Before commencing Day 3 of the hearings, the Chairperson referred to a Committee media statement about its concern about water price increases. The media did not always print the relevant information, which was that the Committee had communicated with all departments working with water. The Committee’s interest was in unfair business practices and the fact that the prices were being increased, which the Committee could not change as it did not have the mandate to do so. However, the Committee was talking to the Economic Development Department about getting it addressed immediately.
The Standard Bank Group noted that over-indebtedness in South Africa was a problem and needed to be addressed urgently. As a responsible corporate citizen, Standard Bank believed that it had an obligation to contribute to the solution, but was worried about the culture of loan repayment that was essential for a healthy credit environment. The Bank did not want a situation where people acquired an attitude that they did not have to pay as that attitude could spread to other spheres where money was owed. The Bank had to look after the money of its clients, but also be mindful that the low-income consumers were not cut out of the market. Standard Bank had made a commitment to pay for its clients to go into debt review, when necessary. The Bank believed that what was really important was to deal with unscrupulous lenders.
The Chairperson asked what could be done about inefficiencies in the debt review process. She asked the Bank to indicate how many of its clients would be affected so the Committee could get an indication of the Bill's impact as there had been wild speculation in the media that the Bill would collapse the banking industry. Members asked if the Bank was stating, unequivocally, that it would subsidise debt review for clients below the threshold of R7 500, and if Standard Bank was recommending that the Committee should put it into legislation that financial service providers should be obliged to pay for the debt review process. The Bank was asked if it had done research into over-indebtedness of its clients and what the findings were.
COSATU was very pleased with the Bill. It would be one of the five most important Bills to be passed by Parliament in the current term. COSATU definitely wanted to see it passed in the current year. It was a legacy Bill for the Committee. It expressed concern about the lack of real support for the Bill by the banking industry. COSATU mentioned Marikana as being a terrible example of how workers were pushed to starvation by loan sharks, and therefore agreed with penalties, and that loan sharks should go to jail. People went to loan sharks out of desperation when banks had turned them down. Greater enforcement of laws was essential. COSATU was looking for legislation that protected people who lost their homes and it believed that no house should be sold below market value. It also wanted discussions about interest rates. Something had to be wrong that the poor paid higher rates than the rich. COSATU had identified farm loans as being important as over 50% of farms were heavily indebted and, when a farm buckled, the first victim of the over-indebtedness was the farm worker.
National Treasury backed the need to support South Africans caught in a debt spiral. There was an urgent need for the Bill, especially considering the knock-on effect of spiralling debt. Treasury was looking at giving chronically over-indebted South Africans the opportunity of a fresh start. It was considered important to focus on incentives and moral hazards. The Committee had to consider first lenders and last lenders, who usually put things over the tipping point. Two main weaknesses had been identified: the insolvency framework, which meant the Insolvency Act had to be repaired; and sequestration, which did not work for those with no income and no assets
The Chairperson asked Treasury about clauses which might be unconstitutional given the impact on contractual relations and the implied deprivation of rights, especially in the new Section 88F. She appreciated the question that Treasury had raised: what was it that this Bill sought to do? A Member claimed that the Treasury input was a little too close to that of BASA and other financial service providers. It was as if Treasury was defending the market. Another Member needed clarity on the status of micro-lenders.
The Department of Trade and Industry noted that there were many views on the constitutional perspective and emphasised the importance of ensuring that the Bill was constitutional. DTI recommended that the process of rule nisi be included when considering debt intervention applications, with all interested parties having the opportunity to make submissions on the return date, thus complying with the audi alteram partem rule. The Department suggested a definition for debt intervention. In Section 88E(7), DTI recommended that reference to the Minister should be replaced with the National Credit Regulator CEO.
The National Consumer Tribunal stated that financial literacy education at the superficial level of knowing would not change habits and patterns of behaviour. Comparison and aspiration to be better was something found in the psyche and resulted in over-indebtedness. It was an addiction and a behavioural issue that needed to be addressed on that level.
The National Credit Regulator made a plea for adequate capacity so that the programme could be implemented. The Committee was reminded that the NCR was managing R1.7 trillion industries. The NCR needed to do it in-house and not outsource to those who would make a profit.
Members asked if DTI thought that there were any unconstitutional clauses in the draft Bill; about the socio-economic impact study which DTI had said would be enhanced through the public hearings; about NCR capacity as throughout the public hearings, stakeholders had been crying about NCR incapacity and inability.
The Credit Bureau responded about records kept on the databases of credit bureaus. Currently 450 credit providers provided data to the credit bureaux but there were, in total, 5000 credit providers registered with the National Credit Regulator. It was therefore obvious not all provided data. Regulation 9(13) of the National Credit Act obliging all credit providers to provide information to the credit bureaus had become effective only in 2017 when guidelines on fees, the manner and form in which the data had to be provided, had been issued. However, the process would take three years to finalise.
The Chairperson informed the meeting that the media did not always print the relevant information, which was that the Committee had communicated with all departments working with water, including the Portfolio Committee on Water, the National Consumer Commission, the Director General of Trade and industry and the Economic Development Department (EDD). The Committee’s interest was in unfair business practices and the fact that the prices of bottled water were being increased, which the Committee could not change as it did not have the mandate to do so. However, the Committee was talking to EDD about it to get it addressed immediately. She was talking about the 5l and 10l bottles of water and not the small bottles of water that she had seen flashed on the media. She did not think that the poor would go out of their way to buy small bottles of water. She believed the media was sincere about trying to capture the concern of the Committee in respect of the water crisis. The Chairperson thanked those people who had attended the hearings regularly, even when not giving input.
The Chairperson welcomed the National Credit Regulator (NCR) CEO, Nomsa Motshegare, and DTI Acting DDG, Mr MacDonald Netshitenzhe.
Standard Bank Group submission
Ms Lerato Moloi, Manager: Regulatory Advocacy at Standard Bank Group, and Mr Thabani Ndwandwe, Head: Credit for Personal and Business Banking, presented.
Ms Lerato Moloi noted that over-indebtedness in South Africa was a problem and needed to be addressed urgently. As a responsible corporate citizen, Standard Bank believed that it had an obligation to contribute to the solution. The Bank had gone into some detail in its written submission. The intention in the oral presentation was to give an overview of the Bank’s position and to outline some proposed solutions to the problem of over-indebtedness. The presentation would also outline some existing debt intervention mechanisms.
Mr Thabani Ndwandwe said the Bank needed to sustainably support clients in times of need and therefore it had a core responsibility to address the question of how one would responsibly grant credit affordable to consumers. It was also responsibility of the bank to promote a culture of saving and consumer financial responsibility.
The draft Bill was fairly comprehensive but Standard Bank was worried about the culture of loan repayment that was essential for a healthy credit environment. The Bank did not want a situation where people acquired an attitude that they did not have to pay as that attitude could spread to other spheres. The Bank had to look after the money of its clients but also be mindful that the low-income consumers were not cut out of the market. Price rose according to risks and that would have an effect, especially on poor consumers.
There was a need to look into reckless and unscrupulous practices in lending, as that might be the reason for the over-indebtedness. The NCR had to be given the necessary powers and needed to be adequately resourced. He pointed out that someone who earned less than R7 500 could not afford debt review so there was a need to subsidise debt review. Standard Bank would pay for its clients to go into debt review, when necessary. He saw the need for a tool to manage debt. Inefficiencies in the system should be addressed and consumers needed to know that they could come for help.
It would be helpful if insurance claims for people who have been retrenched were simplified. Credit life insurance had to be claimed within three months of a person’s retrenchment but that was just another unnecessary barrier preventing people from dealing with their debt. There was a need to find ways to grow wealth and to fund student loans differently. To be successful, people required access to finance, access to training, access to markets for entrepreneurs.
The Bank supported tough measures for unscrupulous people and therefore the Regulator needed to be given more powers.
The Chairperson asked for proposals and not statements, such as what could be done about inefficiencies. How could the Committee assist? Mr Ndwandwe had stated that it would be sufficient to amend existing legislation and the Chairperson pointed out that it was an Amendment law. However, she agreed that it had become apparent that there was a need to comprehensively review the National Credit Act (NCA), which was being done. The intention of the Amendment was to deal, urgently, with the critical issue facing South Africans. She asked how many Standard Bank clients earned a gross salary of R7 500 or under. She was of the opinion that debt counsellors should be financed by the lender who held the bulk of the debt.
Mr Ndwandwe replied that entering debt review was often too expensive for low income consumers as it could cost up to R6 000. The question was how to allow those who are over indebted to access the debt review tool. Whoever had the bulk of the debt should be able to finance the cost of debt review, all credit providers should look into an equitable way of financing debt review, with the help of government. By just doing that, many problems of the poor would be reduced and fewer of the other interventions would be necessary. The bank was pushing for standardised mechanisms for dealing with debts in the Debt Counselling Review System (DCRS). The system was good but needed to be reviewed and common, standardised mechanisms adopted.
What was really important was to deal with unscrupulous lenders. Over-indebtedness had two sides: one where something negative happened in the person’s life; the other was people who had been given loans but who were reckless and should never have been given the debt in the first place. The regulator required more power and resources.
Mr Ndwandwe did not have at hand the number of clients who earned a gross salary of R7 500 and under, but would submit the details in writing to the Committee. The bank had a customer base of more than 4 million people who earned under R7 000, but he did not know how many of them were in debt. It was a sizeable, but not significant, proportion.
The Chairperson asked that all presenters should indicate how many clients they had that would be affected. The Committee wanted to get an indication of the impact of the Bill as there had been wild speculation in the media that the Bill would collapse the banking industry. If the banking industry did not have the specified clients, she did not know how it would collapse the industry.
Mr G Cachalia (DA) had heard Mr Ndwandwe say that Standard Bank would come to the party in financing debt review for clients that earned under R7 500 which would ordinarily cost somewhere in the region of R6 000. Could he say unequivocally that for clients below the threshold of R7 500 the bank would subsidise debt review?
Mr A Williams (ANC) asked if Standard Bank was recommending that the Committee should put it into legislation that financial service providers should be obliged to pay for debt review processes.
Mr S Mbuyane (ANC) asked if the Bank had done any research into over-indebtedness of its clients and what were the findings? What measures had the Bank put into place to deal with the over-indebtedness of its clients? The Bank spoke of a culture of lending but what proposals did the company have to deal with reckless lending. Was it an aggressive marketing issue? People found blank cheques in the post, etc. What exactly did Mr Ndwandwe want the Committee to do?
Mr Ndwandwe replied that Standard Bank spent over R250 million on debt intervention and had a team to run debt review processes. Where a client had other debts, Standard Bank would pay an equitable share of the review process. In response to Mr Williams, he stated that whether or not it was legislated that credit providers had to subsidise debt review processes, depended on his approach to the legislation upfront. If he wanted everything legislated, he would have to consider how to put it into law but, in his view, in a private-public partnership, an agreement on the matter would be preferable. He believed that every lender would be more than happy to look at equitable ways of financing debt review processes, provided it worked and worked well. He informed the Chairperson that, in general, he was not in favour of legislation.
In response to Mr Mbuyane, he explained that the Bank had done a lot of research into clients and the over-indebtedness. Many years previously, the NCT had requested him to research the impact of unsecured over-indebtedness when the affordability laws were changed and the impact on unsecured was minimal because many rules had been put in place dealing with affordability that could be found in the NCR legislation. The Bank had opened a section called Customer Care, which looked holistically at customers who were over indebted and assessed their debts and provided consolidation of debts, where necessary. Standard Bank did not sell debt consolidation as a product. It was only used, where necessary, to assist clients to reduce instalments and reduce pricing. The Bank offered significant concessions in pricing when people had debt problems. Mr Ndwandwe had a team that managed over-indebtedness and reported directly to him, so he could speak, without hesitation, that assistance was offered.
To deal with reckless lending, one had to penalise those who were lending recklessly. People who were still practising reckless lending should be penalised and there was a lot of recourse in the NCA to deal with reckless lending which was why the Bank was recommending that the NCR be given more resources to deal with such practices. In many places in South Africa, reckless lending was still taking place and he, personally, felt that those people should feel the might of the law. As far as aggressive marketing was concerned, it depended entirely on how one viewed marketing and how it was done. Marketing was fine, but it was important to do the deal correctly. When someone was assessed for credit, credit had to be given appropriately and that was the critical factor. The person had to be good for credit.
Ms P Mantashe (ANC) asked what would Standard Bank do with people who had been retrenched after paying a home loan for many years. She heard about reduction in rates and lower repayments, but if a person was retrenched, he had no future income. Did the Bank assist the person to sell his house on auction that would drive him to stay in a shack?
Mr Ndwandwe supposed that it was a critical question to answer and he wished to give a holistic answer. He apologised if he seemed to be digressing, but he would get to Ms Mantashe’s point. Many clients had a situation where their retrenchment package could enable them to reach a settlement agreement with the Bank. The Bank did a lot of settlement campaigns, working with customers. The biggest challenge occurred when assisting people to sell their homes. The question was what the Bank could do to ensure that they still could get lending elsewhere. When the bank had assisted a customer to down sell their house or car, they had usually left the debt problems too late for them to be eligible for credit. The bank then would help the customer to get a lower bond at a lower repayment rate. Where the customer had no chance of an income in the future, the Bank had to work on those case-by-case. If the lack of income was short term such as for a year, the bank could offer a repayment holiday. That was a successful route for many customers.
The Chairperson pointed out that because Members did not continue to ask questions, that did not mean that they agreed with the presenter but that they had heard what had been said and needed time to assimilate the responses. She had noticed that Mr Ndwandwe, in his position as Credit Risk Head of Personal and Business Banking, agreed with the sentiments and principles in the Bill, but needed to present on various concerns. However, the Chairperson was often surprised at what she read after the meeting in the media which was different from what had been said in the Committee. She often queried if she had got it right and had to resort to the Hansard or the tape to check what had been said, and it was like chalk and cheese. However, there were others, such as Mr Ndwandwe, who were very frank. He had said that he did not like legislation and she thanked him for his frankness because they knew exactly where he stood. She appreciated the pictures in the presentation, but asked that in future, the size of the print be enlarged.
Mr Cachalia asked if Standard Bank continued to lend to clients against whom they had taken judgements, but in parallel seemed to object to the judgement, which meant, in practice, that the clients became beholden to the Bank for lending, and that bank only. Did that practice continue to happen?
The Chairperson agreed that it was quite a serious point and reminded the presenters that Members usually had personal experience of particular situations and had seen the source material.
Mr Ndwandwe that it was definitely not the Bank’s policy to do that. The Bank would not be willing to lend to people who were not willing to rescind the judgement. When the judgement was rescinded, and the Bank was willing to lend to a person, that meant that the customer had worked with the Bank and had shown some recovery and had shown a willingness to commit. He had said to the Committee before and to the Chairperson, it may be possible to find such cases in the system. However, when they were found, the Bank was more than willing to deal with, and resolve, the issue, but it definitely was not policy or intended outcome.
The Chairperson thanked Mr Ndwandwe for his input and acknowledged that he was a regular visitor with whom the Committee engaged.
Congress of South Africa Trade Unions (COSATU) submission
Mr Matthew Parks, COSATU Parliamentary Coordinator, said that COSATU was very pleased with the Bill. It would be one of the five most important Bills to be passed by Parliament in the current term. COSATU definitely wanted to see it passed in the current year. It was a legacy bill for the Committee. COSATU appreciated it. When Committees, or even the opposition, initiated legislation that would help people instead of simply waiting for government to do so, it was a good thing when Parliament takes this initiative. He spoke of the number of members in COSATU who were in need of debt relief.
Mr Parks expressed concern about the lack of real support for the Bill by the banking industry. They did not buy the legally dubious arguments about constitutionality forward by the banking industry. Loans might be property, but banks were always writing off loans so COSATU could not see the problem. There needed to be a fair balance. What happened to the worker who lost his job after many years and then lost his home despite having paid a large proportion thereof? He mentioned Marikana as being a terrible example of how workers were pushed to starvation by loan sharks.
He presented the reasons for supporting the Bill, concerns that COSATU had, as well as some general remarks. The threshold cut-off of R7 500 was sufficiently low and should not go any lower. He asked for clarification around the criteria and if one had to meet all or one of the criteria. The maximum threshold of R50 000 for the loan debt was concerning as student loans were far above that figure, especially if students had been in residence. He warned that figures would be watered down by inflation and the Bill needed to allow the Minister the right to increase these figures. The protection of basic goods was great, but the amount was too low as R10 000 could not cover a stove, a fridge and a washing machine.
COSATU agreed with the penalties and that loan sharks should go to jail as people went to loan sharks out of desperation when banks had turned them down. Greater enforcement of laws was essential. The processes for debt relief, from application to mechanisms for relieving debt, needed to be addressed.
COSATU was looking for legislation that protected people who lost their homes and believed that no house should be sold below market value. It also wanted discussions about interest rates. Something had to be wrong that the poor paid higher rates than the rich. Legislation should make it illegal for banks to own non-banking lending operations as people who were not creditworthy at the bank, were given a loan at three times the interest rate in those businesses. Furthermore, banks were closing branches, especial in rural areas, but CEOs continued to earn R15 million and a R15 million bonus.
COSATU had identified farm loans as being important. Over 50% of farms were heavily indebted and when a farm buckled, the first victim of the over-indebtedness was the farm worker. The need for a State Bank was emphasised, as well as the need for consumer education.
Mr Parks thanked Members for the fantastic Bill.
Mr Cachalia thanked Mr Parks for his unequivocal support for the Bill and his stated intention to encourage more draconian legislation on this. He hoped that the Committee would strike a balance between that and the constructive comments that had come from the banking industry. It would be remiss not to comment on an apparent paradox between the union that supported the Bill and its ability to cannibalise its own interest in not supporting a more flexible labour regime which would allow many more of the unemployed to be employed. Given the unacceptably high levels of unemployment that the country had seen over the past 22 years, a more flexible labour regime would put money into people’s hands and save them from death traps.
Mr Williams welcomed COSATU’s input. He stated that it was not necessary for COSATU to sing their praises as they were just doing their jobs. The Bill was not designed to create a culture of non-payment and the Committee would like to encourage COSATU and other labour federations to tell their members that those who could pay their debts had to repay their debts. He also wanted COSATU and other federations to start talking to their members about opening savings accounts. It might be hard with the low wages, but a culture of saving could avert such legislation in the future.
Ms Theko appreciated the support from COSATU. The Committee would engage DTI on the matter of loan sharks as raised by COSATU.
Mr Parks knew that there had to be a fair balance and COSATU would not be telling people not to repay their debts as that would collapse economy and collapse the banks and COSATU had 80 000 members working for banks. He believed that it was a fair balance if they zeroed in on those who earned below R7 500 or had been retrenched. The reduction of the threshold from R10 000 to R7 500 showed that there was an effort to try and create a balance. COSATU had many thousands of workers who earn no more than pocket money; terrible, poverty wages. He understood that people did not like COSATU because the trade union had supported the ANC for historical reasons. In response to the comments about the labour laws restricting employment, he noted that in 2008, at the height of the financial crisis, 1 million workers lost their jobs overnight, so there was clearly no inhibition about firing workers. It was a phenomenon that was seen frequently in the mining industry, where there were frequent retrenchments of thousands of workers. Workers had been retrenched by Joshua Doore, the banks, and Telkom, which was the most immoral case. From 50 000 employees in 1994, there were now less than 5 000. The Minister gladly announced each budget that there were going to reduce the number of employees at Telkom. However, people became sub-contractors to Telkom, and are hired only when needed and they do not get any benefits. It looked good for Telkom but was devastating for workers. It was unfair to blame workers for 34% unemployment and for having the most unequal society in the world. Labour brokers employed those who worked in Clicks, Pick ‘n Pay. There were over two million people working for labour brokers. Despite the requirement that employees had to be made permanent after three months, workers were too scared to ask that the jobs be made permanent after three months in case they lost the job. They were even too scared to take leave in case, when they came back from leave, they no longer had that job.
Mr Parks agreed with Mr Williams. Parliament passed 80 Bills each year, but they were about policy and so on, and very few had a real impact on the people. The current Bill would really give hope to the poor in a responsible, humane way, and especially to the unemployed. Government had not been sensitive enough towards the unemployed. The Maternity Leave Bill had still not been implemented. COSATU would welcome efforts to crack down on loan sharks and the police had to be included in those efforts.
The Chairperson noted points made about the work environment where unemployed workers were rehired by agents. To work as piece labour for brokers takes one back as such workers did not have pension and other benefits, such as medical aid. Many years ago, in Europe, particularly in Britain that was exactly what workers fought against because up until that time the worker sold his soul to the company store as it were. People were permanently indebted, and people could not even take a holiday. That was changed, and it was accepted in Britain, Europe and America, that it was normal to this. Government had wanted to even the playing fields and to ensure that everyone who worked could have a pension and medical aid. It was a very serious matter that had to be looked into. Many people in the room would have had parents and grandparents who would been workers under such difficult conditions.
The Chairperson explained that the point was that when people fell on hard times, there was no concern about how the people got there. The worst thing was that the house was sold way below the basic cost, and it was criminal that, having auctioned it off with no reserve, the bank forced the client to pay the balance. Her colleague, Yunus Carrim, whose reputation was legendary, had done his best but the position remained as it is. She and he were co-chairing the transformation process of the financial sector. There were countries that the Committees could take lessons from. There had to be another way of financing houses.
She thanked Mr Parks for the positive input, although some points that he had made, had raised issues. She noted the amount of R2000 for tools of trade was an amount that had been taken from the Magistrates’ Act and it could not be considered too high as it had been implemented 30 years ago and had never been increased.
National Treasury comments
Ms Katherine Gibson, Senior Advisor in Financial Sector Policy at National Treasury looked at both the big picture and specific concerns. What had emerged, was the absolute for Treasury to delve into the issues at a great level of detail. Broad brush strokes did not give the full picture.
National Treasury supported the need to support South Africans caught in a debt spiral. The current preparation for the Bill had enabled the Committee and Department the opportunity to take an in-depth look at the scenario. The submission took a step back to look at the Bill in its current form and how to take it forward so that it would be sustainable for the market and for borrowers.
National Treasury believed that there was an urgent need for the Bill, especially considering the knock-on effect of spiralling debt. Treasury was looking at giving chronically over-indebted South Africans the opportunity of a fresh start. It was considered important to focus on incentives and moral hazards. The Committee had to consider first lenders and last lenders, who usually put things over the tipping point.
The Chairperson asked for clarification of the last one in principle. Ms Gibson explained that when multiple loans were given, one had to consider at what point did those loans become reckless. If the first lender had lent in a positive environment, but last lender knew that the first lender will share the cost of debt review or relief, he was not as careful in assessing the person.
National Treasury supported a framework for a different rehabilitation of all borrowers to create a sustainable and competitive credit sector. The key question was: where is the cliff? National Treasury was researching where the cliff was and up to what point a person could be helped and at what point were they over the cliff and how they could then be helped. Debt extinguishing was for those who were over the cliff. Regulatory legislation was starting to filter through and the credit market was healthy so there should be fewer people in that category over the years. Credit granted to borrowers under R7 500 had declined. There needed to be appropriate checks and balances and a need to change consumer behaviour, but recognising that it was a process and not a once-off education.
Two main weaknesses had been identified: the insolvency framework, which meant the Insolvency Act had to be repaired, and sequestration, which did not work for those with no income and no assets. The draft Bill provided once-off immediate relief for those with no income and no assets. It did not systematically address the issue of South Africa’s insolvency. There would be an impact on credit providers but also an impact on the broader socio-economy. It was possible that micro-lenders might not survive. However, regulatory reforms in the credit sector were being strengthened.
A key concern was the need for a communication strategy and ensuring a simple process so that there was no risk of jamming the system.
The Chairperson appreciated the constructive criticism. She noted that the Committee was also working with the Department of Justice which had been very supportive and given critical input and had ensured that certain legislation and regulations had already been amended. She asked Ms Gibson about Section 88 which might be unconstitutional - even the impact on contractual relations and the implied deprivation of right to property, especially in the new Section 88F. The Chairperson asked Treasury to unpack the point briefly as she knew that Treasury would have further engagement with the Committee.
Ms Gibson was loath to answer the question on the possible unconstitutionality in Section 88F as she was not a lawyer and therefore did not have the technical background. A number of questions had to be asked. It came down to a question between what were the rights, whose rights were being removed, what was the process by which those rights were being removed? Were there mitigating circumstances which made the removal okay, and what were the additional ways of achieving what the Bill was trying to achieve, which would mean that the removal of rights was not as necessary as otherwise could be? National Treasury was seeking legal advice on that section. A key question would be if it was okay to remove rights where there were other ways of achieving the same result. The immediate relief was clearly defined but Section 88F could be thought to be generally arbitrary, and in one clause, the powers of the Minister had been widened. It was necessary to apply the lens at different levels.
Mr Williams asked when National Treasury said “we” support or don’t support: who was the “we” and from where did they get the mandate? National Treasury input was a little too close to that of BASA and other financial service providers. To him National Treasury did not sound like a national treasury of a people-centred developmental state and, so he was a little concerned where National Treasury’s input was so similar to that of the banking sector. He was disappointed that there was not a lot of emphasis put on the benefits for the poor.
Mr Cachalia valued the submission which added to the discussion in no uncertain terms. He had some issues of clarification: Ms Gibson said, when speaking to Slide 10, that the size of the debt to be extinguished would not have a systemic effect but then went on to talk to the effect on the retail sector, on the fiscus due to reduced revenue and the general impact on the volume and cost of credit. He asked how she could unpack that in terms of effect. What constituted systemic effects and what did not, so that the Committee could quantify it? That would be the segue into the social and economic impact that she spoke of, and that was absolutely necessary, and that the Committee had to see. Could the Committee have some headline news about it and when would the Committee be able to see it? In terms of the impact assessment and the interdepartmental to-ing and fro-ing on it, how would that affect timelines for the Bill because the impact assessment was important. It looked absolutely crucial that they look international examples. The example from India, in particular, where the banks were reimbursed in full by the Indian government had caught his attention as it had not amounted to deprivation for the creditors’ property. That underscored the oft stated opinion that there was no free lunch and no tooth fairy and that someone had to pay for it. It was necessary to understand the implications of that because in some people’s minds it was often lost. It also spoke to the Constitution which the Chairperson had spoken to as to what constituted legal property. The details were important. In terms of the retail sector, he needed clarity on the status of micro-lenders. Many of those were small businesses and not banks working with deposits and the like.
Ms Mantashe noted that Treasury emphasised the point that the Committee should have gone on a study tour to make a comparison of how other countries had handled the matter. She hoped that that it was possible to go back and convince the Chairperson of Chairs about a study tour - not that she wanted travel, but it was necessary.
Ms C Theko (ANC) agreed with Mr Williams in her disappointment with National Treasury because the Committee was busy with the Bill, but it looked like Treasury was comfortable with the situation on the ground. It was as if Treasury was defending the market and was not coming on board with the “how” part. Could Treasury legal advisors come and address Committee on Section 88F? She wanted to know what the take was on that and how the Committee could best craft that section to best suit everyone. Ms Gibson should clarify bullet number three on page 10. Could she add more or should the Committee engage SARS on how best to deal with the issue of tax? The Committee had to assist the people on the ground because it was not fair that those who were rich continued to be rich and that those that were poor continued to be poor. It was not their mandate to serve one-sidedly and not address all of the people of South Africa.
The Chairperson agreed that it would be helpful to get further explanation of the tax issue. She had felt that there were one or two areas in which she was pleased to hear what Treasury had to say as it suggested that they were on the same page. She appreciated the question that Treasury had raised: what was it that this Bill sought to do? The answer was: to bring relief to the poorest of the poor, now and in the future. She was pleased to hear that that was clearly understood by Treasury. That was a critical principle which not every presenter had agreed with.
However, the Chairperson did agree with other points the Members had made. She had heard with interest the discussion, on page 19, about the mechanisms for debt relief, leaving aside the figures for the moment. The point was that debt relief should work for everyone earning an income which was something that the Committee would have to consider, as should the NCR and DTI. There would be a national minimum wage and the question was if everyone should be able to be addressed by the process. That was something that had to be considered, but not right away immediately as it would not help at that point.
The other issue was sequestration. The Committee had been informed the previous year that work would be done on that matter, but it would not be ready until probably midyear. Meanwhile, certain legislation had been amended. One of the measures was a limited form of sequestration and the Committee needed to unpack that. How Treasury saw the legal position in relation to the Constitution was going to be very important to the Committee and it would assist the Committee.
Ms Gibson did not believe that the proposal that she had made was out of line with what the Committee wanted to achieve. She did not agree that Treasury’s proposals were not in favour of the poor and that Treasury was not supporting the process. To be specific, Treasury believed that those that qualified for immediate relief should get it. There could be a conversation around how and what the parameters were, and the process, but that was the technical detail. The principle was they should identify the group of people who qualified for immediate relief, then Treasury believed they should get it.
The question of going forward was dealt with in the section of the Bill about people who might require assistance in the future. Treasury agreed that that was a challenge and one way of dealing with it was in the proposed regulations but that would only help those specific people that might be captured there, and it was not a systematic issue. Treasury was thinking about a way that did that but actually did more, such as the limited sequestration and getting the debt review to work all the way down. Then the Committee would be reaching not just the people on the list, but everyone. That had been one of the issues that had come up in the hearings. Why was the intention only to help those people? If one could not afford to pay one’s debts, it was critical for the poorest of the poor, but there were many in the middle class who were also really, really struggling and they fell between the cracks. The interventions that had been proposed will almost be a form of sequestration. The once-off relief that had been proposed was precisely that. Treasury was suggesting that the Committee should think of a way to apply that going forward in a systematic way accessible to everyone.
When Treasury had raised the constitutionality issue, it was not to stop the whole thing but to acknowledge that there might be challenges in the Bill, and the Committee needed to acknowledge what those challenges were. By focusing on the big picture and what the legislation was trying to achieve, the drafters of the Bill would be able to ensure that it met those goals but within a constitutional framework. They should be testing their own legislation in respect of constitutionality.
In response to Mr Cachalia’s question on impact assessment, Ms Gibson stated that Treasury had not done that exercise. Treasury had looked at the impact specifically on credit providers. However, when introducing legislation, government now recognises it is necessary to do a broader socio-economic impact assessment. She had flagged some of the issues that would probably need to be taken into account in an impact assessment, such as the employment in specific sectors and the impact on tax. There might not be a big impact. The problem was that at the moment, Treasury simply did not know the impact.
She agreed with Ms Mantashe that a study tour would be a very good idea. The Standing Committee on Finance had done a study tour on the Twin Peaks process and it had helped the Committee a lot. If it were possible to have a study tour, it would be very helpful. The way that the Finance Committee had organised it, was that they had taken a technical person with them to support the Committee in understanding some the technical issues. That was beneficial as the technical person could give advice and help where needed.
Ms Gibson replied about the status of microlenders and the retail sector. There were two points: the two sectors had been broken up in looking at impact. In terms of the broader socio-economic assessment they would have to be clearly incorporated as a category. Treasury had looked at the number of microlenders, number of loans, volume of loans and so on. However, what it would actually mean for the bank and the retailer would be part of that broader impact assessment.
She had indicated that Senior Counsel would provide legal input. She reiterated that raising the question for discussion, did not mean that Treasury did not support the Bill. The questions were raised in response to consideration of which parts of the Bill could be strengthened and tightened. SARS would form part of the broader impact assessment.
Ms Gibson replied to the Chairperson on whether everyone ought to be addressed by the legislation. She had previously stated that Treasury believed that the legislation was almost at the point where it would be able to address everyone. If a slightly different lens was applied in response to what the Committee wanted done, it would give direction. She pointed out that DTI was better place to give specific advice on debt relief. Treasury would be able to give input on limited sequestration and give specific proposals on that.
The Chairperson noted that Ms Gibson had indicated on page 20 that Treasury had instructed its legal team to look into the constitutionality of specific clauses. She believed that would help the Committee very constructively. Ms Gibson was thanked for ensuring a member of her team attended all the public hearings.
Department of Trade and Industry (DTI) comments
Mr MacDonald Netshitenzhe, DTI Acting Deputy Director General: Consumer and Corporate Regulation presented, saying additional comments would be made by Prof Joseph Maseko, Chairperson of the National Credit Tribunal (NCT) and National Credit Regulator (NCR) CEO, Ms Nomsa Motshegare.
The Chairperson indicated that DTI was making direct comment on the Committee Bill. As the Bill did not originate from DTI, the Department was commenting on the Committee Bill to take the processes forward.
The first point DTI raised was constitutionality. Mr Netshitenzhe noted that there were many views on the constitutional perspective and it was important to ensure that the Bill was constitutional. The President could sign the Bill if he believed that it was constitutional, or he could return it to Parliament to consider clauses related to the Constitution or he could refer the Bill to the Constitution Court for certification which would alleviate all constitutional uncertainties.
DTI recommended that the process of rule nisi be included when considering debt intervention applications with all interested parties having the opportunity to make submissions on the return date, thus complying with the audi alteram partem rule.
DTI supported Section 88A relating to the definition of a debt intervention applicant but suggested that consideration be given to including a definition of debt intervention. The DTI recommended that the CEO of the NCR appointed suitably qualified employees of the NCR as debt intervention officers to evaluate all applications for debt intervention. The NCR capacity and infrastructure would need to be enhanced. It was recommended that any appeals against a single member’s judgement should be made to a full panel of three members.
Section 88C (5) was supported and DTI recommended the establishment of a specialized institution focusing on consumer education. Secondly, DTI also recommended that financial literacy education be added into the Basic Education curricula at schools.
DTI supported Section 88E (1) to (6) as the Department supported rehabilitation in general, but proposed that the manner and timeframes be prescribed in Regulations, and not in the Bill. In Subsection 7, reference to the Minister should be replaced with the NCR CEO.
The DTI, NCR and NCT supported the Bill in its entirety and believed that issues of drafting and Socio-Economic Impact Assessment studies would be enhanced through the public comment.
National Consumer Tribunal (NCT) comments
Prof Joseph Maseko, Chairperson of the National Consumer Tribunal, referred to financial literacy education. Generally, it was approached on a cognitive level and the focus was on the skill of managing money. He believed that it went a little deeper than that. He suggested that financial literacy should be the responsibility of the NCR and that there needed to be a robust campaign as over-indebtedness in the country was a pandemic. Training could not be relinquished to those who would train on the intellectual level. Psychological counselling was required which would penetrate into the soul of the person. Financial literacy at the superficial level of knowing would not change habits and patterns of behaviour. Comparison and aspiration to be better was something found in the psyche and resulted in over-indebtedness. It was an addiction and a behavioural issue.
National Credit Regulator (NCR) comments
NCR CEO, Ms Nomsa Motshegare, made a plea was for adequate capacity so that the programme could be implemented. She reminded the Committee that the NCR was managing a R1.7 trillion industry. NCR needed to do it in-house and not outsource to those who would make a profit. The issue of financial literacy was very important. The culture should be instilled at primary level, using the existing Life Skills curriculum, as there was a need to build a culture at an early age.
Mr MacDonald Netshitenzhe proposed a DTI team that dove-tailed with the drafters. It could be arranged at Committee level.
The Chairperson thanked the presenters and noted, particularly, the comments about changing the psyche in respect of financial literacy and over-indebtedness. The Joint Committee on Transformation of the Financial Industry had noted a greater need for the financial sector to develop plans to encourage children to save. The state should do likewise. It would be a bit late to tell matriculants to start saving as by that time they had already learnt to spend.
Mr Williams asked if the DTI thought that there were any unconstitutional clauses in the draft Bill and, if so, which clauses. If DTI did not believe it was unconstitutional, could the Committee have the legal opinion that said that the clauses were not unconstitutional?
Mr Cachalia asked about the socio-economic impact study which the DTI had said would be enhanced through the public hearings. That was crucial, and the Committee really needed it. Otherwise, the Committee did not know where it was going. When would it be available, how, by whom and what would be the details of the areas of impact assessment? In terms of that, would the rule nisi and the audi alteram partem rule allow for input in terms of inclusion by the stakeholders into the area of assessment that they thought might be required? That was important from his point of view. He had his own opinion in respect of Prof Maseko’s comments about the psyche. He explained that his grandparents had come to South Africa in the 1870s as a result of his family in India mortgaging their farm land to pay for the wedding of two daughters. As a result of that his family came to South Africa, contributed to the economic social and political life for over 120 years, and that was a good thing, and they also paid off the debt in India.
Mr Mbuyane wanted to check with the NCR about capacity as throughout the public hearings, stakeholders had been crying about incapacity and inability. How was the NCR going to deal with their capacity challenges as it was disturbing to hear that the NCR did not have the capacity.
The Chairperson noted that the Committee had indicated that addressing the DTI budget was a challenge and that more resources should be considered, but the Committee had been aware that the fiscus did not have the funding at the time. A request had been made to fund additional resources as soon as there were funds available. The Committee might need to reinforce the point.
Mr Netshitenzhe stated that, in reading the Bill, they could not find any unconstitutional clauses but perhaps when a debt was written off or extinguished, it might be that an asset was being written off. There were opposing views. As for now, he could not say as the Department was researching the matter.
On the impact assessment, he stated that when Parliament had started the process of this Bill, the Committee had asked DTI to come with policy understanding. DTI had done an impact study from a policy perspective. He suggested that the DTI should do an impact assessment at the Bill level. The participants would be the stakeholders. Those who had the competency to do the impact assessment would involve the stakeholders and their opinion would be sought.
On the rule nisi, Prof Maseko thought that there was a misunderstanding about the temporary orders that were to be issued. People thought that the NCT would make a quick decision. However, the Committee had determined that the NCR should not wait till the end of the process to give people relief. The rule nisi would suspend the debt until the process had been resolved. The order could be made permanent, if necessary, at the end. It was not unconstitutional, and it was widely used in South African law. It would prevent the credit provider from demanding money during the process or drag the process while the consumer was suffering. At the same time, the credit provider was welcome to argue against that order being made permanent.
On property deprivation, he liked the idea of National Treasury to stream some of the over-indebtedness into sequestration, so that credit providers did not lose all, except in cases where over-indebtedness could not be avoided. That process would separate insolvency and over-indebtedness.
Prof Maseko recommended that a more robust approach be taken on the additional resources required. The Committee needed to consider what the NCR could do with proper resources. If the NCR could be better resourced, it could eliminate human trafficking which was fuelled by over-indebtedness to some extent. A lot of the hospital cases could be eliminated because a lot of psychosomatic sickness stemmed from worry. Even crimes could sometimes be reduced. People who had no jobs had no money lacked self-esteem and, so they committed crimes to show that they were men. There were hidden gains to be had. It might appear, initially, that money was being splashed on the institution, but in the end the gains would be there.
The Chairperson agreed that prevention was less costly than cure.
NCR CEO, Ms Motshegare, indicated that the NCR had developed a plan around its needs. They just needed to cost it.
Mr Cachalia appreciated the clarification on the legal aspects. He agreed that justice delayed was justice denied. He asked about the rule nisi and the principle of audi alteram partem. Would stakeholders be able to say that they wanted certain matters addressed and, in terms of rule nisi, if they were not addressed, the process would be regarded as incomplete?
Mr Mbuyane requested clarity about the data transmission hub. He asked about the school programme.
The Chairperson noted that the Committee had heard about a financial literacy empowerment programme conducted by an NGO.
Ms Motshegare replied that data transmission would be included in the plan that NCR was drawing up on resourcing needs for IT, office space and personnel.
Ms Mantashe said that the awareness programme could not wait. The NCR had visited her community and run a program on financial literacy. That programme could continue while the glamorous issues were being addressed.
The Chairperson stated that the point about alignment was taken and she considered it very constructive. The suggestions on definitions were well taken. On page 9, the reference to being prescribed in Regulations, DTI would have to write the Regulations as the secondary legislation.
Mr Netshitenzhe informed Mr Cachalia that when they did impact assessments, the key issues, including the rule nisi, would be addressed. Education and awareness was happening. The DTI was undertaking such programmes. The CEO of NCR would come with the more glamorous plans.
The Chairperson informed the meeting that the credit bureau would respond to the question that the bureau was asked about.
Credit Bureau Association (CBA) input
Ms Alison Magrath of the Credit Bureau Association responded about the records kept on the database and if it could assist, and what could be done to effectively implement the debt intervention. Currently 450 credit providers provided data to the credit bureaus but there were, in total, 5 000 credit providers registered with the NCR. It was therefore obvious not all provided data.
In 2015, the DTI and NCR amended the NCA, particularly with reference to Regulation 9(13) which obliged all credit providers to provide information to the credit bureau. That regulation only became effective in 2017 when DTI issued guidelines as to the manner and form in which the data had to be provided. The NCR had also issued a guideline on fees. However, the process would take three years to finalise.
Ms McGraw was not sure that the people under R7 500 would be with major credit providers. If they were with minor credit providers, the credit bureaus would not have that information.
The Chairperson asked for a list of who was already providing information. She remarked that it was a dynamic exercise and presenters were invited to give additional information as it occurred as the Committee required specific recommendations.
She informed the meeting that the Department of Justice had apologised as one of the presenters from the Department had fallen critically ill on the flight and the Committee had excused them.
It was noted that the programme was quite dynamic. Some changes had been made for 6 February. Different people were coming. The Committee was not meeting on 8 and 9 February. On 13 February the Committee would be having an update on the status of the Copyright Bill. Wednesday 21 March was Human Rights Day and on 22 March the Committee was holding a planning workshop. Easter was from the 29 March to 2 April and constituency visits would take place from 3 to 16 April.
The Chairperson thanked Committee Members. She would approach the Chairperson of Chairs again about the study visit as it had been previously rejected because of financial constraints.
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