Debt Relief Committee Draft Bill not handed out to the public
The Committee met to deliberate on the flagged items in the Debt Relief Bill which had been raised in the previous meeting.
The Parliamentary Legal Advisor advised the Committee she had consulted the Department of Justice about realisable assets. She was told that the R2 500 maximum limit for realisable assets in the Magistrates Court Act was prescribed in 1994 and had not been reviewed. Therefore, due to inflation, the value of R2500 in 2017 was between R8 000 to R10 000. The Committee agreed to a maximum limit of R10 000 for realisable assets.
Another flagged item was whether the National Consumer Tribunal should be given the discretion to decide the conditions to impose whenever it makes an order. These included limiting the right to apply for more credit plus how long the period the limitation should be.
Members agreed that a five-year limitation period was excessive. It was acknowledged that debt relief for consumers was a risk to credit providers. A suggestion was made that the maximum period to limit a person’s right to apply for credit should be no more than 24 months. It was decided that the Tribunal should not have unguided discretion on the limitation length. The Committee should identify limitation categories and not impose blanket exclusion, and there should be a scale depending on the amount of debt. It was suggested that exclusion from having the right to apply for more credit should go hand in hand with rehabilitation. The Committee agreed that educational training could be used as an incentive to reduce the exclusion period. However, there was no consensus on how the programme would be conducted. The National Credit Regulator noted its training programme for debt counsellors and advised the Committee to look at the possibility of using the NRC model. There was also the suggestion of private sector training.
The other flagged item to be decided was whether the Minister could be allowed to prescribe debt intervention or whether it was necessary to have the Minister follow the normal procedure and bring a Bill to Parliament for debt intervention. The rationale for giving the Minister the discretion was that it would ensure speedy intervention in exceptional circumstances such as natural disasters or massive retrenchments.
The opposition strongly disagreed with giving the Minister the discretional power to prescribe debt intervention. They said the initial intention of this Bill was to provide a once off debt relief mechanism.
National Treasury commented that retrenchment and natural disaster were insurance issues and not credit sector matters. It proposed that it would be helpful to have a different policy to deal with those insurance issues. The DTI said that the focus of the Bill should be limited to vulnerable people. It emphasised that the Committee should limit the scope to the initial target of the Bill.
The Committee acknowledged that there should be mandatory credit life insurance for all credit agreements entered by consumers who qualify for debt relief. It had to decide the maximum amount of debt to be covered and the period to be covered. The Committee agreed that the maximum amount to be covered by the credit life insurance would be R50 000 for any credit agreement whether secured or unsecured
On penalties, the Committee agreed that any person who commits an offence contemplated in the Bill would face a sentence of a fine and/or imprisonment not exceeding 10 years. This penalty would apply to people who deliberately commit fraud to misuse the debt relief process such as submitting false information. Offences in the Bill that would attract a fine or imprisonment for credit providers include: Entering into an unlawful credit agreement, unlawful credit marketing practice, putting an unlawful provision in a credit agreement, covering a risk that that cannot reasonably arise such as retrenchment for a person who was on pension, operating without a licence, demanding that a person purchase insurance cover at an unreasonable cost. It was agreed that if these offences were committed by a juristic person (company), the Tribunal or court could impose a fine being the greater of 10% of annual turnover or R1 million.
Nominations for the Copyright Amendment Bill expert panel were Prof Jean Kachiga, Adv Natasha Pather and Adv Zodwa Gumede. It was agreed that the list was not conclusive and Members could still suggest other names.
The Chairperson appreciated the attendance by representatives from all the relevant entities within the Department of Trade and Industry (DTI).
Copyright Amendment Bill panel of experts
Ms C Theko (ANC) was asked to report on compiling a panel of experts. She noted that the Committee had taken a decision to identify people to serve on the panel for the Sub-Committee of the Copyright Amendment Bill. It was important to select experts who do not agree with the Committee to ensure that all matters will discussed vigorously. The list submitted was well thought through and Prof Kachiga must be added as well.
The Chairperson agreed with Ms Theko that it would be constructive to identify experts who do not agree with the Committee. She then reminded the Committee that a list of the panellists was circulated two weeks back. Some of the experts on that list were Adv Natasha Pather and Adv Zodwa Gumede. As the Committee seemed to be unaware of the names of the panellists, she repeatedly stated that the list was not conclusive, and members could still suggest other experts.
Ms Theko agreed with the Chairperson that the list was not final and mentioned that other political parties should also submit other names of experts. She stated that Adv Natasha Pather and Adv Zodwa Gumede were suggested by ANC members and it was up to other political parties to select other experts.
The Chairperson asked the Committee Secretary to prepare a letter stating the terms of reference which the Chairperson would sign and send to the experts who had been selected.
Debt Relief Committee Bill: deliberations
Adv Charmaine van der Merwe, Parliamentary Legal Advisor, stated that most of the questions from the Sub-Committee had been answered in the previous meeting. However, there were still some outstanding issues:
A decision needed to be made on the prescribed limit for realisable assets that can be excluded. The Department of Justice (DoJ) had advised the Sub-Committee that R2 500 was the maximum limit for realisable assets in terms of the Magistrates Court Act. The Committee was concerned about the R2 500 limit. She said she consulted the DoJ who advised her that the R2500 limit was prescribed 1994 and had not been reviewed. Therefore, considering the inflation rate, the value of R2500 in 2017 would be different from 1994. After looking at the value of R2 500 in 1994 with the Content Advisor, Ms Margot Sheldon, they found that R8 173 in 2017 is equivalent to R2 500 in 1994. She proposed that the Committee agree on an amount between R8 000 to R10 000 because of the inflation.
The Chairperson thanked Adv van der Merwe for following this up and the Committee had strongly disagreed on the amount at the previous meeting.
Mr A Williams (ANC) agreed with Adv Van der Merwe’s proposal and said that the figure was realistic. He said R10 000 would be reasonable for all categories of assets that must be excluded.
Ms S Van Schalkwyk (ANC) said the amount was satisfactory.
The Chairperson asked if any Committee member disagreed, and no one disputed the amount. She stated that R10 000 would apply to all categories of property that must be excluded from realisable assets. These assets are professional books, tools of trade, necessary bedding and clothing and necessary groceries.
Ms N Ntlangwini (EFF) said she was indifferent about the R10 000 limit at this stage. However, she said that the R7 500 must be reviewed as well. She reserved her comment on the R10 000 amount.
The Chairperson noted her concern and the Committee agreed to flag the R7 500 gross income
Limitation of the right to apply for more credit
Adv Van de Merwe said that the other concern was the section which provided for limiting the right of a person under a debt intervention order to apply for further credit. She noted the Tribunal may make the following non-debt intervention orders:
• Reject an applicant’s application for debt intervention.
• Declare a credit agreement unlawful and reckless
• Cap the interest, fees or charges for a period not exceeding 12 months
• Determine the monthly instalments
• Refer the applicant to a debt counsellor for debt review
• Declare a debt intervention order
• Extend the capped interests, fees and charges after the expiry of the first 12 months to either another 12 months or less depending on each circumstance.
Adv van der Merwe stated that when a Tribunal makes any of these orders, it may attach certain conditions to those orders. One of the conditions was limiting the right to apply for more credit while the order was in force or after its lapse. The other condition that may be imposed was suspending all qualifying credit agreements. After the suspension of all credit agreements or limitation on the right to apply for further credit, the applicant should go back to the Tribunal to review the agreements. The Tribunal many make a further order for rehabilitation or extinguish the debts and still impose other conditions if necessary. The question to be decided by the Committee was whether the Tribunal should be given the discretion to decide what condition to impose whenever it makes an order. Should the conditions attached to orders be automatic? The other question was how long should be the period of suspension or limitation of the right to apply for credit. Adv van der Merwe suggested a maximum period of 12 months to limit the right to apply for more credit after the person had finished paying all the capped interests. She further proposed a maximum of 24 months if a person’s agreements were suspended and had been released from the credit market. If there was a suspension and extinguishing of all debts, then the period could be 36 to 60 months. She asked the Committee to debate on the periods.
Mr Williams said he acknowledged that debt relief for consumers would pose a risk to credit providers, but he did not think that the maximum period to limit a person’s right to apply for credit should be more than 24 months in total. The period should be reduced to two years at most. He strongly advised the Committee to reduce the period and said it would be unfair to punish a consumer who received debt relief for R5 000 and exclude them from further credit for five years. He passionately thought that it would be unfair to limit the right to apply for credit any period above two years. The period should also depend on the value of the debt which was suspended or extinguished.
The Chairperson stated that the suspension of the credit agreements and limitation of the right to credit should not be automatic.
Mr D Macpherson (DA) said that giving the Tribunal discretion would be problematic and could lead to inconsistency. Two people who are in the same circumstances may be treated differently because of the exercising of discretional powers. The only way to mitigate that was to have specific categories in which people fall. He partly agreed with Mr Williams that a person with a debt worth R5 000 should not be treated the same as some who has a higher debt. There can be prolonged exclusion for people with many credit agreements and more debts. However, the problem with that would be that exclusion cannot be isolated from rehabilitation. Exclusion from having the right to apply for more credit should go hand in hand with rehabilitation. He thought the Committee should have a discussion on mandatory education for debt relief. He suggested that the Committee should focus on identifying categories for exclusion and not impose a blanket exclusion, and that there should be sliding amounts depending on the amount of the debt.
The Chairperson asked Mr Macpherson to clarify what he meant by mandatory education and its link with exclusion.
Mr Macpherson replied that when people are excluded from applying for credit, that exclusion should go hand in hand with mandatory rehabilitation. People should not be kept outside the market. There should be an active process to educate them on how to manage their debt.
The Chairperson reminded the Committee that the same issue had been raised in the previous meeting and it was noted that the mandatory education programme did not exist currently. The rehabilitation programme requires funds for implementation. As such, it cannot be made mandatory. However, members may reconsider the possibility of progressive implementation of the education programme. She suggested that the Committee may insert an effective date, giving DTI, National Credit Regulator or banks a time frame to give their inputs on the feasibility of the programme. However, the issue should be flagged.
Ms Ntlangwini said that it was important to have mandatory training programme because the aim of the Bill was to help people stay out of debt. If people are not properly educated, they will stay indebted. She disagreed with Adv Van der Merwe’s proposal for a five year exclusion period. Her view was that the period was too much and unreasonable. She suggested that the period must be reduced since people may get promoted at work and suddenly they can pay their debts in full. It would be unfair to limit their right to apply for credit. There must be a Committee decision to educate people how to manage their finances wisely.
Ms P Mantashe (ANC) also agreed that the five-year exclusion period was too much since the objective of the Bill was not to bar people/consumers from economic activities. She stressed that educational rehabilitation was important so that people know how to manage their finances.
The Chairperson asked the Committee to suggest a reasonable and appropriate period for exclusion. A provision may also be inserted for the Tribunal to decide on a case by case basis.
Mr Macpherson proposed that the Committee insert a provision for categorisation of applicants based on the amount of the debt, the number of credit agreements they have, how long the credit agreements have existed, applicant’s behavioural patterns towards the debt and credit agreements. Some applicants may need more help than others to stabilise their finances. Categories would help the Tribunal to impose different suspension periods applicable to each category.
The Chairperson said that they needed to deliberate more on the various categories applicable. The discretional powers of the Tribunal should be discussed as well. She asked Mr Macpherson to clarify the categories he had suggested and how it could be done.
Mr Macpherson replied that investigating the behavioural patterns of an applicant towards debt and credit agreements would not be burdensome because when the papers are submitted to the Tribunal, the credit provider will also be notified to provide the credit agreements and the history related to those agreements. That information would be sufficient to decide how the applicant should be treated. The end objective was to treat people according to their circumstances. A person who has fewer credit agreements should not be treated the same way as a person with more credit agreements and many debts. Discretionary powers would be problematic in deciding how to treat consumers fairly in accordance with their circumstances. Therefore, if there were categories for exclusion periods coupled with a mandatory educational programme, it would be easy for the Tribunal to decide
The Chairperson suggested that the issue should be flagged and they move to the next item.
Prof Joseph Maseko, Executive Chairperson of the National Consumer Tribunal, said that the Committee could provide some guidance which the Tribunal would consider when exercising discretion on the matter before them. As such, a schedule with the guidance may be attached to the Bill and will be read with other provisions. This would ensure consistency in exercising that discretion.
Mr MacDonald Netshitenzhe, DTI Acting Deputy Director General: Consumer and Corporate Regulation, said that in practice, if a person was declared delinquent as a director, such an individual must be rehabilitated. However, that person may demonstrate that they have been rehabilitated earlier than the period set and approach the court to be declared rehabilitated. Therefore, there must be conditions of time limit within which a person may apply earlier to be declared rehabilitated. He emphasised that it was important not to exclude a lot of people because the economy was driven by consumers. Hence, the period must not be too stringent. He proposed that a court may also be approached to review or appeal the reasonableness of the exclusion periods which the Tribunal might have imposed.
The Chairperson said that Mr Netshitenzhe’s proposal was important for the Committee to consider so as to allow for an appeal and review process.
Mr S Mbuyane (ANC) proposed that the period must be determined by looking at the consumer’s credit status or rehabilitation of the consumer. Further, if the consumer pays all their debts, then it would be clear that they are rehabilitated.
The Chairperson said that there was a sense amongst the Committee that rehabilitation is important. This was because it was acknowledged that rehabilitation brings empowerment. This was also linked to the applicant’s credit history, behavioural patters towards credit agreements and debt and this would inform the decision which the Tribunal may take.
Ms Katherine Gibson, National Treasury Senior Advisor for market conduct and financial inclusion, said that it was important to think of how sustained rehabilitation could be achieved. In principle there must be a period to limit a consumer’s right to access credit, but it was important to support consumers with education. This should not only be about credit but financial wellbeing and persistent education on savings. In terms of the suspension period and categories, there should be a distinction between systematic delinquency where someone continually has debts and someone who has been retrenched and ended up being indebted. She proposed that there should be clear parameters for the categories that the Committee may suggest.
The Chairperson thanked Ms Gibson and said that South Africa was not a country with a high savings rate. 77% of South Africans had transactional accounts, 48% had some form of credit and this was an increase from 24% in 2011. On the other hand, only 23% of South Africans had savings accounts. The reason she had mentioned these statistics was for the Committee to consider when it would appropriate to pronounce someone as having been rehabilitated. How do you know that someone has been rehabilitated? Are we not making assumptions?
Mr Williams replied that the rehabilitation referred to in the Bill meant that the consumer has paid all their debts, since some people may never be rehabilitated in the strict sense of the word and what the Committee would want. It was imperative to note that consumers can only apply for debt relief once and after that, they would not qualify if they continue to enter into more debt. Further, the Committee must be realistic about the education or training programme for people under debt intervention. There could be three million people who apply for debt intervention and assuming that the education programme costs R100 per head, it would mean that the state must raise R300 million to fund the people undergoing the programme. Although the programme would be ideal and important, the Committee should not be unrealistic. He proposed that education could be used as an incentive to reduce the suspension or limitation periods. He strongly cautioned the Committee to be realistic on how much money the government would be willing to spend for the programme.
Mr Macpherson stated that it would not make sense to require the private sector to extinguish debt and require very little effort from government to help people to get rehabilitated. The Committee should come up with rational steps to ensure that people are educated to avoid going back into debt again. Ensuring that the Bill serves its purpose will have economic consequences. The private sector and government should both mitigate the financial consequences and not the private sector only. Unless debt relief goes hand in hand with education, it would be a financial giveaway. To ensure that the credibility of the Bill is maintained, the Committee should think thoroughly about this.
The Chairperson thanked Mr Macpherson for reemphasizing the importance of education and rehabilitation.
Mr J Esterhuizen (IFP) said that even though an education and rehabilitation programme would cost the state a lot of money, it would be a big burden for financial institutions. Financial institutions may stop giving loans and this could affect the consumers too.South Africans are the most overindebted consumers in the world.
Ms Gibson said rehabilitation was about helping people to stay out of credit continually after the suspension or limitation of their right to apply for more credit. Consumer education would be a good incentive while the consumers are not allowed to borrow more money. The retailers have adopted an approach of lending to a person but starting with a smaller amount and seeing how the consumer behaves or manages their financials. On the cost of education, currently there are financial institutions educating consumers and there are benefits for such. That process could be incorporated in the Bill. Many people believe that South Africans do not save, this could because they do not have money and many of those who save prefer putting their money in a stokvel. However, there are differences between the formal and informal sector.
The Chairperson agreed with Ms Gibson that many people feel safe and confident to put their money in informal sectors like stokvel rather than in banks. She emphasised that retailers should behave in a proper manner because some sent junk mails begging people to overspend. However, on rehabilitation and education, rehabilitation may have a negative connotation, because it may be associated with ‘prison’. It would be better to use ‘empowering people’ and not rehabilitation. The Committee should be looking at how to empower consumers who are overindebted. Financial institutions and retailers could be persuaded that empowering their clients to understand credit and savings would also benefit them. She agreed with Mr Macpherson that the private and public sector should partner and work together. The Committee would review the flagged issue of gross income as previously requested by Ms N Ntlangwini and the periods that consumers would be excluded from getting credit.
Mr Williams said the Committee needed to work out how the education component should be done. Members agree in principle but there was a need to agree on specific figures. He proposed that education and training should be used as an incentive to reduce the time a person is excluded from the credit market.
The Chairperson asked Adv van der Merwe if she could incorporate Mr Williams’ proposal in the Bill
Adv van der Merwe replied that she would include it but that it would be easier to draft two or three alternatives in the Bill and the Committee can decide the best option. They should determine if education and training would be offered by government or the private sector and how it should be accredited. There was another provision which would apply where the consumers’ circumstances have changed. The rehabilitation clause which was already inserted was different from what the Committee was deliberating on. That rehabilitation relates to sequestration and when a consumer has paid all their debts and interests as prescribed by the Minister. She suggested that in that same clause, another subsection could be inserted to stipulate that if a consumer submits a certificate from an accredited institution, then that person could reduce their period of exclusion.
The Chairperson asked the National Credit Regulator (NCR) to comment on rehabilitation and credit education.
Ms Nomsa Motshegare, NCR Chief Executive Officer, replied that there was an NCR model used for debt counsellors. Before debt counsellors are registered with the NCR, they must undergo training and the course material has been developed by the NCR. There are institutions that have been accredited by the NCR to provide the training. For anyone to operate as a debt counsellor, they should produce the certificate from any of the accredited institutions. Those debt counsellors are the ones who pay for the course. However, the Committee could decide if they prefer consumers to pay for the training.
The Chairperson said the Committee could utilise that model and from the National Lottery and certain non-governmental organisations. It could be helpful if the NCR could give the Committee the course outline to have a look at it. However, it was not ideal to increase the debt of a person who is indebted already by requiring them to pay a lot of money for training.
Ms Motshegare said the NCR was working with Bank SETA for funding towards consumer education. The Committee could also consider the possibility of engaging Bank SETA. However, the NCR negotiations with Bank SETA were ongoing and no decision has been made as far as funding was concerned.
Mr Netshitenzhe, DTI, stated that in the DTI regulations, debt counsellors should pass a certain requirement. It may be wise to transpose it to the Debt Relief without imposing a charge for payment of the course.
Ms Gibson stated the Credit Ombudsman, Banks and National Consumer Forum had courses that were consumer driven to educate people on credit and savings. The materials used in those institutions may also be used for Debt Relief.
The Chairperson said it was important to ensure coordination of all the available materials that may be used.
Mr Netshitenzhe stated that it was important to make the training a statutory obligation because some of the educational programmes taking place may not be helping people now.
Mr Siphamandla Kumkani, Acting Chief Director of Policy and Legislation for DTI, reiterated Mr Netsitenzhe’s point and said that the education programme needs to be legislated because some of the institutions offering them may feel that they are not obligated to offer it. This will help with ensuring that the purpose of the training is achieved
The Chairperson thanked the DTI and said exploring social media platforms and using the back of tickets would be another option. People buy tickets for different functions. Printing the information on tickets would help ensuring that the information was accessible to the broader community. She emphasised that the Committee should not forget that compelling a person who wants to be a debt counsellor to undergo a training was different from requiring an indebted consumer to do the same course.
Prescription of debt intervention by Minister
Adv van der Merwe stated that the other question to be determined was whether the Minister should be allowed to prescribe debt intervention. Related to this, was whether the Minister should have discretion to prescribe the debt intervention measure or must it go through the normal Bill process. In the previous meeting, the Committee expressed concern that it would not be appropriate to give the Minister broad discretion. Due to this concern, section 88 was inserted even though it was not yet final.
If the Minister wishes to bring a Bill, the Minister may do that with the approval of the National Assembly and there must be public comment. Prior to 2010, the Minister could prescribe regulations or a Bill without stringent requirements for public comment. However, this had changed since 2010. From 2010, Parliament started to require a Minister’s regulations/bill to be tabled in Parliament for comments and input and not only for approval. Therefore, that has been the practice.
However, in the Debt Relief Bill, the prescription of debt intervention by Minister required the Minister to consult the Minister of Finance, Minster of Justice, National Credit Regulator, National Consumer Tribunal and the credit industry. An extra requirement inserted into the Bill was to require a report by the Minister which the National Assembly would consider. As such the process required in the Bill adds an extra step.
It was understood that allowing a Minister to prescribe debt intervention makes implementation faster than legislation. The question was whether it was necessary to have the Minister prescribe or to just follow the normal procedure like any other legislation. There are National Assembly Rules that provided for speedy processing of legislation especially if there is an urgent matter to be addressed by the legislation.
Mr Macpherson said that the Minister may be required to report and have input from Parliament, but it could be disregarded and the prescription proceeded with without taking such input into account. Inserting this Ministerial prescription hinders the rights of lenders and it will be difficult to provide certainty in the credit market specifically with regards to section 88(f). Such a provision was too broad and it could be difficult for the Minister to determine the method to alleviate household debt for the target group. How would the Minister get the information to make such a determination? The initial intention of the Bill was to provide once off debt relief. He could not understand why the provisions of section 88 were included in a once off Bill. The clause was too complicated and circumstances requiring such a provision could be remedied by the Minister bringing his/her own bill or one prepared by the Committee.
Mr Williams stated that the motivation of giving the Minister the powers was to provide for exceptional or extraordinary circumstances such as natural disasters or massive retrenchments or acts of God. It would take too long if the Committee allows a normal bill to go through Parliament and public comment, to alleviate the consequences of the natural disaster which may result in massive debt for a lot of people. If this provision was included, the Minister could intervene speedily.
Ms Mantashe agreed with Mr Williams. There had been massive retrenchments in the mining sector. In such circumstances, the Minister could intervene to alleviate the consequences. Her view was that a clause providing for the Minister to intervene speedily must be inserted in the Bill. She appealed to the opposition party not to take the Committee back but help in trying to achieve the Bill’s purpose.
Mr Esterhuizen said when it comes to debt and credit, South Africa had its back against the wall. If the government plans to cancel or forgive consumers for their debts, it would have long term negative effects for the consumers since the credit providers could increase the interest rates. He was concerned about the recalculation and refinancing of debt for longer periods, which could make it difficult for the financial institutions and consumers.
The Chairperson said there were two different positions on the table. On one hand, there was the concern as highlighted by Mr Macpherson that there was an overreach by the Minister to decide on debt intervention without an oversight mechanism; therefore the Minister should have to resort to a Bill and follow the normal procedure. The other position was that when something goes wrong, there should be measures for speedy intervention. It would only be in that event that the Minister could intervene. The intervention would be necessary to assist the affected group to alleviate household debt. She appreciated the question raised by Mr Macpherson on how the Minister would determine that there are no other effective methods available for debt relief. However, the Minister has the responsibility to ensure that solutions to problems are found.
Ms Gibson said that section 88 was one of the components of the Bill that most Committee members and the entities were concerned about. However, natural disasters or retrenchments may affect people and result in over indebtedness. The risk of retrenchment and natural disaster were insurance matters and could not fall under the ambit of credit. When there are credit sector issues, the response suggested should address the problems within the credit sector.She acknowledged that natural disasters and retrenchment are possible risks that may come up in the future, but there should be a solution to address current credit and debt problems. It was important to ensure that if the Committee does not want retrenched people to be in debt, there must be a specific retrenchment policy to deal with that. This would make it a responsibility of the consumers as well to have insurance to cover their debts in case of retrenchment. For natural disasters like drought, there was need for government intervention which was also an insurance matter. If the Bill was to be implemented, the Minister of Finance should have a big role to play in engaging financial institutions.
Mr Macpherson said that his previous argument was on effective methods to alleviate debt for consumers in exceptional circumstances. The provision stipulated in section 88 was too broad and a lot of people could qualify. Such a provision undermined the purpose of the Bill and the debt review process. Without understanding the process of debt intervention, people will not know how to avoid risks and that may hinder certainty in the credit market. He did not think that it would be fair to the public. He asked why that provision ended up in the Bill since the initial intention was have a once off debt relief. Ms Gibson had made a valid point about insuring against job losses and consumers had those options available. If credit life insurance was made mandatory, it would not be necessary to insert that provision into the Bill. He did not understand the rationale for having the private sector bear the risk of natural disaster. What constitutes natural disaster? When a provision like this is inserted, it creates an impression for a lot of people across South Africa to classify themselves as being unable to alleviate their household debt. The intention was not to create a wrong perception by inserting provisions that defeat the purpose of the Bill.
Mr Esterhuizen agreed with Mr Macpherson and said that there was risk for both government and financial institutions. The purpose of the Bill was to create a friendly credit market. Some banks already look at the over indebtedness of clients. The Committee should concentrate on reckless loan relief.
Mr Kumkani, DTI, said that the debate seemed to focus on people who have money to pay for their debts and he thought that the focus of the Bill should be on the poorest people who do not even qualify for credit. It was essential to limit the focus to vulnerable people. The mining sector has been retrenching over 30 000 employees a year and most of them fall under the R7 500 threshold. He emphasised that the Committee should limit the scope to the initial target of the Bill.
The Chairperson agreed and said the Committee was being reminded of the target group and the purpose of insurance. Many people in the target group do not qualify for insurance. Committee members should apply their minds to the Minister prescribing a debt intervention. National Treasury had advised the Committee that South Africans save money but mostly in an informal way. Mr Williams had emphasized that the purpose was not just about debt relief but to encourage a culture of saving. She cautioned members to be careful about their contributions and that these should assist in solving the problems which the Bill aims to achieve.
Ms Gibson said that it was important to recognise that the retrenchment insurance should be able to pay all debts. The cost of the insurance premium should be low to cater for the poor. The benefit of having insurance was that people would use this to pay for their debts if the premiums are properly paid for.
The Chairperson suggested that the issue should be flagged.
Credit life insurance
Adv van der Merwe said that section 88(2)(a) should be read with subsection 3 also. This means the provision would apply only for people earning below R7 500 or indigent people. The agreement from the previous Committee meeting was that credit life insurance should be mandatory. However, the Committee should debate and decide whether credit life insurance should apply to all credit agreements or to agreements up to R50 000 or a higher amount. Current credit agreements cannot be subjected to this requirement. The Bill will be prospective. The other important question on credit life insurance requires the Committee to determine the amount of the cover and period.
Mr Williams proposed that the term of the credit agreement should exceed six months and the principal debt must not exceed R50 000 for credit life insurance to be mandatory. People that earn a gross salary of R7 500 or less per month would not normally enter into agreements exceeding R50 000. People who enter into credit agreements exceeding R50 000 should not qualify for debt relief because it would unreasonable to enter into such an agreement when the gross salary being earned is less than R7 500.
The Chairperson asked how much one would pay for the insurance. Some people pay insurance and when they are retrenched and need to use the money, they do not get reminded that they can use their insurance and by the time they remember, it is too late.
Adv van der Merwe replied that for a R50 000 loan, it would be a R250 premium per month.
Mr Macpherson asked if the rate was correct. What is the maximum rate per R1 000?
Ms Motshegare replied that the maximum rate was R4.50 per each R1 000.
Mr Kumkani, DTI, said that for a principal debt of R50 000, a consumer will pay R4.50 for each R1000 which would amount to R250 per month.
The Chairperson said it would be ideal to get an insurance which required only R100 per month or less.
Adv van der Merwe said that the R4.50 was prescribed. She suggested that the Committee could insert a provision stipulating that the Minister may prescribe the maximum rate or cap it.
Mr Williams said if there was cheaper credit life insurance for government bonds, it would be best to utilise such insurance. The credit life insurance for mortgage bonds was R2.50 and the Committee could consider the cheaper option since it already exists.
Mr Esterhuizen agreed with Mr Williams.
Mr Macpherson said that it would be wiser to have a discussion with the insurance industry before deciding on the amount. The reason the insurance for mortgage bonds might be low was because of the insured realisable asset, unlike a debt which has no realisable assets attached to it. There must be a premium attached to the risk of an unsecured debt. There should be discussion with the insurance industry
The Chairperson agreed and said that the Committee will have the discussion when the Bill has been published for public comment.
Ms Mantashe asked when the Committee would hold public hearings.
The Chairperson replied that the public hearing would be held when the Bill has been published.
The Committee secretary said that public hearings were scheduled to take place in January or February 2018 if the process went as planned.
Mr Macpherson disagreed with the Chairperson that the issue of credit life insurance could be resolved through the public hearing. Before the Bill was published, a decision should be taken and the Committee should have concrete figures.
The Chairperson replied that the information was available and it would be inserted into the Bill before publication
Mr Williams noted that he had proposed the maximum amount of the credit insurance not exceed R50 000. He asked if there was an agreement on R50 000 or R100 000
The Chairperson replied that members had agreed to R50 000 since it would be reckless to lend someone earning R7 500 a loan for R100 000.
Ms Gibson asked if the R50 000 related to secured or unsecured loans.
The Chairperson replied that her understanding was that it could be secured or unsecured. She asked Mr Williams to provide clarity
Mr Williams asked if the clause that provided for credit life insurance applied to all credit agreements. His interpretation was that the clause related to all unsecured loans. However, he was not sure if the clause would apply to everyone applying for credit not exceeding R50 000
The Chairperson asked, what do we want to say? Should people be allowed to have other forms of insurance for their credit agreements?
Adv van der Merwe replied that the clause applied to all South Africans regardless of their income. Secondly it applied to both secured and unsecured loans. The current Act provides that if the consumer has other insurance for their credit agreements, the credit provider will accept them. Therefore, people may also take other insurance. However, the question for the current Bill was whether the credit life insurance should be for both unsecured and secured loans.
The Chairperson asked if the clarity provided for by Adv van der Merwe answered Ms Gibson’s question
Ms Gibson replied that it had answered her question. However, when considering the question of credit life insurance, it should be linked to how a person would qualify for debt relief. Therefore, it was important to understand that extinguishing a debt for an unsecured loan was different from extinguishing a debt for a secured loan. This was because the nature of the lending market was different. National Treasury will need to think through this issue.
The Chairperson said that there was a misunderstanding and asked Adv van der Merwe to provide clarity. She acknowledged that it was important for everyone to be on the same page.
Adv van der Merwe said that the confusion emanated from the fact that the current version of the Draft Bill had expanded. The Bill was now looking at measures to address reckless lending and mandatory credit life insurance. The mandatory credit life insurance was not linked to debt intervention in the Bill. The debt intervention measure would only be available for unsecured debts.
Mr Williams said that mandatory credit life insurance was a measure to ensure that there would not be any need in future to have another debt relief bill, since people will have insurance to cover their debt.
The Chairperson thanked Adv van der Merwe and Mr Williams for providing clarity to the Committee.
Offences and penalties
Adv van der Merwe said that another important matter to be determined were penalties for offences. Section 276(3) of Criminal Procedure Act provides for penalties and stipulates that regardless of what other laws say, a court may impose imprisonment together with correctional supervision. This means that if the Debt Relief Bill or any other Act is silent about possible sanctions, the court may impose any of the following penalties:
• Periodic imprisonment
• Declaration as habitual criminal
• Committal to an institution
• Correctional supervision.
Therefore, if the Debt Relief Bill states that a fine or 10 years imprisonment may be imposed, it means that a court could impose imprisonment and a fine which is also provided for in section 276(3) of CPA. Due to the way the Bill is structured, it does not exclude section 276(3) and as such all the above sanctions would apply for any criminal matter related to the Bill. Therefore, the question is whether 10 years imprisonment is sufficient or reasonable. If a person intentionally submits false information to mislead the Tribunal, it will be a serious offence. The other offence may be deliberately altering financial information to qualify. The Committee should decide if 10 years imprisonment is reasonable. Should it be brought down to five years?
Mr Williams said the punishment should not exceed 10 years. The penalty should not be changed since the 10 years imprisonment was the maximum period. This meant that the sentence could be lesser depending on the seriousness of the offence, the amount of the debt the consumer wanted to circumvent and the discretion of the Tribunal or judge. When it comes to a person who deliberately tries to commit fraud to misuse the debt relief process, then the 10-year period of imprisonment would be an appropriate sentence.
The Chairperson asked if periodic imprisonment was still being applied by South African courts.
Adv van der Merwe replied that it was a penalty provided in the CPA, but she had never come across it in practice. She did not think it would be applicable in the case of the Debt Relief Bill.
Adv van der Merwe said that other offences applicable to the Bill in section 157B were:
- Entering into an unlawful credit agreement
- Unlawful credit marketing practice
- Putting an unlawful provision in a credit agreement
- Covering a risk that cannot reasonably arise such as retrenchment for a person who is on pension
- Operating without a being registered or licensed
- Demanding that a person purchase an insurance cover at an unreasonable cost
- Does not comply with the Bill/Act in any way.
Adv Van der said that the penalty proposal for all these offences was a fine or imprisonment not exceeding 10 years. However, if the respondent involved was a juristic person then a fine equivalent to 10% of annual turnover or R1 million may be imposed. She asked if these fines were appropriate
Mr William said that R1 million was too low especially if the respondent was a big company making a lot of profit. He suggested that the fine should be kept at 10% of their annual turnover only if the offender was a juristic person. The Bill should not only aim at responsible borrowing, but should also address reasonable lending. 10% of annual turnover would be a deterrent measure for unscrupulous businesses.
The Chairperson stated the Competition Commission and SARS also impose penalties for non-compliance with their Acts. She asked if a Committee member who knew what percentage these two bodies charged.
Ms Motshegare suggested that the amount in the Bill should not be changed. 10% of annual turnover could be R10. The wording of the provision should read: ‘the greater of 10% of the annual turnover or R1 million’. The 10% could be more than R1 million and it would be a heavy penalty even for a bigger company.
Mr Williams asked how 10% of the annual turnover of a company could be R10. He suggested that R1 million should be the minimum fine.
The Chairperson asked if would be fair to have small companies paying the same fine as big companies. She preferred the fine to be either the greater of 10% of the annual turnover or R1 million.
Adv van der Merwe agreed that the Chairperson’s suggestion was how the National Credit Act provided for the fine. However, before inserting the clause in the Bill she had also looked at the amounts stipulated in the Completion Act, National Credit Act, and Broad-Based Black Economic Empowerment Act. All those statutes provided for the same amount. The fine may not exceed R1 million, but the court may impose a fine by looking at the circumstances of the company and its annual turnover. The way of calculating the annual turnover was to look at the previous financial year to determine 10% of the turnover
The Chairperson asked if the Competition Act provided for a fine of 10% of the annual turnover or R1 million.
Adv van der Merwe replied that it provided for a fine of R1 million.
The Chairperson stated the Competition Act was recent legislation and it would be important to look at what it provides for. However, the Committee agrees that the fine should be the greater of 10% of the annual turnover or R1 million.
Adv van der Merwe said a penalty for a person who operates without being registered should be determined as well.
The Chairperson asked the Committee if the fine of R1 million should apply to persons who offer credit services without being registered.
Mr Williams replied that providing credit facilities means the person is breaking the law. He asked what the current position was for people who operate without licences.
Adv van der Merwe replied that it was an offence already but the fine applicable in the National Credit Act was 12 months imprisonment. In other words, it was currently unlawful. However, there was no penalty in the Bill for such an offence even though section 157(C) criminalised it. Currently there was a big concern about unregistered people providing credit facilities and 12 months was insufficient. She proposed 10 years imprisonment.
The Chairperson asked if the Committee Members agreed. She emphasised that people must be registered
Mr Williams said it was going to be difficult to get hold of the people who operate without licences. He strongly agreed that 10 years imprisonment would an appropriate punishment, but it would be hard to catch those people.
The Chairperson said that people must register to provide credit to consumers. When the Committee calls public hearings, they should encourage people to register before the Bill becomes law. There were many people working in the informal sector and operating without being registered.
The Chairperson asked the Committee members to go and reconsider the issues that had been flagged.
Adv van der Merwe reminded the Committee that there was no agreement on:
- the education and training programme,
- how to word the section dealing with suspension and limitation of the right to apply for credit,
- the Ministerial powers to prescribe a debt intervention.
The Chairperson asked Members to discuss these issues in the next meeting
Mr Macpherson suggested that section 88(2)(C) which deals with ministerial powers to prescribe a debt intervention must be deleted. However, the provision focusing only on natural disasters should not be deleted. On training, he agreed with Mr Williams that the exclusion period could be shortened by requiring people to undergo an educational training programme. Rehabilitation was significant since it would serve the objective of the Bill to educate people to stay out of debt. There should be some developments on the education and training that would be done.
Mr Williams stated that with regards to section 88(2)(C), the ANC could not give its opinion as it needed to discuss this first as a party. He however agreed that there should be a mechanism to educate consumers on debt, but the ANC could not propose how they wanted the programme to be conducted
Mr Esterhuizen said that the IFP was concerned that a many consumers are driven to desperate measures and they end of borrowing more and more each time when they are confronted with a financial problem.
The Chairperson said Ms Ntlangiwini had received news of unexpected bereavement in her family and she had to leave the meeting earlier. She would inform her to consult with her party (EFF) on all the flagged matters that need serious attention. She would also inform Mr Lekota of COPE to consider them. The Friday 10 November meeting would commence at 8:30 until 15:50. The media briefing for the Bill was scheduled for Tuesday 14 November 2017.
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