Debt Relief Committee Bill: Department response to submissions

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Trade, Industry and Competition

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

The Department of Trade and Industry in its response to the public submissions noted the concerns raised by stakeholders and various government departments about the constitutionality of certain provisions dealing with debt forgiveness which could amount to expropriation. The Department of Justice and Constitutional Development had not raised this concern and it appeared to support the Bill overall. Legal opinions on this had been obtained but the ultimate question of the Bill’s constitutionality vests in the Constitutional Court and not in the opinion of legal advisors. The President should refer the Bill to the Constitutional Court for a final opinion once the Bill has been finalised in totality.

While many banks currently engage in debt forgiveness on a voluntary basis they have indicated they are opposed to legislating the practice. The DTI however believes debt forgiveness should be subject to legislative regulation by the Bill as there is no reason why that voluntary practice cannot be legislated. DTI also supports the criminalisation of the practice whereby debt counsellors fail to inform the National Credit Regulator (NCR) of reckless credit practices. Criticisms that the Bill fails to adequately protect the interests of credit providers in the suspension of debt by the NCR, are unfounded. Credit providers are always taken into consideration as they receive notice of any applications affecting their interests before the NCR and are given an opportunity to state their concerns in terms of the audi alteram partem principle which is always observed.  DTI welcomes the clauses of the Bill imposing personal liability on directors of companies who engage in reckless credit lending and also recommends that provisions of the Bill criminalise various forms of prohibited conduct which should be aligned with the provisions of the Competition Act regulating cartel behaviour, to establish conformity between different pieces of legislation.

The whole Committee unequivocally expressed disappointment, and even anger, at the quality of the DTI response with one MP saying it was the worst presentation the Committee had ever seen. A letter should be written to the Minister to express the Committee’s disappointment. The DTI response was utterly unhelpful as it failed to deal with various matters such as the impact of the Bill on credit in the country. It was unacceptable for DTI to state that constitutionality of a Bill should not concern Parliament as Parliament is bound to observe and uphold the Constitution. Improper and inadequate research had been conducted.  DTI could not simply state that officials could not adopt policy positions that are contrary to that of their principals. The job of a technician is to provide technical facts to their principals. The Committee suggested that the Chairperson procure an opinion from senior counsel on the constitutionality of the Bill.

The Committee also took issue with the lack of engagement with the public submissions. The summary of submissions was lacking in detail, poorly done and, in some instances, no response had been forthcoming at all. DTI, NCT and NCR were asked to rework their response and return at a later date. The Chairperson said the Minister would be informed of the poor quality of the response and the Minister and Director General should have oversight of the presentation before the next meeting to ensure its quality.

DTI agreed to present again on 19 February 2018 but it would take at least two weeks to obtain an additional legal opinion. This appeared to be accepted by the Committee.
 

Meeting report

The Chairperson noted the current political events in the country within the ruling party and the decision to remove the President. Nevertheless, the work of Parliament must continue. The subject matter of the current meeting is of vital importance to the people of the country and the Committee must continue to engage in its work as usual.

In response to the Chairperson asking if there had been any programme changes given the recent political events, the Committee Secretary said that to his knowledge, the programme would continue as usual subject to any changes by the Programme Committee.

Apologies from Committee members were noted. The Chairperson stated the Members who had not forwarded apologies would be marked absent.

The Chairperson welcomed the delegation from the DTI, NCR and NCT. She recognised Mr MacDonald Netshitenze, DTI Acting Deputy Director General, Consumer and Corporate Regulations (CCR); Mr Siphomasa Kumkani, DTI Acting Chief Director: CCR; Mr Lucky Rabotape, NCT Registrar; Ms Nomsa Motshegare, NCR CEO, and the rest of the delegation present from the various entities.


The Chairperson offered apologies to the delegation for the time change from a morning to an afternoon meeting at the last minute due to recent political events.

DTI, National Creditor Regulator (NCR); National Consumer Tribunal (NCT) response to submissions
Mr Macdonald Netshitenze, DTI Acting Deputy Director General (DDG), Consumer and Corporate Regulations (CCR) Division, began with a summary of the public comments made on the Bill. Various items would be expanded upon at a later date but DTI would engage closely with the parliamentary legal drafter to ensure that all of the concerns about the Bill would be properly resolved.

The concerns about the Committee Draft Bill were grouped as follows:
• Constitutionality of the Bill;
• Imposing obligations on credit providers to report suspected reckless lending;
• Criminalisation of various forms of prohibited conduct;
• Power of the NCR to suspend reckless loans;
• Compulsory credit life assurance;
• Capacity of the NCR and NCT to implement debt intervention.

• Constitutionality had been raised as a concern by various departments and stakeholders except for the Department of Justice and Constitutional Development (DoJCD) had not raised any concern about the constitutionality of the Bill on matters such as the extinguishing of debt which would amount to the expropriation of property. It was noted however DoJCD may have raised those concerns in an implied manner. DoJCD had noted that parts of the Bill dealing with the extinguishing of debt and the possible expropriation of property need to be dealt with in a sensitive and careful manner to ensure the Bill passes constitutional muster. DTI’s mandate is to guide Parliament but maintains the view that Parliament does not necessarily have to obtain a legal opinion on these matters from their legal advisors. In the end, legal opinions simply remain non-binding opinions and the court has the final say about the constitutionality of legislation. Whether those opinions are ultimately correct is a matter for the court to pronounce upon. It was stressed however that this did not mean DTI was advancing the position that the Bills’ constitutionality should be fought in the courts. Ultimately its opinion is that once the Bill is finalised, the President should refer the Bill to the Constitutional Court for a final opinion on its constitutionality. The Parliamentary Legal Advisor should however also be involved in that process and will be able to provide further advice on the correct legal process to be followed about the Bill’s constitutionality.

Mr Netshitenze expanded that the government operates according to a principle of cooperative governance which requires government departments to conduct themselves in a cooperative manner. The various departments of state should, and must, advise Parliament on matters falling within their respective mandates. If there is a difference of opinion about a specific item, this should not unnecessarily be aired in public. The Executive arm of the state therefore should not engage legal practitioners or advisors in obtaining legal opinions on the Bill, given that the Bill has been initiated by Parliament. Whether a legal opinion is obtained by DTI or another government department then the effect is the same.

The concern about constitutionality revolves largely around the Bill’s clauses on the extinguishing of debt. The position of DTI is that various factors must be considered before further involvement should be considered and amendments. One such factor is whether the debtor has any potential possibility to obtain further employment. For example, a person who is indebted but at retirement age may mean that, if that person were retrenched, there would be little prospect of that person obtaining employment the following year. That factor should be taken into account when determining if the debt should be extinguished. A second factor is that if, for example, 95% of the loan has been paid then it would not necessarily be that objectionable, in principle, to extinguish the remainder of that debt. Generally, the banks voluntarily extinguish such debts when only a trifling amount of the debt remains. Standard Bank had submitted that they do regularly extinguish such debts, but the Bank did state that this practice such not be legislated. DTI disagrees with that as it sees no reason why such a practice should not be legislated. That practice should be included in the Bill. It is currently done voluntarily, there is no reason in principle why it should be subject to legislative regulation.

In response to an MP asking what the relevance of the voluntary practices of banks is as it pertains to the Bill, Mr Netshitenze said that the debt forgiveness in the Bill could amount to expropriation which raises constitutional concerns. If credit providers already voluntarily forgive debt then, in principle, the practice can be dealt with in the Bill to create a legislative regulatory environment for that practice. DTI had formulated guidelines which had been done in a sporadic manner, but an affordability assessment had been conducted to formulate a coherent unitary approach.

A second area of concern on constitutionality is where loan books are not audited and debts have prescribed if they are more than three years old and no action has been taken. If those books are audited, then often it is discovered those debts have prescribed. Therefore, in his opinion, a mere assertion that debt forgiveness gives rise to constitutional issues is often vague and unsubstantiated. Writing off of a debt does not necessarily mean the debt is completely estinguished. For example, if a debtor subsequently acquires assets sufficient to satisfy their debt then creditors could later institute claims to recover that debt. Banks often write off debt and then do not follow up on the financial status of debtors to reclaim the debt after writing it off when a debtor’s financial status is one of “limited insolvency”. “Limited insolvency” is used deliberately as when a person is insolvent they are no longer economically active. Limited insolvency can result in a situation where a debtor still pays a portion of the overall debt.

A third area of concern on the constitutionality of the Bill is that a credit provider’s rights are not adequately protected. For example, when a debtor approaches the NCT there is often an argument that the entire debt should be suspended, and no payment should be effected. The argument is that DTI then permits a situation where it acts in an arbitrary manner and does not provide adequate protection to credit providers. That argument is not correct as the principle of hearing the other side in terms of the audi alteram principle is still observed. When an application for the extinguishment of debt is made to the NCT, the credit provider is notified and given an opportunity to present its side of the story. The NCT also makes attempts to mediate between the creditor and debtor in such circumstances where possible. The argument that the right to be heard is simply suspended by the NCT credit review process is therefore not true. The audi alteram principle is always observed, insofar as the creditor provider is concerned, and the audit alteram principle would not be suspended. Even when applications are made in court and an interim order is made, the other party is still given an opportunity under the audi principle to present its side of the case.

• Imposing obligation to report reckless lenders to the NCR. Mr Netshitenze said credit providers appeared to be abusing this process by reporting one another. DTI was cautioning credit providers that often they did not have sufficient information to assess whether other credit providers had been providing reckless credit. The process thus appeared to be abused by credit providers to create problems for their competition. DTI had adopted a view that the clause dealing with this should be approached with caution. However, DTI supports the criminalisation of debt counsellors who fail to report reckless loans. When application for debt reviews is made, debt counsellors are intricately informed of reckless credit practices. In much the same manner as an auditor, debt counsellors discover instances of misconduct such as money laundering, irregular accounting practices and so on. Counsellors are not punished at present for failing to disclose that information but auditors, on the other hand, would be punished by sanctions through its independent regulatory board, the National Prosecuting Authority (NPA) or the South African Revenue Service (SARS). The same approach should be adopted for debt counsellors who discover that information.

Directors and credit providers should be held personally liable in certain instances for the conduct of the juristic person they are responsible for. DTI has adopted a view that, in principle, certain prohibited conduct should be inserted into the Bill in this regard which should also be criminalised as an offence. The previous day the DoJCD had proposed to DTI that a penalty for this be adopted which is proportional to the crime such as imprisonment. DTI’s position is that commercial crimes are serious and should be treated so and not arbitrarily distinguished from common law crimes such as assault with intent to do grievous bodily harm. The Bill should be aligned with the provisions in the Competition Act in dealing with cartels, which DoJCD agrees with, and a congruence between different pieces of legislation should be adopted.

• Suspension of reckless loans by NCR. This is supported by DTI. However, the following effect could arise from that clause: if the NCR suspends a debt for a number of years because the debt is being argued in court, and the court ultimately rules the loan was not reckless, this can provide challenges for the debtor to pay. This is especially true for certain items such as cars or furniture which depreciate over time. In such cases, the suspension by NCR should be made subject to certain conditions to guard against that eventuality occurring.

• Compulsory credit life insurance. Various stakeholders had argued that this would raise costs but DTI does support the notion of compulsory credit life insurance. However, it is recommended that a consultative process occur on section 106 of the National Credit Act (NCA). Inter-departmentally DTI consults with National Treasury and Financial Services Board (FSB). It is due to that consultative process that if the various departments do not properly cooperate then certain regulations can be made compulsory if the two departments cannot reach an agreement. Due to that consultation it had been decided that compulsory life insurance should be imposed.

• Capacity of the NCR and NCT on debt intervention. It was recommended that in the future both entities should be further empowered and appropriate regulations to this effect can be made in the future.

In conclusion, DTI supports the spirit of the Bill as expounded by the political head of DTI. The media seemed to insinuate that various departments differ on this, but Mr Netshitenze wanted to place on record that the Minister of Trade and Industry Rob Davies, as the political head of the Department, and the DoJCD support the Bill. As Mr Netshitenze is a “technician” he cannot “differ from his principal”. On the constitutionality of the Bill, Parliament had been advised on the appropriate route to follow. The names of the members proposed by DTI to sit on the task team for the Bill had already been submitted. DTI has also been working closely with the parliamentary drafter to deal with the finer details of the drafting of the Bill.

Ms Nomsa Motshegare, NCR CEO, responded that the NCR did not deal with every point raised in the submissions on the Bill, but a common thread had been identified in previous engagements on concerns about the Bill. A grid had been developed with the details of the concerns in the submissions on the Bill which had been given to the Committee and would be further discussed with parliament’s legislative drafter.

National Consumer Tribunal Registrar, Mr Lucky Rabotape, stated that NCT supports the positions taken by the DGG and supports the Bill as whole, both in spirit and principle.

Discussion
Mr D Macpherson (DA) was blunt in his criticism of the presentation. The PowerPoint and oral presentation was wholly inadequate, lacking in detail and demonstrated a lack of commitment and dedication to the work of the Department generally and specifically to the Bill. It was the worst presentation he had seen during his time as a Committee member. It was insulting for the Department to think a presentation of this quality would be acceptable for presentation before a Parliament Committee. Proper information and legal advice has not been obtained and the use of phrases such as “legal opinions are just legal opinions” was unacceptable. Parliament cannot formulate legislation in a manner that simply leaves its legality up to the courts without having due regard to legal opinions provided before that legislation is enacted. It is worrying that Mr Netshitenze used phrases such as “technicians should not contradict their principals” when referring to disagreements with the Minister or other DTI members. Technical people must be contacted when dealing with the current Bill which is technical and of vital importance to the credit market. It is that exact approach that has resulted in so much legislation been overturned by the courts, invalidated and then sent back to Parliament. The concluding comment of Mr Netshitenze that the constitutionality of the Bill should not frustrate Parliament is entirely unacceptable. Parliament is bound to uphold and defend the Constitution. Recent political events and legal action has shown that Parliament has not adequately fulfilled its constitutional obligations. Adopting a position that the Constitution should not frustrate or worry Parliament is entirely unacceptable and cause for anger.

Specifically, the DTI presentation has failed to properly examine the costs of the Bill to the credit market, either in terms of restricting or opening credit, which is a fundamental that the Bill needs to look at. It is unacceptable this point was ignored. No information is provided on the accumulation of capital during a loan suspension. DTI has not, as evidenced by its presentation, fully understood the Bill both in terms of its importance and clauses. The grammar in the presentation was also shockingly poor. The Committee had earlier rejected the Copyright Amendment Bill because that Bill had been poorly drafted under Mr Netshitenze’s stewardship and the same situation is repeating itself today. Personally, the Member would have not presented the presentation which was wholly inadequate and frankly embarrassing. How can DTI adopt a position that a legal opinion should not be procured before the Bill is passed? That is an outstandingly shocking position. Knowing what had happened with the Copyright Amendment Bill, he would personally take up the matter of the presentation with the Minister.

Mr A Williams (ANC) agreed wholly with Mr Macpherson. The presentation is unhelpful. In terms of constitutionality, an actual legal opinion must be procured and not simply the opinion of DTI. Public hearings on the Bill had indicated that issues on its constitutionality are quite intricate and serious. The Bill is technical in character and a proper legal opinion from a qualified legal practitioner should be provided. The previous day National Treasury had informed the Committee that up to 10 million people, at a maximum, and up to 5 million people, at a minimum, can qualify for debt relief. DTI, NCT and NCR must address this point because if such a large number of people qualify for debt relief that would amount to around 6 500 applications per working day per annum. Where would the capacity to process those applications come from? If the institutions are expected to go through so many applications per a day, then perhaps a better approach would be for government to simply relieve the debt. Again, it was reiterated that the presentation is of poor quality and unhelpful. As Chairperson of the Sub-Committee on the Bill the presentation would be of little assistance in their work on the Bill. DTI should rework the presentation and provide a more comprehensive answer, particularly on the matters raised at the public hearings on the Bill.

Mr G Cachalia (DA) said he is generally quite lenient in his criticism but this situation warrants a departure from that usual approach. He aligned himself fully with the criticisms raised by the previous speakers. The presentation was particularly “thin” and that was being euphemistic. Firstly, the document provides no indication of any input from the National Debt Counsellors Association (NDCA) despite the NDCA providing input on previous work. Second, DTI appears to want to sanction the NDCA for their reporting standards. Despite the presentation’s emphasis on observing the audi alteram partem rule, DTI has ironically failed to accord NDCA the opportunity to state its case, which is a significant failure. Third, in the previous week the Chairperson had stated she was seriously considering engaging the services of a senior counsel to provide a legal opinion on the constitutionality of the Bill. The position of DTI appears to fly directly in the face of that position, which makes no sense. Fourth, technicians are there to inform their principals on technical knowledge. If the facts and figures contradict what the principal may have in mind, then that must be communicated to the principal. There is nothing in the document addressing any of the unintended consequences which could arise from the Bill and that is an issue the Committee must concern itself with. Mr Cachalia had only been in the Committee for a short period of time but had heard many excellent presentations from departments such as Treasury which were “pregnant” with facts and figures, arguments, counter-arguments, statistics and various policy objections and formulations. The current presentation has none of those essential components and is utterly unhelpful, inadequate and of an unacceptable quality for presentation to a parliament committee. It is hoped that the suggestion by Mr Williams is taken up and a more cogent report is provided as soon as is possible.

Ms E Ntlangwini (EFF) stated that given how fast political events are moving in the country it was hoped that a better presentation would have been provided. She aligned herself with the criticisms of the other Members about the presentation. The suggestion of Mr Williams that the presentation be reworked and presented at later date should be adopted. As noted by Mr Cachalia other presentations are full of details which the current presentation is severely lacking. The Minister should also be made aware of its poor quality which appears to indicate a lack of willingness to assist the Committee and a lack of proper care and effort. This should not be made into an issue across political party lines but the Committee must present a united front.

Ms P Mantashe (ANC) agreed with the criticisms of the presentation. She took issue with the comment of Mr Cachalia that other presentations have been “pregnant” which is insensitive towards women. Other presentations are highly detailed, and the current presentation is of poor quality. The Committee is serious about their work and a blow by blow account was expected, not the poor-quality presentation which was produced at the meeting.

The Chairperson stated to Mr Netshitenze that the Committee’s view can simply be summed as one of extreme disappointment. The Chairperson shares this view. The presentation creates the impression that DTI had a lack of insight and/or interest as to what had occurred in the public hearings on the Bill. The summary of the submissions did attempt a blow by blow account but even that document was done poorly. The issues about constitutionality are serious and widespread and have not been engaged with properly by the presenters. When something is considered unconstitutional by someone making a submission, DTI is not obligated to agree with the arguments of unconstitutionality but should, at the very least, attempt to understand and unpack those arguments. A minor superficial attempt, at best, was made to perform that analysis. On a positive note the presentation was prefaced by the point that DTI did not differ with other departments and to that extent, have adopted a shared view on the Bill.

On the criminalisation of the failure of debt counsellors to report reckless credit, it was hoped more information and analysis would have been provided on that point which unfortunately was not done. The Chairperson herself had stated that it would preferable if the practice of banks voluntarily forgiving debt was subject to a legislative regulatory mechanism. However, the presentation failed to distinguish between debt forgiveness and writing off debt, which are not the same thing. At its crux that distinction is fundamental to the arguments which had been raised. DTI is staffed with technical experts and their information and input does not appear to have been properly applied to the presentation. A proper consideration on expropriation should have been conducted. A proper legal argument and opinion should have been provided on that and if they disagree with those positions, then a proper contrary viewpoint supported by authority, should have been provided which had not occurred. The entities in DTI look to Mr Netshitenze as the DGG for guidance and in this instance such leadership and guidance appears not to have been forthcoming which is highly concerning. Overall it cannot be stressed enough that the presentation was of an extremely poor quality and is utterly unacceptable to the extent of bordering on insult to the Committee. It is hoped that a presentation of this quality would never be presented to the Committee in future.

Mr Williams noted the Chairperson’s reference to the summary of the submissions on the Bill. However, even that document illustrated a lack of effort and detail as it was essentially a carbon copy of the summary of the submissions received at the public hearings. That is also unacceptable. The NCR and NCT must be held collectively responsible with DTI for the poor-quality presentation as they are all responsible.

Mr Cachalia referred to the summary of the submission by Prof Kelly Louw from UNISA. Prof Louw had submitted that the NCA objectives should not be amended by the Bill. The DTI response was simply that creditor providers did not have sufficient information to make an assessment. The grammar was not only poor, illustrating a lack of care and effort, but also illustrated a proper lack of engagement with her submission, which again is totally unacceptable. Those responses essentially amount to “drivel”. Summaries of other submissions are completely lacking in quality and in other instances there are no responses whatsoever, which is simply appalling.

Mr Macpherson stated the summary of submissions was almost as poor as the primary presentation. It cannot be that the submissions of the major banks can be summarise in 25 lines. The submissions of the banks are surely highly detailed and technical given the profound potential effect on the banking sector’s business. The summary of the Congress of South African Trade Unions (COSATU) submission is simply that COSATU supports the Bill, which is unacceptably lacking in detail and illustrates a lack of proper engagement with COSTAU’s submission. No reply was given to the Banking Association of South Africa (BASA) submission. Ms Mantashe had made the point that Parliament is serious about its work and the presentation is completely unacceptable. The Bill is fundamental to the economy and has severe implications for the credit market. The submissions must be forwarded to DTI and properly summarised and responded to.

Ms Ntlangwini proposed supporting the motion that DTI completely rework the presentation and they return to the Committee at a later date.

This was supported by Ms Mantashe, saying there is no use engaging with the current presentation as it is of no assistance and wholly inadequate.

The Chairperson noted for the record that the Committee was unanimous on the motion of rescheduling the DTI, NCR and NCT response to the submissions on the Bill.

Mr S Mbuyane (ANC) suggested their reworked presentation be sent to the Committee before their appearance to ensure that it is of sufficient quality. This appeared to be accepted by the Chairperson.

The Chairperson said the poor presentation, which had hampered the ability of the Committee to properly engage with the submissions on the Bill, was not only a waste of Committee time but also potentially amounted to fruitless and wasteful expenditure. A harsh position on this point must be adopted and frankly the presentation was appalling. The Committee is required to retain the presentation per their rules but otherwise it would have been scrapped. The presentation must not be reworked but rather completely redone. A proper application of their minds to the concerns about the Bill must be apparent in the next presentation. Where a legal opinion is required that must be obtained. It is not sufficient to simply state they support the “spirit” of the Bill. They had failed to apply their minds. The Minister would be sent a letter about the poor quality of the presentation and the next presentation must add substantive value about their positions on the Bill. This had raised time challenge which the Committee cannot really afford.

The DDG replied that the entities would be able to appear the following Tuesday to give the revised presentation. However, obtaining a legal opinion would require a longer time period as the state law advisors must be consulted. The process could take around one or two weeks.

The Chairperson responded that a further public hearing on the Bill and a submission from National Economic Development and Labour Advisory Council (NEDLAC) was expected on 20 February 2018. It would therefore be preferable for DTI, the NCR and NCT to reappear before the Committee on 21 February 2018. The Minister and the Director General should have sight of the presentation before it is given to the Committee.

Ms Ntlangwini suggested the Sub-Committee on the Bill also have sight of the presentation before it is presented to the Portfolio Committee.

Mr Williams replied the Sub-Committee would only be sitting again on 2 March 2018.

The Chairperson suggested the Sub-Committee sit on 21 February 2018 to examine the quality of the presentation and then determine a way forward.


This was accepted by Mr Williams as Sub-Committee Chairperson.

Mr Macpherson wanted to know if Mr Netshitenze would properly respond to the concerns raised. Mr Netshitenze, at the very least, should apologise to the Committee for the poor presentation.

The Chairperson requested that Mr Macpherson not elevate the current concerns to a disciplinary enquiry. By noting their criticisms in writing to the Minister would be sufficiently serious and would result in further enquiries. An apology, as requested by Mr Macpherson, would not be appropriate at the present time.

Mr Williams said the Sub-Committee would sit on 21 February 2018 at 09:00.

The meeting was adjourned.
 

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