'Debt Intervention' National Credit Amendment Draft Bill: public hearing; Research on over-indebtedness

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Trade and Industry

13 February 2018
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

Black Sash in its submission on the National Credit Amendment Bill, made it clear that the protection of social grants from fraudulent and unlawful deductions was a critical element of the right to social security/assistance as set out in the Constitution, international instruments and jurisprudence. The Easy Pay Everywhere (EPE) Green Card has fuelled indebtedness as many loan sharks use this card to provide loans often with no affordability tests, no proper avenues of recourse, no administrative justice and no debt counselling. Grant beneficiaries are trapped in a vicious cycle, using debt to pay for food and basic living needs.

Black Sash welcomed the threshold of R7 500 for debt intervention as this will cover many social grant recipients. Under Section 88A(1)(b) realisable assets were set too low and the  amount should be increased to R25 000. Basic household assets often exceed the R10 000 limit. The elderly, the disabled, women and children need the protection of a secure home. Section 88A(2) makes provision for one application for debt intervention. Black Sash was of the view that this should be amended to at least two, given that small crises increase the vulnerability of the very poor.

Section 88A(2) limited the amount of unsecured debt to R50 000 and Section 88A(3)(a) sets out which types of unsecured debt do not qualify for debt intervention. When children become 18 years they no longer qualify for the Child Support Grant (CSG) – they are completely reliant on bursaries and loans to fund their tertiary education including accommodation and food. The likelihood of securing employment immediately after completing their studies is highly unlikely given the current economic situation. The limitation should not exclude educational loans under Section 88A(3)(a). The threshold level for unsecured debt under section 88A(2) should be increased to at least R100 000 for education. The limiting period for obtaining new credit should be reduced from 36 to 24 months

Members asked if Black Sash was suggesting that the grant beneficiaries should not have access to credit at all; about the limiting conditions of educational loans should not be exempt from debt relief; about reducing the limiting period from 36 to 24 months; why there should be more than one chance for people to apply for debt relief; about alternative proposals on how grant recipients should receive their grants; whether it was a legal practice to sign up grant beneficiaries for deductions without following due process.

The Department of Justice and Constitutional Development (DoJ&CD) submission referred to section 3 of the Superior Courts Act which provides that the Minister of Justice must be consulted if a Bill is to amend the structure or functions of a court or tribunal.

DoJ&CD noted that debt intervention duties and powers would be assigned to the National Credit Regulator (NCR) and the National Consumer Tribunal. It was, therefore, assumed that the capacity of the NCR and the Tribunal will be adapted to deal with consumers who wish to access the debt intervention relief.
• Section 25 deals with the NCR enforcement functions. Paragraphs (hA) and (hB) were inserted as further functions – paragraph (hA) should refer to applications for debt intervention and applications for rehabilitation provided for in section 88E. It is suggested that it is specified that referrals are made to the Tribunal.
• It suggested that the heading of section 82A should read: “Report, investigation and suspension of reckless credit agreement”.
• Consideration could be given to providing for another person to be able to act on behalf of a minor who may not have legal and contractual capacity to enter into credit agreements or apply for debt intervention.
• It was not clear from the provisions of section 88C if a credit provider will be able to state his or her opposition against an application for debt intervention when a matter is heard by the Tribunal.

Eighty20 had been contracted by National Treasury to do research on over indebtedness. There had been a significant increase in access to credit in South Africa. The number of credit active consumers increased from 17.1 million in the first quarter of 2008 to 25.1 million in the third quarter of 2017. According to the NCR less than half of those who are credit active are up to date or current. Although a lot of consumers are not current in their accounts because different credit providers have different definitions of defaulting. There had been a noticeable shift in unsecured lending patterns although one needed to remember that income bands are fixed in nominal terms.

On research methodology, XDS generated a random sample of credit active consumers. Best estimates of income for these consumers were obtained from banks that were able to match 74% of the sample, and for the balance XDS’s income estimates were used – this process generated best available income estimates but it is not a perfect data. Based on the estimates around 56% of the credit active population has an income of R7 500 or less. However, income estimates are notoriously difficult to verify. In terms of borrowers eligible for debt intervention, based on the income estimates, approximately nine million borrowers could potentially meet the eligibility criteria for debt intervention as per the draft Bill. In total borrowers that could qualify for debt review hold 16 million loans, 29% (4.7 million) of these loans are three months or more in arrears – these borrowers could qualify for debt intervention and the total outstanding balance on these loans is around R20.7 billion. There are 2.6 million borrowers that are eligible for debt relief that have at least one account that is three months or more in arrears.

Unsecured loans from a bank are the most likely to be in the very late stages of arrears. Much of this debt may be the African Bank bad book, and much of it may be prescribed. These very late stage arrears loans have a material impact on the profile of borrowers who are credit active. If they are removed, the health of borrowers in South Africa appears sounder.

Members asked if Treasury has made any alternatives for credit review or debt review and how much it would cost; how debt granted legally would be extinguished retrospectively; how Members could be assured that the 59% overly indebted who can pay their debts routinely would be able to sustain their livelihood; the implications of the findings; why banks had the highest percentage of defaulting consumers in comparison to other service providers; and how the affordability process was handled in retail stores.

Meeting report

The Chairperson commented that South Africans work together to overcome challenges such the scarcity of water in the country. She appealed that everyone continues to save water.

Copyright Amendment Bill status report
The Committee had identified a number of experts that should serve on the expert panel. The Committee Secretary was instructed to check their availability. Of the four that was identified, only two have indicated their willingness to serve on the panel: Adv Andre Myburgh and Adv Natasha Pather. He had distributed Prof Sadulla Karjiker’s reasons why he would not be willing to serve on the panel; the other one indicated that it was not their area of expertise. The Committee will need to look at the CVs of the other suggested names. The Committee will resume its deliberations on the Copyright Amendment Bill in the second quarter this year.

Ms L Theko (ANC) said that she was happy with the progress. The Subcommittee will finalise the expert panel and it will be presented to the Committee for adoption. In the second quarter the Subcommittee would be ready to table the Bill.

Mr D Macpherson (DA) had received the letter from Prof Karjiker in which he raised concerns about the Department’s handling and drafting of the original copyright legislation. He eloquently made it clear that he associates himself with some of those concerns, and Members should also look into them. He asked about corrective measures that have been taken, and who should be held responsible for them. He raised some important questions about how the Committee legislates on what he believes is a flawed policy. This was sobering. Mr Macpherson encouraged the Subcommittee to look at the contents of what the Professor has raised and perhaps look into forming an official response to address those concerns.  

The Chairperson stated that the Committee did hear what Prof Karjiker had to say on other platforms as well and it was taken so seriously that the Committee wrote to the Minister so that appropriate interventions are implemented. Hopefully, in due time those will materialise. Members should note in the new Copyright Amendment Bill if these concerns have been dealt with – she urged Members to study the Bill thoroughly and comment accordingly.

Black Sash submission on National Credit Amendment Draft Bill
Ms Hoodah Abrahams-Fayker, Black Sash National Advocacy Manager, said that Black Sash submits that the protection of social grants from fraudulent and unlawful deductions is critical element of the right to social security/assistance as set out in the Constitution, international instruments and jurisprudence.

On the unlawful deductions from SASSA beneficiaries, grant beneficiaries have SASSA bank cards serviced by Cash Payment Services (CPS) who provide the card technology and manage the card payments on behalf of the government and facilitated through Grindrod bank. The SASSA contract with CPS facilitated the opening of just under 11 million SASSA bank accounts by CPS via Grindrod Bank for approximately 17 million grant beneficiaries. In June 2015 Grindrod Bank with Moneyline, a subsidiary of Net1 opened up the Easy Pay Everywhere (EPE) bank account known as the “Green Card”. This EPE card has fuelled indebtedness as many loan sharks use this card to provide loans often with no affordability test, no proper avenue of recourse, no administrative justice and no debt counselling. Grant beneficiaries are trapped in a vicious cycle, using debt to pay for food and basic living needs.

On whether the proposed amendments address over indebtedness of the poor, indebtedness is a social and economic challenge with far reaching consequences for vulnerable social grant recipients. Social grant recipients can become easy prey for moneylenders as they are receiving guaranteed monthly income from the state. Grant recipients – whose bank accounts have a debit order facility that can secure loan deductions, with easy access to confidential data – are placed in a precarious position, especially when no affordability test has been done.

Black Sash welcomed the threshold of R7 500 for debt intervention as this will cover many social grant recipients. However, realisable assets are set too low and the amount should be increased to R25 000. Basic household assets often exceed the R10 000 limit. It suggested inserting under realisable assets: “but does not include a  RDP house or property provided by government”. The elderly, the disabled, women and children need the protection of a secure home. Section 88A(2) makes provision for one application for debt intervention. Black Sash was of the view that this should be amended to at least two, given that small crises increase the vulnerability of the very poor.

Black Sash noted that the application forms and procedure must be user friendly and easy to understand with clear guidelines and a step-by-step process. The debt counseling and financial literacy training or budgeting skills programmes that the Bill allows for must be free.

On the limiting conditions to apply for debt intervention, the amount of unsecured debt is limited to R50 000 and Section 88A(3)(a) sets out which types of unsecured debt do not qualify for debt intervention. When children become 18 years they no longer qualify for the Child Support Grant (CSG) – they are completely reliant on bursaries and loans to fund their tertiary education including accommodation and food. The likelihood of securing employment immediately after completing their studies is highly unlikely given the current economic situation. The limitation should not exclude educational loans. The threshold level for unsecured debt should be increased to at least R100 000 for education.

Black Sash commends the simplicity of having a single Tribunal member consider the application for the sake of accessibility and expediency. However, bias and partiality of a single member may result in a negative outcome. The application procedure excludes the option to appeal a negative outcome. One must allow for a right of review and appeal process. Making provision for the extinguishment of the debt is commendable but the time period limiting an applicant from applying for credit for 36 months should be reduced to 24 months.

Black Sash said the right of the Tribunal to rescind or change an order where the applicant has not complied with the order, may only be made after investigating the reasons for noncompliance. If the applicant acted in good faith and circumstances were beyond their control to comply, it should not be rescinded and rather be extended for a further period.

In conclusion, the Bill should make provision to accommodate grant recipients as a vulnerable group for unsecured debt, and the prescribed forms for the application process for debt intervention must be simplified to be user friendly.

Discussion
Mr A Williams (ANC) asked if Black Sash was suggesting that grant beneficiaries should not have access to credit at all.

Ms L Theko (ANC) asked for clarity about the provision for more than one application for debt intervention.

Mr Macpherson stated that at outset Black Sash made some valuable points about reckless lending which is something that he has been pointing our repetitively. There were a lot of things going on about unscrupulous lending, and the Bill does not speak to that point much – Black Sash’s points also raised this. He wanted to understand about suggestion on the limiting conditions that unsecured amounts should not exclude educational loans if they are under R100 000. The biggest concern he has about including educational loans was that when someone does not pay back the loan, it takes away the opportunity from someone else to have access to higher education. He asked  if Black Sash agrees with that sentiment.

He agreed with Black Sash on page 11 regarding the single member making the application, hopefully the Committee will take that point. On page 12, he asked the reason for reducing the limiting period from 36 to 24 months. He did not agree because 36 months was determined to be adequately appropriate for rehabilitation without people getting themselves much quicker back into the credit market. It is an appropriate cooling off period.

Ms P Mantashe (ANC) asked Black Sash why it thought there should be more than one chance for people to apply for debt relief because the objective is to not encourage people to get themselves more into debt but to provide some relief to those who are financially burdened. She was uncertain whether this would not clash with the Committee’s objective.  

Ms E Ntlangwini (EFF) welcomed the inputs from Black Sash. On educational loans, perhaps this should be excluded since it was announced by President Zuma that there will be free higher education. She asked if Black Sash thought the current grants are sufficient to sustain a family and why people go into debt. Perhaps if there were any studies done by Black Sash, it could furnish it to the Committee or refer her to one.

Ms S van Schalkwyk (ANC) noted that on page 5 since the Green Card came into effect, a lot of loan sharks have taken advantage of this, often with no affordability check performed. Government is promoting that the grant recipients to make use of the Post Office or commercial banks to get their grants. She asked for an alternative proposal on the form in which the grant recipients should receive their grants.

The Chairperson stated that as for the Green Card, her concerns about Black Sash’s statement on page five i.e. where lenders give credit without any affordability check – this is a requirement already in the National Credit Act, so what exempted SASSA? SASSA would have to come before the Committee to report on this.

She asked about the effects of deductions on farm workers. SASSA cards automatically deduct funeral cover before you even receive the grant. She has come across old age pensioners being coaxed into signing up for funeral cover without a clear explanation of what they are signing up for. She asked if this was a legal practice.

She asked Black Sash to motivate why the 36 month cooling off period should be reduced to 24 months so that the Committee can get a better understanding based on Black Sash’s experience with this target group.

Responses
Ms Abigail Peters, Paralegal Field Worker: Black Sash responded that currently there are 2.3 million people on the Easy Pay Everywhere card (Green Card). Since 1 February as part of the transition those grant beneficiaries are now considered to be on a private bank account, and that bank account is operated by Grinrod Bank. The Post Office is involved in the transition but there are outstanding issues that relate to the service agreement and the terms and conditions of the bank account that makes that transition slow.

On farm workers, Black Sash is in the process of completing a documentary that will be shown shortly on one of the SABC channels that deals with over indebtedness, as well as the Easy Pay card in the area of Ceres which is predominantly a farming area. Two beneficiaries have been followed. One beneficiary experienced unlawful deductions from his account for funeral cover and the other beneficiary has had three loans from different loan sharks coming off that account. Black Sash has managed to have some of her money repaid from one of the loan sharks (XYZ Ltd). There are many loan sharks that can access their money through a debit order through this EPE card. Black Sash remains stern on focusing on the fact that due process for these deductions should be followed including affordability checks. Therefore, it was not suggesting that grant beneficiaries should not be granted credit.

Everyone is aware that the grant amount is not sufficient for some families to maintain their daily living. For instance, there was a case of a single mother with four children and she is a farm worker. The fact that she has more than one loan from these loan sharks diminishes the grant amount. So this pattern of indebtedness continues. On the funeral deductions, the SA Social Act makes provisions for deduction for funeral plans but not more than 10% of the grant amount. The Act also makes it clear that no funeral cover should be deducted off the child support grant, and they must not be made off any temporary grant such as a disability grant. Black Sash did a study on child support grants that pay for a funeral plan. Once the grant terminates at the age of 18 who will pay the funeral cover? The funeral companies are making a lot of money from this.

Ms Abrahams-Fayker added that Black Sash states that when grants are received by the recipient, it should be ring-fenced from everything else so that if there is a need for a recipient to apply for credit, proper processes are applied as well as affordability checks by the credit provider. It is important to note that this is a vulnerable group. The reason for more than one debt review application was precisely because of that. In some instances there are circumstances where this group needs to apply for more debt but that should be subject to strict and closely monitored conditions, and that option should be made available.

Ms Peters added that the grant payment system starts with children, disability and old age – there is no income support grant for people between 18 to 59 years. So if a grant beneficiary encounters some difficulty a couple of years down the line, they should be able to apply for credit and it was under these circumstances that Black Sash felt there should be more than one application during the debt intervention period.

Ms Abrahams-Fayker replied that ideally you would not want the vulnerable group to be exposed to incurring more debt, but unfortunately due to circumstances people need more credit. The affordability test is very important. She replied that the grant should indeed be increased.

In terms of educational loans, it was stated in the context of the individual making the application, rather than looking at the impact on another person having access to the loan. Black Sash would look at the government intervention on free education policy when it materialises. Therefore, educational loans should be included.

Mr Macpherson stated that it was important to make the point that clearly there are individuals who do not qualify for three different loans and that is catered for in the legislation. Those loans should be extinguished immediately, particularly if granted recklessly. However, most of these loan sharks are not registered with the NCR so there is a very little action that can be taken against them. He argued that the Committee cannot wait for the reform of the NCA because loan shark activities continue taking place with very little action from authorities. Who knows when the NCA overhaul will be. Hopefully, Black Sash will make that point to the Committee

Ms Ntlangwini supported the proposal to call SASSA to the Committee. However, other committees are also dealing with SASSA issues but hopefully that will not clash with the other committees’ work. There are 2.3 million people that fall into the trap of reckless lending, and where does NCR come into play and assist with the registered lenders beside the ones that are not registered – what is being done about the registered ones?

Ms van Schalkwyk stated that CPS was the one granting the loans to the grant recipients not SASSA. CPS should also be called to Parliament to find out if it was doing affordability checks.

The Chairperson referred to the Black Sash comment about R10 000 being too little for realisable assets and basic household furniture. This was a step up from the Magistrate Court. It was separated as working tools, but perhaps Black Sash could spell out in terms of what that should be.

Ms Peters replied that the figure should be increased was if one looks at the elderly, there are about 3.3 million elderly people on the grant system. It is particularly in that category that people have worked for so many years paying the furniture off, only to have it repossessed. It was within that category Black Sash felt the figure should be moved up for the dignity of the elderly.

She said that it would also be good to have Grindrod Bank called to Parliament to be asked about its practices. It is a combination of banks and loan sharks that are given access to the debit order system. There is a plethora of companies that give loans via the EPE debit order system, and it cannot be stated with certainty whether they are registered or not. It was picked up on the ground that there are some unregistered loan sharks that are within the system.

Mr Williams suggested that in calling SASSA to the Committee perhaps Black Sash could furnish a list of the correct people to call to avoid the Committee dealing with people who will point fingers at other people.  

Department of Justice (DoJ&CD) inputs on the National Credit Amendment Draft Bill
Ms Kalayvani Pillay, DoJ&CD Deputy-Director-General: Legislative Development, commented that section 3 of the Superior Courts Act provides that the Minister of Justice must be consulted if a Bill is to be introduced which amends the structure or functions of a court or tribunal.

In general, she stated that comments are submitted in respect of specific clauses of the Bill. The Main feature is the introduction of debt intervention and duties and powers are assigned to the NCR and the Tribunal. It is, therefore, assumed that the capacity of the NCR and the Tribunal will be adapted to deal with consumers who wish to access the relief provided by the Bill. Other points made were:
• Section 25 deals with the NCR enforcement functions. Paragraphs (hA) and (hB) were inserted as further functions – paragraph (hA) should refer to applications for debt intervention and applications for rehabilitation provided for in section 88E. It is suggested that it is specified that referrals are made to the Tribunal.
• It suggested that the heading of section 82A should read: “Report, investigation and suspension of reckless credit agreement”.
• Consideration could be given to providing for another person to be able to act on behalf of a minor who may not have legal and contractual capacity to enter into credit agreements or apply for debt intervention.
• It was not clear from the provisions of section 88C if a credit provider will be able to state his or her opposition against an application for debt intervention when a matter is heard by the Tribunal.

Discussion
Mr Williams welcomed the input. Many recommendations had been made to the Committee on the Bill. These recommendations will be dealt with by the Subcommittee and then taken back to the Committee.

The Chairperson agreed.

Mr Macpherson agreed about the concern around Section 88E on credit providers either submitting their approval or disapproval of a debt intervention approval, this was one of the fundamentals of the law. He was glad this was raised by the Department of Justice.

The Chairperson stated that Black Sash made reference to the elderly and the social security gap between ages 18 and 59. The other point was about the realisable assets. It was noted that no reference was made to arms and ammunition. She asked if this was intended to be included or individuals are expected to apply for these. The Committee consciously decided to exclude this.

Mr Williams said that this was looked at in the context of people who work in the security industry but it was determined that it falls under tools of trade.

The Chairperson asked about penalties and offences.

Ms Pillay responded that on the provisions in section 130 DoJ was saying that the Tribunal has already made an order so why would you want the court to re-determine it; perhaps it was just how the meaning came across. As for the point about the penalties and offences, it is very difficult to say what would be a sufficient. On 12 months imprisonment for perjury or the supply of wrong information, you have to look at the offence and provide for a period of imprisonment but there are other offences that attract imprisonment. Should perjury attract imprisonment? When you say 12 months imprisonment, the seriousness of that sentence is carried through by the fact that you could go to prison and you would not qualify for expungement. One has to look at the offence, and analyse it, that is how she believed this to be a sufficient deterrent.

The Chairperson stated that although 12 months seems sufficient, people could come out on early parole for good behaviour. However, this is money that is supposed to go to someone else. If a person is not paying the money back they could be holding back money that could be given to someone else – this also applies to educational loans. Some deterrent needs to be provided regardless. The Committee was satisfied with the information it received today. She thanked the stakeholders for their contributions.  

National Treasury overview of the research
Ms Katherine Gibson, Senior Advisor in Financial Sector Policy: National Treasury, stated that the main reason for presence was to present the research on the debt relief proposals introduced by the Committee. She clarified the point made earlier by a Member about unregistered credit providers; this was a significant issue which the current proposals do not take into account. The assessment does not look into unregistered businesses. Further, Treasury made specific technical and substantive comments on the Committee proposals and this where Treasury was focusing its attention. The research that had been conducted was not a once-off, so it will give one an assessment at a certain point in time. However it has been developed as an analytical tool to the extent that if the parameters of the specific proposals shift, Treasury has calibrated quite easily what the outcomes of that would mean. Therefore, Treasury and the Committee would be able to make good use of this tool going forward.

Today, there are two presentations; the first one will be done by Eighty20 which will speak to the data analysis and the findings thereof. The main findings depended on how the parameters were defined so the impact shifts considerably. Treasury will present afterwards on the meaning of the findings and where they can be taken forward.

Eighty20 on the analysis of the impact of implemented and proposed policy interventions
Ms Claire Hayworth, Director: Eighty20, took Members through the analysis commencing with the credit market overview stating that South Africa is unique in that the NCR publishes data for the entire consumer credit sector. This includes data on the gross debtors’ book, arrears levels, new loans granted and active borrowers. There has been a significant increase in access to credit in South Africa. According to the NCR, the number of credit active consumers increased from 17.1 million in the first quarter of 2008 to 25.1 million in the third quarter of 2017. According to the NCR less than half of those who are credit active are current on all their accounts, but a lot of consumers are not current in their accounts because different credit providers have different definitions of defaulting. Further, there has been a noticeable shift in unsecured lending patterns although we need to remember that income bands are fixed in nominal terms.

On the research methodology, XDS generated a random sample of credit active consumers. Best estimates of income for these consumers were obtained from banks that were able to match 74% of the sample, and for the balance XDS’s income estimates were used – this process generated best available income estimates but it is not a perfect data. Based on the estimates, around 56% of the credit active population has an income of R7 500 or less. However, income estimates are notoriously difficult to verify

In terms of borrowers eligible for debt intervention, based on the income estimates, approximately nine million borrowers could potentially meet the eligibility criteria for debt intervention as per the draft Bill. In total borrowers that could qualify for debt review hold 16 million loans, 29% (4.7 million) of these loans are three months or more in arrears – these borrowers could qualify for debt intervention and the total outstanding balance on these loans is around R20.7 billion. There are 2.6 million borrowers that are eligible for debt relief that have at least one account that is three months or more in arrears.

Unsecured loans from a bank are most likely to be in the very late stages of arrears. Much of this debt may be the African Bank bad book, and much of it may be prescribed. These very late stage arrears loans have a material impact on the profile of borrowers who are credit active. If they are removed, the health of borrowers in South Africa appears sounder.

A further consideration is debt burden; debt burden profiles are fairly stable across lower to middle income segments with around 35% allocating in excess of 30% of their gross monthly income to paying debt. There is a relationship between arrears status and debt burden. Borrowers with higher debt burdens are more likely to be in arrears on at least one product. However, many highly indebted consumers are able to pay something.

In summary, it is critical to understand borrower incomes – there are some indications but these need to be verified. It is critical to understand collectable debt – there are also some indications but these need to be engaged with. It is critical to understand ability (as opposed to willingness) to pay, and to identify those who cannot pay – there are some indications that many borrowers who are in arrears have capacity to pay something. Lastly, it is also useful to think carefully about how this intervention will be assessed going forward.

National Treasury short overview response to research findings
Ms Gibson briefly stated that the impact of debt intervention will come down to how the parameters are defined. There are a lot of people that are making payments routinely; however, there is a group that is struggling but they are making payments; and there are others that cannot make payments.

Previously it was highlighted that this is an insolvency, debt review and bankruptcy problem. There are existing mechanisms which should be leveraged to assist those people. There is the debt review system to assist the people who can be rehabilitated. The system is not perfect, it has loopholes but it needs to be looked into as well as mechanisms that can be employed to assist those people. Those who cannot be rehabilitated will have to be assisted through debt intervention according to the provisions that are applicable. Treasury would like to explore and provide an ongoing intervention for those who are currently in a bad credit standing. The current version of the Bill can be tweaked in order to be able to assist those people on an ongoing basis.

Discussion
Mr Macpherson stated that this research is what Members had asked for a long time ago. If a question was defined clearly, it narrows down the focus group that requires the help. The proposed Bill misses a lot of what was found in the analysis. The numbers of those indebted are large, but who adjudicates the millions of applications that are going to come through? Slide 16 gave a really clear picture of how misguided the approach of the Bill has been. It would completely undermine the credit market to take 59% of consumers out for 36 months when they can effectively pay or make some contribution towards their debts. He asked for  the monetary value of the 59% in terms of credit owed.

He was concerned with debt review because it was not achieving what it was intended to do, this was articulated clearly on slide 19. It speaks to the whole process going forward and how debt review can be made more streamlined and affordable. Surely, it would make sense for credit providers to subsidize the debt review process, particularly consumers who participated in debt review. He asked whether Treasury has made any alternatives for credit review or debt review and how much it would cost. He said there was a strong likelihood that the paying consumers that are actually indebted would most likely enter the credit market again after 36 months – he disagreed with the outlined information in the presentation. Lastly, he asked how debt granted legally could be extinguished retrospectively.

Ms Ntlangwini said there were quite a lot of points that needed to be perused with regards to slide 16. She asked for clarity on the pie chart, particularly on the 59% that can pay. Secondly, how can Members be assured that those 59% who can pay would be able to sustain their livelihood, because one can pay their debt but still be unable to survive.

She expressed her concern about the figures that were very large. However, it should not stop the work of the Bill in any way or its objectives. On the debt review process, she was not convinced that it was helping the communities. Sometimes people get exposed to unqualified people giving them advice on debt. This system does not assist the country and people can be easily exploited.

Mr G Cachalia (DA) stated that even if you halve the numbers it was still a significant number so the impact will be significant. In the public hearings, it was fairly unanimous from the credit providers that they would be willing to come to the party in terms of debt review payment of costs and to assist in that – this is an area that the Committee should push and investigate. Lastly, assuming responsible lending and cutting out the reckless and irresponsible lending is something that definitely needs to be taken very seriously.

Mr S Mbuyane (ANC) asked about the implications of the findings. He asked what caused the banks to have the highest percentage of defaulting consumers in comparison to other credit providers. He suggested that Treasury perhaps make recommendations of where the Committee should target in assisting the distressed group.

Ms Mantashe commented on the research that will be taken to the Subcommittee. Hopefully there was no way that this information will influence or dilute the main objective or the focus of the Bill because Members are representing the public who are not even aware of the figures presented here.

The Chairperson stated that retail apparel holds the highest percentage of defaulters because people tend to take clothing apparel that they do not really need. She asked how the affordability check was handled in retail stores. It appears that often times these stores do not conduct such. Often times retail stores grant clothing credit to students - this is an area that needs to be looked into because these are reputable big companies. The Chairperson expressed her great concern about this. On the principle about the ability to pay - people should pay and this is an important point that should be considered and taken seriously.

Responses
Ms Gibson replied that the biggest issue was the principle to treat the category all the same and not differentiating whether someone can pay or not. This goes to the heart of the matter, so the question was not about diluting the impact but finding a way to sustainably solve what is currently seen as weaknesses in the credit market and the regulatory environment. So initially, where the current R7 500 threshold was borne by the fact that there is a point where debt review is not available at all – discussions on this threshold can still be held to re-determine the figure. People would want to access the debt review, but they do not necessarily want to be excluded from the credit market – so do we want to exclude the people that do not necessarily need to be excluded from the market? If your debt is extinguished a person will be excluded from the credit market and that is the consequence. The problem is not that they cannot pay but that the rehabilitation mechanisms are just not able to assist them. So the people in between those who are able to make payments and those who cannot, can we think more creatively on how we can still rehabilitate them in a way that is not as extreme as the extinguishing of debt.

She could not comment on circumstances where people who are able to make payments but cannot sustain their livelihood. She said this was something that could be thought through. If the family is that significantly under strain, liquidity would be the best option – it is a fair indicator but it is worthwhile thinking about.

On taking out the grossly indebted consumers from the credit market, the sense is that the regulatory environment has improved since when the people originally took out the credit. Hopefully, the strengthening of the regulatory environment will be far easier than scrutinizing the circumstances in which people were granted credit.

She cautioned that Members need to be careful about what debt review can achieve. There are shortcomings but the most important thing is focusing on where and how those shortcomings can be fixed. The Debt Counselling Rules System (DCRS) system has been improved significantly, so we could get to a point where we leverage off that system, and say that if you earn less than R7 500 and have a R50 000 debt – we develop an algorithm that can calculate whether you can afford the debt or not. So for this to be practical there must be a spectrum with defined parameters, and perhaps it can all be done electronically to eliminate any shortcomings and subjectivities.

On extinguishing debt retrospectively, this was flagged. Retrospectivity was a constitutional matter and still required to be dealt with.

Ms Illana Melzer, Director: Eighty20, added that the reason so much debt is held by the banks was because the arrears are very old, but it was a question that could not be answered but it is worth interrogating. The debt should probably be deconstructed but the debt in arrears of more than nine months is a long time, it provides a sense of the fact that some of the debt that is there has a very long hangover and maybe that is the first place to look in terms of how much of that is collectable by the banks.

On the question of the 59%, that is about 2.7 million loans, it is a fair amount of people who are going to be able to pay that back.

The Chairperson said that the Committee and Subcommittee will engage further with these submissions and reports. Matters that need further clarification can be submitted in writing.

The Chairperson appealed to Members that it is not considered good governance at all to be allocated to a committee and then permanently absent oneself because of “party business”; she said she would not tolerate that.

The meeting was adjourned.

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