debt or interest as well for them to be regarded as having been rehabilitated. The question for the Committee was whether interest from the date of the application or the date of the debt intervention order should be included. In order words, should the applicant be permitted to pay only the actual debt at the time of application or interest should also be paid.

The Chairperson asked Committee to comment. She reminded the Committee that they represent the whole of South Africa and people rely on them to come up with solutions. She asked Adv van der Merwe to reiterate the point since it was a serious issue.

Adv van der Merwe restated that if debt relief is compared with sequestration, for a person who has been sequestrated to be rehabilitated by paying off the debts subject to the sequestration order, there is interest attached to it. Therefore, the person pays both the actual debts and the interest. The question is whether a consumer who has received debt intervention and wants rehabilitation and does not want to wait the 24 or 36 months, should the person be required to pay off the debt or should interest be added.

The Chairperson asked why a consumer should be penalised if able to pay the debts and interest earlier.

Mr Williams replied that the Sub-Committee was of the opinion that interest should be included. He said it was not like a person was being penalised since their debts were suspended. If a person wants to be treated equally like everyone in South Africa, they should pay both the debt and the interest to be rehabilitated.

The Chairperson asked the Committee if Mr Williams’ proposal was reasonable and no one objected. She then asked if the interest rate should be determined by the Minister or a flat figure must be inserted in the Bill. The Committee agreed to leave the interest rate to be determined by the Minister.

Adv van der Merwe the said the other question to be determined was whether the credit provider should be given an option to object to an application for rehabilitation by a consumer. The Sub-Committee discussed this question and agreed that the consumer must submit proof that all credit providers were paid in full. If the consumer has paid all the credit providers in full, they will qualify to apply for rehabilitation. It is therefore a requirement for the consumer to notify the credit providers of the intention to apply for rehabilitation. The applicant should then get a letter from all relevant credit providers to support the rehabilitation application. The letter should either confirm that the credit provider has been paid in full or that a settlement agreement was reached with the consumer. Therefore, if applicants have submitted the compliance letters from all credit providers, they would qualify for rehabilitation.

The Chairperson asked the Committee if everyone agreed and no one objected.

Prescription of debt intervention by Minister
Adv van der Merwe said the Minister can prescribe a debt intervention for household debt when there is a significant economic shock causing job losses or a natural disaster affecting certain people. The measure that a Minister may make would only apply to indigent persons, child headed households, persons with an income of less than R7 500 who have suffered an unforeseen loss.
This measure may only be in respect of suspending an agreement or extinguishing it. The Minister’s powers are limited in terms of the intervention orders that can be made. If the Minister wishes to prescribe debt intervention, there must be consultation with the Minister of Finance, Minister of Justice, National Consumer Tribunal, the credit industry and a report tabled in the National Assembly. A notice must be published in the Gazette allowing 30 days for people to comment. All these measures were inserted because the Sub-Committee felt that it would not be appropriate to give the Minister too much power in respect of debt intervention measures. The other reason for these strict requirements is because the debt relief may have serious consequences on the economy.

The other option is allowing the Minister to bring a Bill to Parliament rather than using these strict requirements to prescribe debt intervention. However, the concern of the Sub-Committee was that the discretion given to the Minister was too broad. Therefore, it was left to the Committee to decide whether the Minister should bring a special Bill or be given powers in this Bill to prescribe debt intervention in the future.

The Chairperson said if the Committee wants the Bill to be implemented speedily, what would be the shortest process? Would it be necessary to have the long process involving public comment? The urgency of the Bill must be considered since there was no such measure for a debt relief before. Should the Minister bring the Bill or follow the long strict process. She asked Adv van der Merwe to give her opinion.

Adv van der Merwe replied that if the Minster was asked to bring a Bill, it would have to be reviewed by the Committee. Even if the Minister tables a Bill, there is still a requirement to consult the Minister of Finance, Minister Justice, National Consumer Tribunal, National Credit Regulator. It seems onerous because it is being stipulated in the current Bill under discussion, but in practice the process is the same. In practice, when a Minister proposes a bill, the Minister must submit this to the Committee. The consultation process is still applicable, and the regulations or bill must be brought be parliament unlike in the past. It will not be onerous to have the bill or regulations go through the consultation process and public comment.

The Chairperson reminded the Committee and Adv van der Merwe that the phrase ‘child headed household’ was replaced with the word ‘minor’ in the Bill and that such amendment must be inserted in all the necessary provisions.

Mr Williams suggested that the intervention prescribed by the Minister should be flagged.

The Chairperson and the Committee agreed to discuss it later

Credit Life Insurance
Adv van der Merwe stated that there is a new provision for credit life insurance. This provision stipulates that where a credit agreement exceeds six months, and the principal debt does not exceed either R50 000 or R100 000, the credit provider and the consumer must take out credit life insurance for the duration of the term of the credit agreement. The credit life insurance is made mandatory by the newly inserted provision. The reason for this is because the target group are people earning a salary of less than the R7 500. Such people would not likely enter into credit agreements for an amount exceeding R100 000. The question is whether the amount insured should be the principal debt, or should limited to R50 000 or less.

Mr America explained the understanding was that the target group are people earning less than R7 500. The Committee is aware that they are very vulnerable to retrenchment and loss of employment opportunities. Therefore, the proposal made by Mr Macpherson was that there should be a wider approach to include a lot people. It is seldom that poor households incur debts of R50 000. If the debt goes higher, the Committee could consider using another amount to be covered by credit life insurance.

The Chairperson thanked Mr America for outlining the argument made by Mr Macpherson.

Ms S Theko (ANC) asked what the premiums will be for the credit life insurance. She asked what the rationale for the insurance was.

Adv Van Merwe replied that credit life insurance covers the debt in case a consumer fails to pay the credit provider. The National Credit Regulator capped the amount for the cover to R4.50 for every R1000 to ensure that it is not excessive for the poor. The concern in the Sub-Committee was whether there should there be 100 or 50% cover of the principal debt. However, the rationale is that vulnerable people would not enter into excessive credit agreements and that is why it would be appropriate to have a cover of 100%. If the Committee prefers a sliding scale, then a provision may be inserted to provide for the Minister to prescribe a percentage for insurance for every type of a credit agreement which requires credit life insurance. She suggested that the NCR and DTI could also provide some inputs.

Ms Motshegare, NCR, said that if the Committee believes that R4.50 per R1 000 would be too much for people, then a sliding scale would be ideal

Mr Siphamandla Kumkani, DTI Acting Chief Director of Policy and Legislation, agreed with Ms Motshegare. He said that the current regulations dealing with credit life insurance, there is capping of percentages. In those regulations, credit providers have an option to either use a straight balance sheet for the consumer to pay the same amount until the debt has depleted or use a declining balance where the insurance reduces along with the outstanding amount of the debt.

The Chairperson said the Committee should keep the NCR and DTI comments in mind when deciding on this the following day.

Failure to register as a credit provider
Adv van der Merwe said the National Credit Act makes it an offence for a credit provider not to be registered. Section 161(b) of the National Credit Act provides generally that any person convicted of an offence in terms of this Act, is liable to a fine or to imprisonment for a period not exceeding 12 months, or both. However no penalty is specifically provided for under section 161 for failure to register as a credit provider. Section 157C of the Bill was a new provision which makes it an offence for a person to providing credit without being registered. The question discussed in the Sub-Committee meeting was whether the same penalties should be incorporated in the Bill. She asked the Committee if 12 months imprisonment was sufficient for the offence of providing credit without being registered. She proposed that the penalty may be 12 months imprisonment as already provided in section 161 of National Credit Act or it could be up to 10 years.

The Chairperson asked Adv van der Merwe to make for some professional recommendations for an appropriate penalty. The National Credit Act provides for the option of a fine or 12 months, but there should a different penalty for this.

Adv van der Merwe replied that according to her understanding from the NCR, failure to register as a credit provider is a serious offence. If it is serious and to protect consumers, credit providers must abide by the law. When the Bill is finalised and comes into force, it will not apply to non-registered credit providers and as such, it will be difficult to extinguish consumer debt. Even if a debt is extinguished, an unregistered credit provider will not abide by the order and may still demand payment from consumers. She stated that a fine or 12 months would not be sufficient, but a jail sentence of not less than 5 years would serve as a deterrent.

Mr H Lewis (DA) vehemently disagreed with Adv van der Merwe stating that a jail sentence would be inappropriate for people who have not committed violent crimes. He suggested that a severe fine would be a better penalty to cripple the illegal business rather than limiting the person’s freedom of movement or liberty.

The Chairperson expressed a concern that prisons are overcrowded and that it is expensive for the government to keep prisoners. However, she acknowledged that it is a serious offence to provide credit without being registered. She suggested that imprisonment should be the last resort. There should be a way of balancing the need to safeguard consumers and ensuring that a fair penalty is imposed.

Mr Williams said white collar crime is a serious offence and the Committee should impose a severe penalty because the crime has severe consequences for the victims. If a person has been misled by a white collar criminal, the consequences are especially severe if poor people are the target. Again, an unscrupulous person who is charged a fine may continue committing the same offence of conning people. He strongly disagreed with Mr Lewis. The crime may not have physical harm or blood on the perpetrator’s hands, but the consequence are serious and such criminals must be kept in prison.

The Chairperson said she has been to court to listen to cases and sometimes people are jailed for stealing just R100 or because they cannot afford to pay the fine. It is important to ensure that there must be a balance and not lose focus of what the Bill must achieve.

Ms Van Schalkwyk acknowledged that the consequences of crippling people financially have severe effects on their families and children in the long term. The effect may be equivalent to murder. For a long time, some people have been committing the offence of providing credit without being registered and a lot of people are affected badly. A strong message must be send to those individuals by imposing a serious penalty. Some of the individuals committing the offence may be able to pay a fine and continue committing the offence. She suggested that a more harsh punishment must be imposed, either by imposing a fine combined with community service, or a jail sentence. A fine alone would not be sufficient.

Mr Kumkani, DTI, said that the DTI experienced similar problem with executives who take decisions that affect the operations of the company and do not account for these. For instance, the decision to loan money is a decision taken at an executive level and people should not just lend money unscrupulously. To address the issue, the Companies Act now provides for delinquency of directors. The Committee may borrow that provision and use it in the debt relief legislation. The Committee may also consider blacklisting executives who take decisions that affect consumers.

Adv van der Merwe stated the proposal was not to the effect that a judge will impose 10 years, but there was discretion to impose an equivalent fine. The Criminal Procedure Act provides for many penalties and one of them is a jail sentence. In legislation, the gravity of an offence and sentence is highlighted through a penalty which is either a fine or period of imprisonment. This helps the judge to get an idea of the appropriate sentence by looking at the seriousness of the offence. She expressed her view that 12 months or a fine of R4 000 would not be sufficient. In respect of delinquency, the Companies Act provides for that and it would apply if the decision was made by a company to provide for credit when it is not registered. Therefore, if it is a company that has committed the offence, the provisions of the Companies Act would apply, and the director would be declared delinquent, hence it was not necessary to include it in the Bill. Again, if the person was a company itself, then the administrative fine kicks in to charge the company by looking at 10% of the annual turnover or R1 million whichever is greater.

The Chairperson asked Committee members to rethink the penalties and discuss them later.

Submitting false information in an application for debt intervention
Adv van der Merwe stated that another offence has been created. If a person submits false information in an application for debt intervention or presents information with the intention to mislead the Regulator or Tribunal, it would be regarded as an offence. The suggested maximum period of imprisonment was 10 years because it is a serious offence. She stated that the Committee may reduce the period if it deems the period unreasonable. There could be people who qualify for debt relief because their salaries are under the R7 500 but such people may have high valued assets which they sell and put the money into an annuity and fail to disclose the information when they apply for debt relief. There could also be misleading instances that are not serious and the option of a fine may be available, but the Committee should keep in mind that there could be serious falsification of documents or misleading information. In such circumstance, there must be an appropriate jail sentence.

Mr Williams said that the chances of a person applying for debt relief to pay a fine would be low since they are already struggling financially. However, a 10-year sentence was harsh for people who might have committed a trivial offence, who might be applying to be relieved from a R5 000 or less debt. Therefore, the fine to be imposed should depend on the amount of debt relief they apply for. He suggested that it be left to the Tribunal to apply an objective test and decide the appropriate penalty.

The Chairperson acknowledged Mr Williams’ suggestion and said that it is important to ensure that the Tribunal consider the penalty case by case. She expressed her concern that people understand how to apply for debt relief and how to fill in the forms. Debt relief must be accessible to the target people.

She reminded members to bring names for the Copyright Amendment Bill technical panel. The list is not conclusive, and members may still suggest other panellists. The panel should be representatives from different disciplines.

Meeting adjourned.

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