'Debt Intervention' National Credit Amendment Bill: Subcommittee on flagged clauses

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Trade, Industry and Competition

14 March 2018
Chairperson: Mr A Williams (ANC)
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Meeting Summary

The Subcommittee deliberated on items where consensus had not been reached. They agreed on the following issues, comments and questions:
• Debt intervention would be available to everyone living in South Africa because the Bill of Rights protects human beings living in South Africa, not only the citizens
• Joint estate applications for debt intervention would be considered as one application
• On whether ‘over-indebtedness’ should be removed as a criteria because the word was not limited to the targeted group – Members said there were adequate processes to ensure consumers outside the target group who qualify for either debt review or sequestration would not qualify for debt intervention
• The asset criteria should be removed from the Bill
• The NCR would need to be capacitated and strengthened for the debt review
• The NCR would apply a similar process as debt review, but it will be referred to as debt intervention in the Bill to avoid the perception that the NCR was closing down debt counsellors
• Retrospectivity should be removed from the Bill
• A single Tribunal Member would be able to suspend or extinguish a debt
• The debt relief measure should be a continual process.

Meeting report

Mr A Williams (ANC), Subcommittee Chairperson, said they would address the clauses where consensus had not been reached.

National Credit Amendment Bill flagged clauses
Adv Charmaine van der Merwe, Parliamentary Law Advisor, took the Subcommittee through the items:
1. On whether debt intervention applicants must be South African citizens, she said the National Credit Act is open to any person, whether they are South African citizens or not. She recommended that persons that apply and qualify should be natural persons but not juristic persons. The legal opinion from the DTI was that debt intervention should be available to everyone, including joint estates, perhaps the NCR can provide guidance on how debt review worked in joint estates. If the measure was available under debt review, it should apply to joint estates as well and not be limited to only natural person who are citizens.

Ms Mantashe stated that South Africa is very liberal to people from other nations; however, that was not the case for South Africans living in other countries.

Adv A Alberts (FF+) suggested that the point needed to be considered from a constitutional point of view because the intention of the Committee was not to have the Bill taken to court on the basis of unconstitutionality. He suggested that the DTI consider looking at the economic impact of excluding foreigners from the Bill, and consider its constitutionality.

Prof Joseph Maseko, National Credit Tribunal Executive Chairperson, stated that the Bill of Rights applies to everyone in South Africa and it did not distinguish amongst human beings. Citizenship would exclude people who are permanent residents who have access to all these services. Looking at refugees and asylum seekers, the law allows them to work in the country and to have access to credit. Thus excluding them might bear constitutional implications.

Mr Williams asked Members if this should be accepted because the Bill of Rights does not exclude any foreigners living in South Africa. Thus they should not be separated from the process.

Ms Mantashe said that the Committee does not want the Bill to be challenged; thus, it was only on that basis she agreed to the proposal.

Adv Alberts stated that foreigners should be afforded the same protection as South Africans because the Bill of Rights does not discriminate against anyone living in South Africa.

Adv van der Merwe said the NCR could provide some light on debt review for joint estates.

Ms Nomsa Motshagare, NCR CEO, responded that joint estates were considered to be one person or one application under the current system of debt review, so she did not envisage that changing.

Adv van der Merwe recommended that if people are married in community of property, it should be clear in the Bill that there would be one application from the joint estate.

Members agreed.

2. Adv van der Merwe referred to whether one of the criteria for the debt relief measure should be the person is over-indebted. When the Committee started looking into who qualifies for debt intervention, R7 500 was agreed on by the Committee, in addition to over-indebtedness. The Committee then removed the word ‘indebted’, and various formulas to determine affordability were considered. It was agreed that the qualifying criteria was the R7 500 income. However, recent statistics indicate that about 50% of the consumers earning less than R7 500 are actually paying their debts. It is only about 21% who were in arrears in their debts. She recommended that it must just be clear in the Bill that you must be over-indebted before you can qualify, in addition to the R7 500 income.

Adv Alberts stated that the interpretation is good but there must be some sort of criteria for over-indebtedness of applicants.

Mr S Mbuyane (ANC) agreed that ‘over-indebtedness’ should be included in the Bill.

Mr Williams asked what is to stop a person who is earning R7 500 who would actually qualify if they were over-indebted from refraining to pay their debts if a person with a similar profile who is over-indebted gets assistance in settling their debt. The former would be encouraged to stop because of the incentive available to persons within the same income group.

Ms Mantashe asked if the term ‘over-indebted’ would not spill over to people who earn more than R7 500 who were actually over-indebted. Rich people can also be over-indebted.

Mr Siphamandla Kumkani, DTI Director: Policy and Legislation, replied that when people apply for debt intervention, they must provide evidence they are unable to pay their debts. There are sufficient measures to ensure people do not exploit the system, and the unintended consequences would be dealt with.

Mr Mbuyane stated that when people apply, a process must be conducted to ascertain whether the consumer should be granted debt intervention or not.

Members conceded.

Mr Williams said that the clauses are in the Bill but the Bill also says that you must earn less than R7 500, and that has not yet changed, so over-indebtedness and R7 500 income go hand-in-hand.

Ms Mantashe asked what should be done to ensure that people earning less or about R7 500 continue to pay their debts because the objective of the Bill is not to discourage those who are paying their debts.

Adv Alberts said that the principle was fine but there would be unintended consequences. The Committee needs to consider measures that are currently in place to ensure that a person is honest and would not wilfully default to take advantage of the system.

Ms Evelyn Masotja, DTI Deputy Director-General: Consumer and Corporate Regulation, stated that DTI and the Committee need to establish criteria to ensure that there are no unintended consequences. There is potential for abuse; hence the provisions must be tightened.

Mr Kumkani said that if the principle is adopted in the Bill and it becomes an Act, he believed that in implementing the ‘over-indebted’ principle, it could be strengthened in the regulations to ensure that everyone who applies would have to qualify on the basis of the criteria. The regulations would enforce this.

Adv Alberts suggested that the regulations should be co-designed with the DTI and the Committee because regulations may place some obstacles that were not intended by Parliament.

Adv van der Merwe stated that over-indebtedness as a criterion was absolutely intended, the public comments submitted on this principle were not attacking the R7 500 criterion but there were questions in the Committee on the R7 500 criterion. The question was whether the Bill should include ‘over-indebtedness’.

She pointed out that there is criminal offence in the Bill if consumers structure their finances in such a way that would make them qualify for debt intervention. Currently the penalty is ten years, but it had to be considered whether that was too harsh. There was consensus that indeed the penalty was too harsh. She believed that there are enough measures in place to counter people who would abuse the system.

3. Adv van der Merwe stated that the Bill sets up a separate measure but it is envisaged as debt review but it is part of the debt intervention process. The idea is that the NCR would follow the same system that is followed by debt counsellors. However, the problem was that the public felt that this was not the least interference that could be done when you are depriving a person of their property. The legal opinion supported that the existing measures i.e. debt review should be put to good use and it should be applied.

She recommended that the Committee should make use of the current debt review system in the NCR. The NCR is empowered to allow people earning less than R7 500 to go through debt review through its on functions but this must be created by the NCR. If the NCR employs the debt review process, all the other constitutional issues that have come up as result of debt counsellors feeling that the NCR is trying to step into their territory would be eliminated because the credit provider will now participate in the process.

In a situation where a consumer got retrenched or lost a job and was struggling to make payments within a reasonable time, the consumer would be referred to the Tribunal by the NCR for an order to suspend their debt until they manage to get a job. We can add onto the debt review system the additional things such as suspending the debt. However, another question was how long the debt can be suspended until the consumer can get back on their feet. As a result, the question also came up whether Parliament should continue making use of the existing measures or continue this as a separate process. She recommended that it is made clear that the Bill is importing this measure into the existing system, and this would address the constitutionality issue previously raised by the public.

Mr Kumkani stated that the idea is the same but he cautioned the Committee about the wording if ‘debt review’ is used. If reference is made to debt review it will create an impression that the NCR is trying to close the debt review process via debt counsellors as opposed to introducing a debt intervention process. The Bill might be challenged in that the NCR is trying to step into the debt review process and potentially close the debt review system.

Mr Williams stated that the point was taken and it can be redrafted.

Adv van der Merwe said it can be redrafted, and the name will be changed to debt intervention process but the system is still the same as the debt review system.

Ms Mantashe stated that the poorest of poor do not have access to debt review, and so where are these people accommodated in the discussion?

Mr Williams responded that in the new system those people will go through the debt intervention process through the NCR.

Adv van der Merwe stated that the Committee should be co-creator of the process, if it is accepted that there will be a debt review through the NCR.

4. Adv van der Merwe noted the number of proposals questioning whether the NCR had adequate capacity, or whether it would utilise outsourcing or would there be a subsidy. This might affect the Bill if it seems that Members should add to the functions of the NCR personnel that would attend to the debt review process. If Members feel there is a need to outsource this function, this is already catered for in procurement so it has no constitutional implications. If the Committee feels that there should be a subsidy, the DTI does have incentives programmes. The question was simply whether there would be a need to add to other provisions in the Bill if there will be addition to the functions of the NCR.

Ms Motshagare stated that the NCR would need to be capacitated, and a system would need to be built as well as establishing a registrar; this will have costs implications. Whilst the NCR is still setting itself up, some of the work could be outsourced. Preferably, the NCR would need to build its own capacity.

Ms Mantashe said that she was anti-outsourcing, she did not agree with it. NCR indicated in previous engagements how it would prefer to be capacitated. Public services should not be privatised.

Ms Masotja stated that the DTI fully supported the strengthening of the NCR, and if it is approved it will be taken forward to the budgetary appropriation level.

Mr Williams also supported building capacity within the NCR.

5. Adv van der Merwe asked whether assets should be part of the criteria for people to qualify. The concern raised was how the NCR will be able to verify if the person actually has assets. And how do we know that the asset values are legitimate. A lot of comments submitted that second hand values were subjective. One of the comments indicated that, if you look at the R7500 group, you will find that there will be a small group of people that have any assets, so rather determine whether the person can pay their debt or not, if not the process is taken forward. However, there also a concern that this would be moving away from the NINA (no-income-no-asset) group, but this can be addressed by finding something that will say that the debt counsellor must look at the assets of the consumer to see if those assets can be realised only when the consumer is already in the debt intervention process. Members should note that debt counsellors are already doing that. She suggested taking the asset criteria out of the Bill altogether. It will cause a lot of problems and fraudulent claims.

Ms Mantashe and Adv Alberts agreed to the proposal.

Mr Williams stated that assets would be a factor once the consumer is in the debt intervention process, but it can be removed on the Bill.

6. Adv van der Merwe said there were concerns raised about the retrospectivity of the Bill. As the Bill addresses a civil matter, constitutionality on the basis of retrospectivity is not a factor. However, normal constitutional principles still applied. The concern raised was that the Bill deprives someone’s property retrospectively, but the other side of the coin is that the Bill is assisting people – with no debt intervention measure available to them – to get out of indebtedness.

People who earn more than the prescribed criteria (R7 500) and qualify for sequestration are allowed to have a fresh start but people who are NINAs (no income; no assets) do not have the same opportunity for a fresh start. This gap was deemed unconstitutional. If the Bill is addressing an unconstitutional matter, then it will most likely pass constitutional muster, provided that processes are fair and clear in the Bill.

If one looks at retrospectivity as well as the proposed retrospective date of 27 November 2017, the Bill will most likely be passed towards the end of 2018 and already a year would have lapsed from 27 November 2017 to when the Act is signed. Therefore, systems would need to be put in place by all the relevant institutions for the implementation of the Bill. That would be another 12 months down the line, then you sitting with the cut off date being two years in the past which is really not effective because you do not want people going out now to incur debt knowing in the near future it will get extinguished. She recommended that the Bill be retrospective without a cut off date. That will raise the question about whether there should be an end date. So if the cut off date is struck, the question is whether one would want to have an end date. She recommended that this measure should be brought into the Bill the same way debt review is brought into the Bill; thus, debt intervention should be an ongoing measure.

Adv Alberts agreed with Adv van der Merwe because other income earners (those above the R7 500 mark) have a system in place that assists them when they are over-indebted. Ideally there is no problem with the principle, but the question was the effect this would have on micro-loan institutions, banks and other credit providers, and how it would impact on those structures if it is an ongoing process. If there is no reboot system, you will end up in a situation where the system implodes. From an equity point of view, Adv van der Merwe’s proposal made sense.

Ms Mantashe said that she would love the process to be continual because there are no improvements in the economy that accommodate the poor, and the rest can be modified going forward.

Mr Williams asked Adv van der Merwe to confirm and elaborate on this - is it only the date that is making the process continual? If it becomes continual, what would be the implications on the financial sector? From inception, this Bill was initiated to be a once-off measure, but now with the suggestion to make it continual based on a date, changes the process.

Adv van der Merwe responded that it is not just about the date, the date just sets the wheels in motion. There was a request for people to apply more than once because there is a need for this measure, and there will be a need for people to do it more than once. As a result it was required to be a continual process.

Adv Alberts asked when the public hearings were held, was the impression given that this would be a once-off measure. If so, that would create a problem because the stakeholders would argue that they were misled or not properly informed. Secondly, if people are going to be able to apply more than once, the Committee will need to consult the public as well.

Mr Williams stated that it if one takes the date away, is it not possible to consider the date when the Department is ready?

Mr Kumkani stated that when the Bill was initially tabled it had two phases, the once-off phase and the second phase which would be prescribed by the Minister. Following discussions, DTI conceded on the phase that would be prescribed by the Minister. He advised the Committee to consider taking the date away if retrospectivity is going to bring an end date to the Bill.

In all the efforts of the DTI to curb reckless lending, there are still people out there that continue to do so. It has been raised many times before that when credit providers grant credit, they need to ensure that thorough affordability assessments are conducted. One of the problems DTI sought to address was to curb the targeted group from being granted credit recklessly. In looking at the Bill to attempt to balance the systemic nature of the credit market, credit providers need to take accountability and some responsibility.

Adv van der Merwe proposed that the Bill needs to come into operation on the date that it is promulgated by the President, so if the Bill is in place people can start applying but that cannot happen if the DTI is not ready. Once the Bill has been signed and the Department is ready, the Minister can then send a letter to the President and the President can sign a promulgation to say when the Act will come into effect.

On the public hearings, Adv van der Merwe replied that there were sufficient comments about the date, retrospectivity, and the Minister’s powers to make this a permanent measure that the Committee does not need to consult again. It is always open to the public; the Committee can put out certain clauses for public comment without holding a public hearing. The Bill is yet to go through the NCOP and for every single province to comment and provide some input on the Bill, and there will be inputs and proposed amendments and it will then come back to this Committee for consideration. The Bill has been substantially considered and commented on by the public.

Mr Williams stated that the Committee will remove the date of 27 November 2017 and when DTI is ready, it will send a letter to the President and he will promulgate a date when the Bill becomes effective. Within that period, the Committee will put in the 24 month period for debt extinguishing to take place. At the same time, the debt review process through the NCR will be ongoing, so the gap for people that did not qualify for debt review is covered through debt intervention.

Members agreed.

7. Adv van der Merwe referred to whether the role of credit providers should be explicit or implicit? The Committee should not worry too much about clause if existing measures were going to be applied, because it is clear how the credit providers can be part of the process.

Members agreed with the suggestion.
8. Adv van der Merwe stated that there were concerns about a single member of the National Consumer Tribunal (NCT) will be able to consider suspension or extinguishing of debt. Currently, a magistrate can do it but the concern was that not all Tribunal Members are legally trained. She counter argued that the Tribunal has the responsibility to adjudicate matters and ensure that their Members are duly trained, and those that specialised in other fields should not be assigned. The Act provides for the qualification of Tribunal Members, and the NCT would make sure that a person that sits as the single Tribunal Member will have the necessary skill or support to do that.

Mr Williams asked if this question was raised by the public or by Members.

Adv van der Merwe said it was raised by the public.

Prof Maseko stated that it was also raised by Mr Macpherson. Tribunal Members are already adjudicating certain matters as single Members. Those decisions of the single Members are appeal-able to a panel of three Members, so people do not have to go through the court process and incur legal costs to appeal such decisions. It was because of the appeal safety net that the Tribunal felt that this could be done.

The fact that some Members are not qualified legally does not really hold because these Members operate within the statute and what it prescribed. The NCT feels there might be some bias in the process; therefore it should build some criteria to safeguard the Members. A Code of Good Practice could be put together by the Committee for Members to apply when deciding on matters, especially when there is none in existence.

Adv Alberts stated that they were not allowed to intervene in the discretion of the Tribunal Member to prescribe what the Member of the Tribunal should do. However, there should be guidelines on proportionality of the debt, and in this way extinguishing takes place but it does not necessarily wipe off the entire debt. This would favour both the applicant and the credit provider.

Mr Williams suggested that by the time it gets to the NCT, surely the process that has been conducted is a recommendation from the Regulator. There is a whole process that takes place before the final decision is taken by the NCT. One person is adequate and the appeal process with three people was also adequate. Therefore, it should be left as is.

After Adv Alberts excused himself, as he was the only Member from an opposition party, Mr Williams declared the meeting adjourned. Another meeting would be held the following day to continue with the deliberations.


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