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

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Trade and Industry

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

The Subcommittee continued from the previous day to consider flagged items that still required consensus in the 'Debt Intervention' National Credit Amendment Bill. The following concers were considered:
• if the Tribunal member should exercise discretion when adjudicating an application or whether clear steps should be set out in the Bill;
• proportionality in the Bill between credit provider and consumer;
• the length of time the debt intervention applicant can be denied access to the credit market will be referred to the Portfolio Committee as Members could not reach consensus on the limit of two years, whether mandatory and whether earlier debt repayment meant earlier access to the credit market;
• the suspension period for a credit agreement is 12 months renewable. At the end of the second 12 month suspension period, extinguishment would then be considered;
• during the period of debt intervention, prescription does not run;
• ‘extinguish’ meant ‘no further obligations or claims can be made whether in statutory or common law’.
• remove of s88(f) and require emergency legislation each time debt intervention is needed. This will be referred to the Portfolio Committee as Members could not reach consensus.
• whether credit providers and debt counsellors should be required to report reckless lending.

Meeting report

The Subcommittee continued from the previous day to consider flagged items that still required consensus.

National Credit Amendment Bill flagged clauses
Adv Charmaine van der Merwe, Parliamentary Law Advisor, took the Subcommittee through the items:

• A decision was needed on whether the decisions taken by the Tribunal should be based on exercising its discretion or clear steps in decision making should be set out in the Bill. Initially the Tribunal could exercise discretion but the National Treasury was concerned about whether that discretion would be seen as arbitrary. The constitutional position would be for the Tribunal to have discretion.

• Concerns had been raised on the proportionality of the debt intervention measure in that it would negatively affect the credit provider but not the consumer. The credit provider may have been 100% correct in dealing with the consumer and the consumer might be the one that provided misleading information. None of that is taken into account. She recommended that these considerations be written down and be part of the discretion of the Tribunal Member who would be guided by factors such as the role of the consumer and the credit provider. There were concerns about whether the credit provider would participate fully, thus the Committee could make provision for the role of the credit provider so that all these factors can be taken into account. The criteria could be listed in the Bill. It will not be a closed list of criteria and include whether a person has previously applied for debt review or been placed under administration. This should be taken into account because it is part of the debt intervention or review.

Adv A Alberts (FF+) said that Members can advise about the remedies given by the Commissioner. They are not bound to extinguish the entire debt and one can make it clear that under certain circumstances a proportion of the debt may be written off, or the interest or even not write off the debt at all. He suggested that this should be added as well.

The Chairperson said that discretion could be exercised by the Tribunal but in certain instances, the proportionality aspect can be applied.

• Adv van der Merwe said that this point was discussed at length before the Bill was finalised, and the view was that the period after which the consumer can apply again for credit again should be limited. The Bill gives discretion to the Tribunal to extend that up to 36 months. Some public comments said that this should be mandatory, because debt is being extinguished and that will have an impact on the credit provider. Some suggested that the 36 month period should be increased to the sequestration period of ten years. However, this may be too long because it is not the same amount of debt that is being extinguished. She suggested that if the sequestration period of 36 months was considered, the question was whether it should be mandatory or form part of the discretionary order that the Tribunal can give. Some comments said two years was a very short space of time for suspension until people could get up on their feet, and it could increase that moral hazard. Some said if it is made longer – one of the proposals was five years – the person may be deterred from doing that. The period of suspension was not a constitutional issue. The constitutional issue was that there must be reasonableness.

The suspension is currently 12 months at a time and it can be renewed for five years. If the Committee adds another five year limitation, this becomes a ten year period where the consumer is out of the credit market for a R50 000 debt. Sequestration is ten years for debt amounting to millions. The fundamental question to consider is the total number of years that the consumer should be excluded from the credit market; and whether that exclusion period should be mandatory.

Adv Alberts commented that there must be proportionality as a rule. The discretion of the Commissioner is important because situations are different although some might be similar. However, ten years is too long. There are individual circumstances, so some people should be rehabilitated more quickly. The USA has a quicker turn-around time for over-indebted consumers to be rehabilitated, and that helps the economy because those consumers are then brought back into the economy to participate. Therefore, people should not be taken out of the credit market for such a long time as there is the risk of diminishing the market. Therefore, there must be discretion on the part of the Commissioner.

Mr D Macpherson (DA) said he was leaning towards a minimum and mandatory rehabilitation process. He was in favour of a minimum mandatory period and allowing the National Consumer Tribunal (NCT) to impose up to a maximum period, because people should not be denied the opportunity to access credit. A balance must also be established to ensure that people were not kept out of the market long enough but were given adequate time for rehabilitation.

Ms P Mantashe (ANC) said that the aim was not to exclude people from the credit market; the period should be kept to no more than two years maximum.

Adv Alberts said that the NCT has the discretion to decide on the proportionality of debt to be written off and if that person can within the two years repay the remainder of the debt. Whilst two years may be a good starting point, perhaps the Committee can put in an upper limit of five years depending on the decision of the NCT whether it would be possible for the consumer to pay the money back. If the Committee inserts two years that may limit the discretion of the NCT if the consumer is not able to pay the debt within two years.

Mr Macpherson said that was not unreasonable at all. The Commissioner would look at each case on individual merit. People should be given the opportunity to come right with their debt; hence the two years consumers may request as an extended period if they are unable to pay off the debt within the two years set by the Commission – we should allow some flexibility. He also suggested a minimum period of two years.

The Chairperson said that the period for which the consumer can apply for credit should be limited. The reason for this period is to stop people from accessing the credit market. Basically, if you get 100% of your debt written off, you will not be able to access the credit market for the a period of two years.

Mr Macpherson said that if someone has had 50% of their debt written off and their circumstances change and they are willing to pay the money back within a short space of time – this should be considered. Two years is a short space of time for rehabilitation. He was not convinced because some form of education still needs to take place. He emphasized the need for flexibility

The Chairperson said that this point would be referred to the Committee for further engagement.

• Adv van der Merwe said that the NCT could suspend the credit agreement for 12 months. The Bill only provides for a review just before that 12 months period is up. The suggestion is that it should be reviewed every six months by someone who has the same skill set as a debt counsellor in the National Credit Regulator (NCR). If things have changed within six months, the order can be altered. If nothing has changed at the end of the 12 month period, then the Tribunal can extend the period until the consumer finds a job to earn some money and start repaying the debt. The question that came up was whether this should be extended for a third or fourth or fifth period, if the consumer has not yet found a job – what is the required time to grant the consumer to start making some money? There were concerns that two years was insufficient, and there were proposals that it should go up to five years. Members should comment on the correct number.

The suspension is reviewed before the 12 months is up, and suspension can be extended for a second 12 month period. At the end of the second 12 month suspension, that is when the extinguishment would be considered.

Ms Mantashe proposed that it should be left as it is.

Members agreed to that.

• Adv van der Merwe said that comment during the public hearings raised the question of prescription.  This was something new. The Bill is silent on prescription while the contract is suspended. The credit provider cannot claim anything from the consumer through a court process. The easiest proposal is that during the period of debt intervention, prescription does not run.

Members agreed with the proposal.

• Adv van der Merwe said that there were concerns about what ‘extinguish’ meant, she proposed that it should be defined as: ‘ no further obligations or claims can be made whether in statutory or common law’. If the debt is extinguished, its permanent.

Adv Alberts said that if that was the case, all other remedies must also be neutralised.

Members agreed to the definition.

• Adv van der Merwe asked what if the Tribunal believed the consumer was abusing the measure. For instance, if the Tribunal had suspended the debt, and at the end of the first 12 month suspension period the Tribunal felt that the consumer was not trying to find a job at all. The Tribunal then decides not to grant a second suspension, so what should happen – should the consumer be referred back to the debt intervention system to see what can be done to assist the consumer?

Ms Mantashe said one dooes not want people to abuse the system, perhaps the NCR could assist on how the matter should be handled.

Mr Williams said that Members need to be aware that "abuse" is very subjective unless its fraud, but that could be picked up by the Tribunal when conducting investigation. He was concerned why this was even a question, because it is very subjective what may be called abuse.

Mr Macpherson said in a perfect world there would not be abuse of the system. The only way to suspend abuse is to incentivize people either positively or negatively not to do so. The potential for abuse exists in the application process, where consumers have to declare their income and whether they are employed or not. If there is a view by the NCR or the NCT that there was abuse, should that application be set aside for a period or should the application start again – that is the discussion that should be held. For people that deliberately mislead the NCR about their income, that application should be disregarded altogether. There needs to be a schedule at the NCR or NCT for this, a mechanism to deal with dishonest applications.

Adv van der Merwe said if the Committee accepts that the only abuse that would justify rejection or non-acceptance is misleading information such as manipulation of finances, misrepresentation of income or outright fraud – this is covered in the offences already, so Members did not necessarily have to deal with it.

• There were a number of constitutional concerns about the prescribed measures. The concerns were mostly that they were too broad, such as s88(2)(c), it borders on plenary powers – where there are not enough measures to allow a consumer to participate officially in the system. This was viewed as plenary powers. The legal opinion from DTI and Treasury said that there are two items that could pass constitutional muster, and they are the ones that deal with urgent matters such as an exogenous shock to the economy or a national disaster with the caution that those terms need to be defined. The proposal she put before the Committee was to scrap s88(f) to avoid any constitutional concerns about this broad discretion and legislation can be passed through Parliament on a case by case basis if there is an urgency. Alternatively, one could retain those two circumstances and tighten up who would qualify and what the process would be.

Ms Mantashe said that the ANC proposed that s88(f)(2)(c) be scrapped, and leave the two circumstances.

Mr Macpherson said that the points were well made, and there was consensus on the removal of (c) and (d). However, he was concerned about what an exogenous shock is and how relatively it could be interpreted by different people. To take away the ambiguity of what national disaster or exogenous shock is, he liked the idea of bringing that piece of legislation to Parliament on a case by case basis. He hoped all of s88(f) could be removed.

Adv Alberts said that it would be better to bring new legislation when a situation arises. This is a Parliamentary Bill and we should limit the influence the executive has on it. We can look at definitions, but an emergency bill must be brought each time to ensure that the situation is what it seems to be and ensure that the response to it is in proportion to reality.

The Chairperson said that this point will be taken to the Portfolio Committee for further engagement.

• Adv van der Merwe referred to credit providers and debt counsellors reporting on reckless lending. The concern that was raised by both was that it is very difficult, and for credit providers there is the issue of self-incrimination involved – this is correct. Also, it is very difficult for two people to do the same calculations on an agreement. It is quite difficult to determine what reckless lending is. Credit providers were saying that this could be difficult because they would have to request information from other credit providers which could be anti-competitive. Both credit providers and debt counsellors felt that this could be costly.

Due to the start of the National Assembly plenary session, Mr Williams declared the meeting adjourned.
 

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