The legal opinion sought by National Treasury on the constitutionality of the ‘Debt Relief’ National Credit Amendment Bill and its response to public submissions were presented. Senior counsel had advised the Committee to at the very least seriously consider the viability of existing debt relief mechanisms – ‘if needs be somewhat adapted’ – as an alternative to the ‘relatively radical new mechanism’ envisaged. This is especially given the ‘potential constitutional difficulty’ created by ‘constraining’ the discretionary powers of the National Consumer Tribunal to make an order that is ‘just and equitable’ in respect of an applicant found to qualify for debt intervention. On retrospective application, counsel advised the Committee to avoid retrospective application of the provisions and make it clear that they apply only to credit agreements which come into force after the Bill takes effect. On the recommendation for less invasive alternatives, counsel stated that it is essential to fully articulate the inadequacies of the existing legislative mechanism and explain on what basis this relatively radical new mechanism is essential, and why the existing mechanism - if needs be somewhat adapted - could not have been a viable alternative. The overall conclusion made by counsel is that a debt intervention measure is not inherently arbitrary or unconstitutional. However, the manner in which the provisions are currently drafted open the way to the real risk of constitutional attack.
In her response to the opinion on the constitutionality of the Bill and the public submissions, the Parliamentary Law Advisor admitted that they may have indeed not expressed themselves clearly enough. The public submissions were concerned about limiting the measure to citizens. She recommended that this intervention is made available to natural persons only and it should not be made available to a business. Concerns were raised about the rationale in that there was no requirement for the consumer to be over indebted. While statistics had shown that not everyone earning under R7500 is indebted, she recommended that the Bill makes it very clear that this is only made available to someone that is over indebted. On reckless lending, Parliamentary Law Advisor stated that the submission from the DTI proposed that debt counsellors not credit providers report this. Yet, the debt counsellor submissions stated that it is very difficult for them to find the information. Her recommendation was to remove the reporting of reckless lending entirely from the Bill. She suggested there is a way around the implications of senior counsel’s view that – while the Constitution ‘does not bar all retrospective laws, or even all retrospective laws that give rise to a deprivation of property’ – ‘a deprivation of property which applies to transactions which pre-existed the statute concerned is a more severe deprivation than where the deprivation only applies to transactions that post-date the statute’. She suggested there is no rule in the Constitution that suggests that civil legislation may not be retrospective. In her view, if their proposal is fair, reasonable and proportional then they would be able to pass that constitutional test
On the group of people they are trying to assist with the Bill, Members sought clarity on the principles and formula which identified persons earning R7 500 per month as a target for debt relief. Members sought clarity on the retrospective application of the Act and its implications as well was why the legal opinion advised to drop the asset test. They also expressed concern about the information received that if one is found in arrears, then one’s credit life insurance would be cancelled.
On the identified R7 500 category, Parliamentary Law Advisor responded that R7500 was the cut-off mark identified for debt counsellors because they no longer find it profitable to assist a person below that. On retrospectivity, she could not say with a hundred% conviction that this would not be found unconstitutional. It is for the Committee to decide if they go prospectively or retrospectively. A deprivation of property which applies to transactions which pre-existed the statute concerned is a more severe deprivation than where the deprivation only applies to transactions that post-date the statute. The argument about retrospectivity is that most laws apply prospectively and the assumption is that a law will only operate from the date that it is promulgated going forward. However there is no rule in the Constitution that suggests that civil legislation may not be retrospective. In her view, if their proposal is fair, reasonable and proportional then they would be able to pass that constitutional test. On dropping the asset test, she believed that dropping the assets is a more practical solution because it would be an impossible task for the regulator or the debt counsellor to determine whether the person has assets or whether they are hiding assets. She proposed to make it part of the debt review process rather than making it a requirement.
The Chairperson welcomed Ms Evelyn Masotja, Deputy Director-General: Consumer and Corporate Regulation Division of Department of Trade and Industry (DTI), Mr Lionel October, DTI Director-General, Mr Siphamandla Kumkani, DTI Director of Policy and Legislation, Ms Nomsa Motshegare, CEO of the National Credit Regulator (NCR), Ms Nthupang Ngobeni, NCR Senior Legal Advisor and Mr Bax Nomvete, Chief Information Officer of the National Consumer Tribunal (NCT). Ms Katherine Gibson, Senior Advisor of Market Conduct and Financial Inclusion at National Treasury would be arriving late. She continued to introduce Ms Jeannine Bednar-Giyose, Director: Financial Sector Regulation, National Treasury, and Adv Charmaine van der Merwe, Senior Parliamentary Legal Advisor.
National Treasury on constitutionality of the National Credit Amendment Bill (NCAB)
Ms Bednar-Giyose said that to support the Committee on the draft Committee Bill, legal counsel was obtained from Advocates Steven Budlender and Gcina Malindi. The senior counsel were requested to consider the constitutionality of the Bill to the extent that it dealt with debt intervention. Counsel highlighted that they had a very limited time period and there were some complex issues that had not been decided by court cases yet. Yet, they were able to provide some advice, particularly on the debt intervention in the Bill.
The first part of the legal opinion considered those provisions which created a debt intervention mechanism and in particular provide for the permanent extinguishing of a debt, which are primarily sections 88A to 88E in the Bill. The second part of the opinion considered the proposed provision allowing the Minister of Trade and Industry to prescribe by regulations a debt intervention measure which is the proposed section 88F.
On the general debt intervention process, counsel noted process relating to existing mechanisms that continued to be retained that provide some relief to indebtedness, particularly, as pertaining to unlawful credit agreements (section 89), reckless credit agreements (section 80 to 83) and over indebtedness (section 79 and section 85).
The overall focus of the opinion was particularly on section 25(1) of the Constitution which says:
“No one may be deprived of property except in terms of law of general application, and no law may permit arbitrary deprivation of property”
Deprivation of property per se is not automatically unconstitutional, but if it is shown that the deprivation is carried out without reasonableness or procedurally in an arbitrary manner then it is unconstitutional.
In the case of First National Bank of SA Limited trading as Wesbank versus the Commissioner for the South African Revenue Service and Another 2002 (4) SA 768 (CC) found that: A deprivation will only be arbitrary if:
“The law’ as referred to in section 25(1) does not provide sufficient reason for the particular deprivation in question or if it is procedurally unfair.”
The key test for assessing section 25(1) compliance requires asking the questions: Is there deprivation of property? Is the deprivation procedurally arbitrary? Is the deprivation substantively arbitrary?
1. In assessing whether there was a deprivation of property, the important issues to consider are:
Whether there has been “interference with the use, enjoyment or exploitation of private property”. It depends on the extent of the interference with or limitation of use, enjoyment or exploitation. Even an impairment – rather than total removal – of rights could constitute deprivation.
Counsel concluded that on the provisions provided for intervention measures of the Bill, there is no doubt that the provisions do permit a deprivation of property. They allow the National Consumer Tribunal, in specified circumstances, to extinguish a debt owed by a consumer to a credit provider. This is clearly a deprivation of property. They emphasised that is not an “expropriation” of property as it is not acquired by the state.
2. On whether the deprivation is procedurally arbitrary, Counsel identified the following key legal issues:
Is the Bill procedurally fair? Does the Bill expressly incorporate the right of the relevant credit providers -whose rights are at risk of being extinguished – to be heard before such a decision is to be made?
Counsel concluded that provisions could reasonably be interpreted that the credit provider is entitled to make representations to the National Credit Regulator before it decides on whether to recommend to the NCT to grant debt intervention. This conclusion is strengthened if provisions are read in accordance with the provisions of the Promotion of Administrative Justice Act.
Considering the provisions that related to the NCT, counsel noted that the provisions do not afford credit providers the right to be heard by the Tribunal before it decides whether to suspend the debt obligation or grant debt intervention. The Tribunal is not required to follow the recommendation of the Regulator and must itself decide whether to suspend the debt concerned. It would be expected that the credit providers would have the right to make at least written submissions to the Tribunal on whether the applicant qualified for debt intervention and whether the Regulator’s recommendation was well-founded. But the Bill currently appears to permit the Tribunal to decide the matter only on the basis of the documents provided by the Regulator to the Tribunal. This could give rise to constitutional difficulties although it is also noted that credit providers do have the opportunity to make submissions after 12 months.
Counsel addressed the constitutional concerns in that it could be possible to avoid constitutional challenge by relying on the Promotion of Administrative Justice Act (PAJA) and the general powers of the Tribunal to contend that the right of the credit providers is preserved. They recommended that it would be best to make it clear in the Bill of the right of the credit providers to be heard by the Tribunal before a decision is reached, even if by written submission.
3. On whether the deprivation is substantively arbitrary, counsel stated the key legal issue they identified was whether the deprivation of property was without sufficient reason. The test for substantive arbitrariness considered the following:
• The nature of the property concerned and the extent of the deprivation must be considered
• The nature of the means-ends relationship that is required considering the deprivation must be evaluated
• Whether the relationship between means and ends accords with what is appropriate in the circumstances and whether it constitutes sufficient reason for the deprivation of property.
Overall, these questions seek to examine whether the nature and extent of deprivation is proportionate to what the deprivation achieves. The case of National Credit Regulator vs Opperman and Others 2013 (2) SA 1 (CC) confirmed this approach.
In considering the substantive arbitrariness, four considerations were identified:
- counsel noted similar legislative schemes internationally in the United Kingdom and New Zealand.
- the Bill does not expressively give NCT discretion to grant whatever order it considers just and equitable.
- the Bill applies debt intervention measures to credit agreements that came into force before the Bill becomes law.
- the existence of alternative and less invasive mechanisms for addressing the problem.
Counsel’s conclusions for the discretion of Tribunal were:
- The Bill does not expressly give the National Consumer Tribunal the power to grant whatever order it considers is just and equitable, in its discretion, once it has found that the applicant qualifies for debt intervention.
- The Bill requires that if the Tribunal concludes that the applicant meets the requirements, the Tribunal then "must" grant a 12 month suspension. Similarly, the Bill appears to suggest that if at the end of the 12 month period, the financial circumstances of the applicant have not improved, the Tribunal then "must" declare the debt extinguished.
- Constraining the discretion of the Tribunal on what order it can make once it finds than an applicant qualifies for debt intervention, creates potential constitutional difficulty as part of the arbitrariness enquiry.
- Looking at the retrospective effect of the procedure, counsel noted that it appears that the intention is that the Bill will apply to all credit agreements that qualify, irrespective of whether they came into force before or after the Bill became law. The Constitution does not bar all retrospective laws, or even all retrospective laws that rise to a deprivation of property. But, a deprivation of property which applies to transactions which pre-existed that statue is a more serious deprivation than where the deprivation only applies to transactions that post-date the statute.
Counsel’s recommendation on the powers of the Tribunal were to expressively grant the power to make such order as it deems just and equitable in respect of any applicant who qualifies for debt intervention.
Counsel advised the Committee to avoid the retrospective application of the relevant provisions and make it clear that they only apply to credit agreements which come into force after the Bill takes effect.
On the recommendation on less invasive alternatives, counsel stated that it is essential to fully articulate the inadequacies of the existing legislative mechanism and explain on what basis this relatively radical new mechanism is essential, and why the existing mechanism – if needs be somewhat adapted – could not have been a viable alternative.
The overall conclusion is that a debt intervention measure is not inherently arbitrary or unconstitutional. The manner in which the provisions are currently drafted open the way to the real risk of constitutional attack. Counsel’s overall recommendation is to minimise the risk of constitutional attack and implement the recommendation to address each of the key legal issues identified.
The Chairperson stated that the more she hears about the Bill, which she knows that the opposition and the ANC is really pleased about, it is important to ensure that the legislation that comes from this Committee is robust. She did not believe that any of the members wanted anything to be taken to the Constitutional Court.
Mr G Cachalia (DA) requested an opportunity to make a general comment following the comments just made by the Chairperson. He stated that he is relatively new to the Committee and he had listened to various inputs and stakeholders which informed his opinion. In the past two days he had the opportunity to listened to various opinions procured by the DTI and the National Treasury and he had come to the conclusion of, “how do we avoid two things here” which are “unintended consequences” and “how do they pass constitutional muster”.
In terms of constitutionality, the question is does it pass procedurally and substantively and it clearly appears not to, unless a less invasive amendment is made. Perhaps, the question is balancing the concerns by amending or going back to addressing the defects of the system to assist indebted costumers. He expressed gratitude for all the inputs, and, in particular, the two legal opinions. His opinion is that they are entering very troubled waters.
The Chairperson stated that from her experience of 23 years in the field, the reason they have so many lawyers and advocates is because they all have different opinions and analyses, which they are entitled to. She has seen how very different opinions have been taken by highly experienced constitutional lawyers and in the end it is up to the Committee. She urged the Committee to digest what Adv van der Merwe would be presenting and that they thoroughly read through the Bill so that after hearing the senior counsel opinion, they themselves can make a decision. She invited Adv van der Merwe to present her own unique opinion.
Response from Adv van der Merwe on the submission received on the NCAB
Adv Charmaine van der Merwe, Parliamentary Legal Advisor, asked the Committee to bear with her as it would be one of the most difficult presentations she had ever done. This is because she had received an avalanche of very good and valid comments that had to be considered. She would speak to the main themes so there are some small comments here and there of which she would not speak to.
Having received an avalanche of submissions, she was overwhelmed by the information received. She had to look at everything, see the bigger picture then tried to drill down to what could be done. In terms of the process, the Committee had to prepare a Draft Bill and then they compiled a report which was done in November 2017. Then the report needs to be published, but interested persons need to comment before publication. Many people were concerned that comments had to be made over the holiday season. The Committee should not be worried that they have not complied with the requirement of public participation. The Committee had called upon stakeholders before the Bill was started and every step of the Bill has been in the public eye. The Committee engaged in radio advertisements and invitations. The Committee also afforded the public five weeks for comment even though the National Assembly Rules require three weeks. Another concern was that there was not sufficient time to do an impact study, it is not for the public to do an impact study. She is of the view, that there was more than sufficient time for the public to make their inputs. She does not believe that the Committee would be found to have fallen short of that constitutional requirement.
The Committee also consulted the Joint Tagging Mechanism (JTM) on the classification of the Bill. The Parliamentary Legal Office has assisted the Committee in advising the JTM and they recommend that the Bill is a Section 76 Bill, so the process of the National Council of Provinces (NCOP) will be a Section 76 process. They advised the JTM that the Bill did not have to be referred to the National House of Traditional Leaders because it does not pertain to custom or indigenous law. In terms of where the Committee should go from here, the National Assembly allows the Committee to make further amendments to the Draft Bill.
On the Bill itself, she stated that it provides for a debt relief measure and her legal team had looked at the criteria in terms of who qualifies – where they looked at income, maximum debt, assets and persons. Her legal team also looked at process, and their process only focused on the NCR and the NCT being involved in the process, no debt counsellors. They also looked into relief. What the Committee envisioned is first of all, whether or not the person could pay, and the first thing for regulators to look at was whether the person could qualify for debt review. If it would not work, then looking into capping the interest or instalments and if that did not work, then suspension and extinguishing the debt would be considered.
In terms of constitutionality of the Bill, she believed perhaps they have not expressed themselves clearly enough. The measures are clearly outlined but in terms of the process, they have not explicitly said that the credit provider must be consulted. But the NCR cannot make an evaluation without getting information from the credit provider. The main features include reckless lending, mandatory life insurance and certain offences related to registration requirements and actions prohibited by the Act.
In terms of constitutionality, based on the opinion of the DTI, they were concerned about limiting this measure to citizens, particularly they were concerned as to why it is only natural persons, which is what the Act provides for. She admitted that she also did not remember why they had limited it to citizens, so she went back to the draft and saw that they first considered “indigent” people as is used by municipalities. She could not pick up that it was a requirement made by the Committee that the person must be a citizen. She recommended that this intervention is made available to everyone, every natural person to whom the Act applies because the decision was made that it should not be made available to a business.
On the people that brought up the expropriation idea, a number of legal opinions agree that the Bill is not an expropriation bill, there is no benefit to the state. It is only a deprivation of property. Deprivation is only unconstitutional if it is arbitrary. That is determined based on whether there is rationale or whether there is procedural fairness. When looking at rationale, there are a number of things to consider: what is the purpose of the deprivation, what the nature of the property is and what the extent of the deprivation is.
On the purpose of the deprivation, she pointed out that from the outset, the Committee was clear that there is a gap for certain consumers. They fall through the cracks because they do not have assets and they fall through the cracks when it comes to debt review because debt counsellors do not see them as profitable. That is why the Bill is there. Summit Financial proposed that the current exclusion of consumers may in fact be unconstitutional. So, yes, everyone had been shouting that this Bill might be unconstitutional, but very few people have shouted that this Bill may be addressing unconstitutional circumstances.
She cited a paper by Mr Hermie Coetzee which was presented by Summit Financial which read as follows, “the South African natural person insolvency system has remained largely creditor-orientated and excludes many honest but unfortunate debtors from its ambit. This is despite the worldwide trend to accommodate all such debtors. Although the system does provide for three different statutory natural person debt relief procedures, the cumulative effect of the entry requirements of these measures results in differentiation on financial grounds. This is because all statutory measures require the debtor to have some form of disposable assets or income available – thereby drawing a distinction between those debtors with and those without assets and or income – the so-called no income no asset debtors (NINA)”. In the paper Mr Coetzee compares the South African natural person insolvency against equality and the findings are that in fact this amounts to unfair discrimination and entrenches the duality of the South African economy - by keeping the indigent in a state of poverty. It was also established that where the implementation of an alternative measure results in an excessive (or indefinite) repayment period, the system unjustifiably discriminates against such debtors compared with those who are able to receive a discharge by qualifying for the sequestration procedure. This is discrimination based on socio-economic status and if the Committee thinks about the rationale of remedying this, they will start to see the Bill in a different light.
The other concern raised about the rationale was that there was no requirement for the consumer to be over indebted. The intention of this Committee was to always address over indebted problems, not just anyone would qualify. The problem that came about is when they looked at the R7 500 category, they did not have the statistics of those that are over indebted. While the Members deliberated, they thought to themselves that surely all those people were over indebted and that is why the Bill was worded as it is. Now the Committee has the statistics and it is clear that not everyone earning under R7 500 is indebted; some of them are not in arrears. She recommended that the Bill makes it very clear that this is only made available to someone that is over indebted.
The other concern raised about the rationale of the Bill is the role of the consumer, such as the fact that the consumer himself/herself might be the reckless one. Additionally, the credit provider may have been 100% responsible in lending. Those roles have not been taken into account and she proposed that they should be taken into account. There are possible and considerable adverse consequences for the service provider and minimal adverse consequences for the consumer and thus she urged that there needs to be balance and proportionality.
On the least restrictive means, some of the concerns were that a number of measures had been put into place. There are a lot of Bills in the financial sector regulating the financial sector, further there have been amendments to the National Credit Act itself. The concern is that these are untested and now with this Bill, they would be bringing new measures into play. The cost to the consumer is the problem. She recommended that it would be best to rather review those costs and subsidise the costs as a priority.
On the impact of the Bill, she recommended that they limit negative impact as far as possible. The concerns were that there are financial reforms aimed at addressing problems at a root cause level. Some of the submissions stated that the Bill was merely putting a bandage on these problems and not actually addressing them. A balance is needed, the impact on the credit provider needs to be looked at because they have compliance requirements and the remedies that the Bill proposes will impact on their compliance requirements. Conversely, on the impact on the consumer, there are concerns that groups of consumers may be excluded and that cost of credit will be increased for everyone in order to cover the costs. There are economic and moral hazards: the fact that a person enters into an agreement, they must comply with that agreement. The moral hazard comes in when the person knows that the agreement may be extinguished which will then lead the person to not pay at all. She proposed that the Committee separates the two, to first have the debt review and then the extinguishing. It should not be the cherry on top; it should be the last measure to help the consumer.
On systems that are required, every single stakeholder group indicated that they will have to adjust their systems. This included the credit bureau, the NCT, debt counsellors and the NCR. Systems are not created overnight hence it may take some time before this Bill is implementable which affects the cut-off date. The statistics received indicate that the group that is targeted could be around 9.2 million consumers. If further limits are added such as stipulating that consumers are required to be nine months in arrears before consideration, then the number would be reduced to about 1.5 million consumers. Which is a more manageable number, but still huge.
In terms of retrospectivity, both opinions received were concerned about this. Retrospectivity is only a no-no in criminal law; this is a case of civil law. In fact, in the case of Pienaar Brothers v SARS, the court found strong retrospectivity constitutional. Strong retrospectivity is when the Act has an operational date before it is promulgated. In that case, the court found it constitutional so it will not always be unconstitutional. From that case, Adv van der Merwe quoted: “In my view, a proper approach would be to judge the legality of retrospective amendments on a case-by-case basis, having regard to the various considerations that I have referred to. The Constitution itself certainly does not prohibit retrospective legislation in civil law”. Laws should be reasonably clear, accessible and prospective in their operation, unless the Act provides otherwise or its language clearly shows such a meaning. The constitutional validity should be judged by applying the rationality test. That is something that the Committee would have to consider with this Bill. This Bill has weak retrospectivity which means it will apply going forward, but you cannot have an application backwards, you can only apply afterwards. But, it does affect credit agreements entered into before the promulgation, so it changes the outcome of something that was done.
Retrospective deprivation of property is more severe so the drafting of the Bill needs to be clear on what it wants to achieve. The National Credit Act, which is what was they are amending, came into operation retrospectively. Debt review when it came into operation on 1 June 2007 could be done in a retrospective credit agreement that was entered into before 1 June 2007. The Committee needs to ensure that the Bill is rational, reasonable and proportionate and if they have that, then they can apply it retrospectively. The reason for this Bill is because there are people now that are over indebted and if they only provide for people entering into agreements now going forward, then that means that they will be helped only in the future.
On fair process, when the Committee discussed fair process it was clear that the credit provider would play a role. The concern was that the credit providers might bring their lawyers and unbalance things so a decision was made to take that specific reference to them out of the Bill. Yet, based on the comments that were received, the perception is that the Committee wants to cut out the credit providers. She recommended that the Committee fix that by clarifying the role of the credit provider.
The fact that the NCT needs discretion when making an order was in the first couple of drafts and the Committee considered that. The concern was the fact of arbitrariness and her legal team was concerned that if they leave in that discretion, then it might be found to be arbitrary. However, it is recommended that they do the opposite, by having the NCT’s discretion revived in the Bill.
On the implementation challenges, two concerns were raised. The one is the role of the credit regulator as an administrator and as a regulator. The conflict that might come up are the skills required and the fact that the NCR may become a processing centre to the credit provider and consumers with no recourse if there is a dispute.
Another implementation challenge is the capacity of the NCR and the NCT. How many offices do they have throughout the country? For example, a debt counselling firm which employs around 50 people can successfully support around 5 000 consumers in total. The DTI presentation stated that the NCR had statistics of 1.7 million people which means they would need 295 debt counsellors.
On the proposal to amend the debt relief measure, relief measures 1, 2 and 3 (considering reckless lending, considering possible debt review and considering reduced instalments) on slide 6 could be dealt with through the existing debt review system. It could be done in one of two ways. The first being a fund, there was a subsidy before for consumers to access debt counsellors, that subsidy has lapsed and it was not revived. She suggested the Committee considered reviving it. The other option is that the NCR has a division to act as debt counsellors. Her recommendation is that the Committee considers both options.
This proposal to amend the debt relief measure will address the concern of constitutionality. The impact of the Bill will be lessened significantly, the role of the consumer will be taken into account and there will be more engagement. The impact of the measure will be lessened, it will be balanced, moral hazard is minimised, the consumer’s role is considered and there will be more consequences for the consumer to avoid abuse.
She presented the impact if the Committee were to consider the Eighty20 research statistics. If they were to start at a starting point of people who cannot resolve who earned an income of R1 500, then that would amount to 1.6 million consumers. According to the statistics, 49 to 57% of those people may not be in arrears so they would not be part of the equation. Then 31% of those people are currently making some payments and may thus resolve. 21% are in arrears on all accounts for more than three months which totals 735 000 consumers and amounts to R7.6 billion. These people will still go through the debt review process and only if they cannot resolve, then debt intervention in the form of suspension will be considered by the NCT. At that time, there can be budget training and financial literacy to try and rehabilitate them. Also the debt counsellors and credit providers will already have had discussions to help the person with repayment because the person has been retrenched or whatever the situation is. She urged the Committee to consider the proposal, which she believed did not divert from the current Bill.
In terms of the clause by clause considerations, she would not be going through the wording changes in this presentation. She urged Members to go through the separate document which dealt with wording recommendations in their own time.
On Clause 2, if the Committee wanted to change borrowing and spending habits, then that would not apply to incidental credit agreements. Incidental credit agreements are concerned with minor-headed households seeing that minors cannot enter into agreements, they are quite likely to settle with incidental agreements.
On Clause 3, there was a proposal to exclude trusts, stokvels and sole proprietors from applying for debt intervention. The intention from the Committee was never to assist business, the debt intervention was made for the consumer. There was also a proposal to add a function to the NCR to refer offences to the National Prosecuting Authority (NPA), she added that this could be considered by the Committee.
On Clause 8, questions were raised whether a register is in fact necessary. She added that members could consider this but her opinion was that it was not necessary.
On Clause 12 which dealt with courts refereeing matters to the NCR, there were concerns about the rights of the consumers and delays in court. She recommended that the court gives the consumer an option to be referred. On the Section 88(c)(7) which addressed the retention of information on the credit bureau databases, she recommended that the Committee considered a five year period.
On Clause 14, particularly Section 88(a) to (e), concerns were raised about process on the role of the credit provider, the accessibility of the NCR, timeframes, determining interest rates and instalments, who would follow up after suspension etc. These concerns speak to implementation which she already addressed. The inclusion of disabled person; a minor heading a household; or a woman heading a household, caused confusion. Some people asked why certain groups were excluded such as the elderly and others asked why minors were included especially because they do not qualify for credit. The Committee did not intend to exclude anyone, but highlighted certain groups because they were most likely to be vulnerable groups. There was a recommendation that this vulnerable group be mentioned in the NCT discretionary orders. The groups mentioned can be added to the discretion that the NCT is given when making its orders.
Concerns were also raised about realisable assets. There was a comment that consumers might still have assets but have a gambling or drinking problem yet they may still be able to pay their debts. So the question was whether it was conducive to look at assets or would it rather be more effective to assess the consumer’s ability to service the debt obligation. She recommended that assets be taken out of the criteria because they may become problematic. There were other proposals such as having third parties assist applicants and having a single Tribunal member decide on the application. The NCT could guide the Committee more on that aspect but her own recommendation would be that a Tribunal member does the application. Concerns were also raised on the legal effect of extinguishing a debt. She recommended that this should be clearly spelt out in the Bill. On budget and financial literacy, National Treasury indicated that such a programme is already provided for hence she suggested the Committee to engage with Treasury to avoid duplication or to find out how to fit it in the Bill.
On Clause 14 amending Section 88(f), some people were concerned that it was too broad and that it was starting to resemble Parliament’s plenary powers. The DTI was concerned that Section 88(f)(3)(c) and (d) could result in the Minister suspending or extinguishing all the debts in one province. The credit providers were concerned that Section 88(f) introduced a high level of risk and uncertainty for them. Her recommendation was that the Committee remove Section 88(f). The Minister could still introduce legislation to achieve the same goal.
On Clauses 15 and 16, which deals with the power to declare credit agreements unlawful in terms of Section 89 of the National Credit Act, she recommended the NCT advise the Committee on that point.
On the proposals received on reckless lending, Adv van der Merwe stated that the DTI indicated that they would still like debt counsellors to report this. However, in the submissions debt counsellors stated that it is very difficult for them to find this information. The big problem with reckless lending is the affordability assessment regulations and inadequacy of the minimum expense norms table to reflect true affordability levels. Another problem is that there are different calculation methods applied in practice. In this regard, it will make the debt review twice as costly and it will take twice as long. Her recommendation is that reporting of reckless lending should be removed from the Bill entirely.
On the NCR’s power to suspend, this was a big concern in the submissions. She recommended that the Committee takes the power to suspend out of the Bill because there are also constitutional concerns around this. If the Committee does choose to retain the power to suspend then certain amendments need to be considered, these include: having clear definitions for the terms used, ruling out self-incrimination, establishing clear processes for reporting, making the role of the credit providers more clear and that the related offence around reckless lending be removed from the Bill.
On the proposal for credit life insurance, she agreed with the proposal that the wording must be corrected. While drafting the Bill, her intention was never to force credit providers to be insurers. The concerns raised in the proposals was that a product may not be available, thus effectively stopping all credit that is more than six months and less than R50 000. Her recommendation was to clean up the wording and to have a provision made for the clause to be made operational at a different time than the rest of the Bill.
Other concerns she invited the Committee to decide on were that if a person is in arrears then their credit life insurance is cancelled. She did not know how to deal with that matter and suggested that someone from the insurance sector advise the Committee on it. Also, the Bill should clearly specify the risks insured against in the credit life insurance.
Mr A Alberts (FF+) found both presentations to be insightful. In terms of the group of people that they are trying to assist with the Bill, it seems like they are trying to identify this group and he found that the legal opinion had not thoroughly addressed a set of principles and formula that identifies the group of people for this intervention. For instance, the R7 500 income per month and the no income, no assets rule, in terms of the constitutional requirements, he asked if those rules are promulgated to give out a sure and certain objective. Is there some arbitrariness in the group of people that the Committee has chosen and should they not delve into that more deeply to ensure that when they do operate, then it is clearly defined and surgical?
He noted that Adv van der Merwe had said that incidental credit agreements should be excluded, he disagreed to a certain degree with that opinion. The reason being is that when one applies for credit, it might not be a credit account, they are expenses and those expenses can fall into arrears then it becomes incidental credit when there is an interest charge and so forth. He wanted to understand why they should be excluded because they also make up the total body of expenses that would be taken into account to see whether a person is creditworthy or not. He believed that they must be included going forward.
Ms P Mantashe (ANC) asked for an explanation of the retrospective application of the Act and its implications. Why can they not go back to specific years using retrospective application? She believed that the presentation that Adv van der Merwe gave should be included in the draft Bill.
Mr J Esterhuizen (IFP), on indigents, citizens and municipalities, stated that he sits on the service delivery meetings every Friday at the Ekurhuleni Metropolitan Municipality and citizens will pay anything but their municipality bills. He found that to be problematic. On slide 10 which dealt with the impact of the Bill, he stated that according to the slide the purpose of the Bill was to remain fair, stable, responsible and to protect consumers. The Bill must be what the Constitution allows it to be, not what the Committee thinks is fair. Banks would definitely be affected and if lenders are compelled by legislation to write off even minimal amounts of the debt, it would shake the confidence in the South African economy. He urged the Committee to consider both sides. He stated that if a person is in arrears then their credit life insurance is cancelled, if that is the case, then life insurance would mean nothing.
Mr D Macpherson (DA) thanked Adv van der Merwe and National Treasury for their presentations. He found both of these to be enlightening. He believed that they were heading towards a process that looks at how they would strengthen the National Credit Act in terms of the original provisions that are there for over indebtedness. The Act does deal with over indebtedness, it might not do it sufficiently because it asked for the court to make an order which is expensive and time consuming.
He was not convinced about the retrospectiveness of the Bill. In the case of Pienaar Brother vs SARS, the court views money owed to the state differently to contractual obligations in terms of credit and the retrospectiveness applicable thereof. He is not convinced that when a legal agreement is entered into between a credit provider and a client that met the prescripts of legislation at that time, a subsequent piece of legislation can then go and override that and then the deprivation is considered constitutional. He might be wrong, but he does hold that view.
On debt relief measures for poorer consumers and a subsidized debt relief, that is something he had been asking for from the very beginning. What they do not want to do is take people out of the credit market; instead they want to keep people there and rehabilitate them. He asked if Adv van der Merwe thought that arbitrary deprivation could be applicable to the category of R7 500 to R50 000? He does not believe that is being defined enough and there was a debate in the Committee on whether they should start from R10 000, then it went to R7 500. He has never been satisfied that it is a scientific reason that those are the people that they are speaking to. His concern is that it may be considered arbitrary deprivation down the line.
He noted that Adv van der Merwe would like to drop the asset test, which goes against what the Bill started out with which was no income, no assets. Now he felt as though there was a general application where anyone who cannot afford their debt obligations fits and instead of narrowing that process, he felt as though they were widening it.
He was in support of the NCR being able to suspend suspected reckless agreements. The reason he felt this way is because the process could be a three year unfolding process and anyone that meets that criteria could still continue to be burdened by these obligations that they cannot afford to pay. Also, where there is genuinely reckless credit agreements and people are continually being hammered by the credit providers for that money, a mechanism must exist for those agreements to be suspended until such time they have been adjudicated.
He recommended for amendments to be made seeing that the Committee had received this information. It would be prudent for the Sub-Committee to consider the response by Adv van der Merwe and the proposed amendments and sit down with National Treasury and DTI to start looking at what some of these amendments to the Bill would actually look like.
The Chairperson expressed concern and was also not aware that when one is in arrears one’s insurance is cancelled. When one buys a car on credit, they are in arrears but life insurance still remains. She agreed with Adv van der Merwe on engaging with insurance representatives on that point.
On offences and penalties on slide 27, the country’s criminal and civil courts are already extremely full. She is worried about some of the issues that have come up have amounted to fraud, which is a criminal offence. She wanted further understanding on how that would work.
On slide 16, the fund referred to was raised and she was under impression that it was a National Treasury fund. She asked for an explanation on the fund. Is it going to be a money Bill and do they have to go to National Treasury?
Adv van der Merwe replied to Mr Alberts’s question on the R7 500 income, stating that it is necessary that they go back to all the previous presentations in order to establish how they go to the R7 500 income figure. She does recall a presentation where R7 500 was identified as a cut-off mark for debt counsellors because they no longer find it profitable to assist a person below that. She suggested possibly alluding to the figure R7 500 and still using that criteria that informs the R7 500, without using the actual number in the wording.
Incidental agreements may be something that the Committee needs to look at, the DTI could come in and explain to the Committee as to what they are and how they will affect the creditor. Once the Committee is better informed, then it can decide whether it is an unfair thing to include it or make it part of the process.
On retrospectivity, she cannot say with a 100% conviction that this would not be found unconstitutional. But, she believed that constitutional rights are balanced and she agreed with Mr Hermie Coetzee’s article in that a government must make provision for people to undergo some form of debt relief system. It is for the Committee to decide whether they will go prospectively or retrospectively. A deprivation of property which applies to transactions which pre-existed the statute is a more severe deprivation than where the deprivation only applies to transactions that post-date the statute. The argument about retrospectivity is that most laws apply prospectively and the assumption is that a law will only operate from the date that it is promulgated going forward. However there is no rule in the Constitution that suggests that civil legislation may not be retrospective. In her view, if their proposal is fair, reasonable and proportional then they would be able to pass that constitutional test.
On the point about citizens raised by Mr Esterhuizen, she did not clearly understand the comment but she proposed taking out the word “citizens”. Also on his comment on the impact of the Bill, she proposed to minimise the impact of the Bill so that the suspension and the extinguishing would only apply for those who really cannot pay.
On dropping the asset test, she believed dropping the assets is more practical. Once the consumer goes through the debt review process, the Committee needs to look into what requirements are there to look at realisable assets. She was not too sure that this was spelt out clearly in the Bill. She proposed including into legislation that consideration is given to assets that can be realised. The reason she proposed dropping the asset test because it will be an impossible task for the regulator or the debt counsellor to determine whether the person has assets or whether they are hiding assets. She proposed making it part of the debt review process rather than making it a requirement.
On regulators being able to suspend reckless credit agreements, this is a policy decision which the Committee needs to make. On the amendments, she stated that the Bill would turn out to be much shorter because a lot of the process is already provided for. About credit life insurance, if one is retrenched or disabled then those risks would be covered. But if a person falls into arrears then that is not a retrenchment situation so the credit life insurance will lapse.
On offences and penalties, some offences have provisions in the Act. If an agreement or a contract is unlawful, the whole agreement can be declared void. On the fund, if it is a fund that is created through a levy then that would make it a Money Bill and that is something that National Treasury or the Minister of Finance would have to bring to Parliament. If it was created by way of a normal budget process and appropriation, that would also make it a Money Bill. She proposed that the Minister of Finance and the Minister of Trade and Industry could jointly decide if it should be a fund or a capacity to the NCR or a combination of both.
Mr Alberts stated that when looking at all the alternatives of trying to sort the problem out, page 15 in the National Treasury presentation read: “ not obvious why existing mechanisms for addressing unlawful credit agreements, reckless credit agreements and over-indebtedness would provide an alternative and less invasive mechanisms for achieving aims.” The Committee might have not looked beyond the Committee’s mandate. For instance, the Prescription Act states that debt prescribes after three years. However, modern economies such as Canada only have a two year prescription period. He asked why the Committee and the legal team were not looking at the Prescription Act. At the moment the state is protected on prescription longer than civil claimants, why is that the case? Why must the state be accorded preference above normal citizens and business? He proposed that the Prescription Act to be visited and the imbalances in that Act should be considered.
Mr Macpherson could not help but feel that the Committee had embarked on a process and all that time could have been avoided because they have tried to create a Bill to deal with inefficiencies in entities such as the NCR and the NCT. He had asked this before but when would DTI table amendments to the National Credit Act? It had been a year since the Committee asked for this. On Ministerial discretion, he had said a couple of months ago that Section 88(f) was unacceptable and he was glad that all of the legal opinions agreed with that position despite some of his colleagues sitting to his right insisting on that clause. The National Credit Act is one of the most powerful pieces of legislation and it is poorly used by the entities it is supposed to empower.
Adv van der Merwe stated that the Prescription Act falls under the Justice Portfolio Committee. When executive Bills come to this Committee, the Committee sees the final product. What happens during the development of that Bill is very much behind the scenes. Often a Bill is drafted seven or eight times. The facts of pursuing a certain direction, is the only way to see where the problems are, and how to counter them. She proposed bringing the Bill into the current system because they had created separate processes which brought on concerns. By using the existing system, the Committee can still achieve what the Bill is trying to achieve.
Mr October stated that the DTI fully supports the intention of the Bill which was to support low income, vulnerable consumers. Considering the legal opinions received, he fully accepted the recommendations made because they are consistent. The 2007 Act introduced by the DTI was extremely progressive because it preceded the Financial Crisis. At the time it was introduced, it was opposed by everyone. Now, it is world-class legislation which has been implemented by the United States. More importantly, the Act introduced the concept of reckless lending, so he recommended that the Committee maintains the architecture of the Act. Some of the amendments are remaining foul because they are deviating from the architecture of the Act.
He recommended that the Committee removed all parts that dealt with “finance”, “subsidy”, “fund” and “money”. That is not what legislation deals with ever, it will create perverse incentives if the legislation goes in that direction. He suggested that the Committee gave more power to debt counsellors and the National Credit Act to deal with this vulnerable group. He reiterated that the Committee should avoid any money Bill or anything that has to do with the Minister of Finance. The Act should be kept simple, he warned against becoming too intrusive and operational with the legislation.
Ms Mantashe in response to Mr Macpherson stated that the people sitting to his right have the right to have a different opinion from him. That is why members have a legal team to advise them on matters. She stated that the Democratic Alliance is the only party that does not like debt relief.
The Chairperson said that no one from the Committee objected when the Bill was delivered to the House. The decision was unanimous across parties. She thanked National Treasury, Adv van der Merwe and Mr October and his delegation, as well as the NCR and NCT.
The meeting was adjourned.
- 'Debt Relief' National Credit Amendment Bill: Treasury on constitutionality & response to submissions 1
- 'Debt Intervention' National Credit Amendment Bill: Treasury on constitutionality & response to submissions 3
- 'Debt Intervention' National Credit Amendment Bill: Treasury on constitutionality & response to submissions 2
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