'Debt Intervention' National Credit Amendment Bill: flagged clauses

Meeting report

The Chairperson welcomed representatives from the Department of Trade and Industry, National Credit Regulator and the National Credit Tribunal. She said the Committee was due to receive a full report of the Subcommittee on the National Credit Amendment Bill but unfortunately this was not furnished.

Mr A Williams (ANC), Subcommittee chairperson, proposed that since the Subcommittee had not finished going through the flagged clauses, that the Committee consider continuing from where it left off.

The Chairperson agreed and asked the Parliamentary Legal Advisor to take the Committee through these:

'Debt Intervention' National Credit Amendment Bill: flagged clauses
• Reckless lending: Adv Charmaine van der Merwe, Senior Legal Advisor at Parliament, said the Bill provided that credit providers and debt counsellors must report any reasonable suspicion of reckless lending. The concern raised by both credit providers and debt counsellors was that this meant they would have to look at each agreement and test it for reckless lending. This was a lengthy process because they would need to obtain the documents from the credit provider that granted the credit. In practice it does not work that way. To expect a credit provider or debt counsellor to obtain the information from other credit providers meant that the debt review would be extended and it would be costly.

Credit providers commented that this could be self-incrimination, and this was not constitutional because people have the right to not self-incriminate themselves. The Committee would need to be careful. If you tell the consumer that the granted agreement was reckless and the consumer stopped paying but then the Tribunal finds the credit agreement is not reckless, the consumer would not have been paying for months. There were too many unforeseen implications for this reporting requirement. She recommended that DTI could consider a different approach.

Another proposal was if it was reported to the NCR, the NCR would tell the debt counsellor to go to court because the Act only provided for a complaint of reckless lending to be referred to the NCR. This is a technical problem and it can be fixed in the Bill. Some magistrate courts would rather have the debt review process instituted before hearing cases on reckless lending.

She proposed that this be deleted in the Bill for now, until DTI has determined another solution. This also applied to debt counsellors, because it has the same cost implications and lengthens the process.

Mr D Macpherson (DA) agreed with her suggestion about credit providers. However, the National Credit Act says that debt counsellors ‘may report reckless lending’, which meant they were not forced to report it. Debt counsellors were not compelled to protect their clients. He proposed that debt counsellors ‘must’ be forced to report reckless lending.

Mr Williams said that he was of the opinion that that credit providers must report reckless lending. The credit providers perform affordability tests, and if they come across reckless lending, they should be obliged to report it when they pick it up. The fact of the matter is that the country is over-indebted because the very same credit providers have granted credit to consumers indiscriminately.

The Chairperson wanted to know what the debt counsellors were asking for.

Mr Williams stated that both credit providers and debt counsellors should be obliged to report reckless lending, period, because it is a crime. Credit providers do not want to report it; this is encouragement of a monopoly.

Mr Macpherson agreed with Adv van der Merwe as far as credit providers were concerned – based on constitutionality with regards to self-incrimination. However, he maintained that debt counsellors must report reckless lending.

The Chairperson stated that the self-incrimination principle did not hold in this instance. If people come across crimes they should be obliged to report those crimes. Members say that they do not want reckless lending but there were now conflicting views about obliging credit providers to report reckless lending when they come across it.

Mr G Cachalia (DA) asked if there was a common law provision to report a crime when one sees it. The Committee seeks to take it a step further by making it an obligation. There are provisions in the financial sector to act when coming across money laundering and fraud, irrespective of self-incrimination. Why should self-incrimination be a factor in this instance.

Ms Evelyn Masotja, DTI Deputy Director-General: Consumer and Corporate Regulation, stated that DTI held the same view as Adv van der Merwe that credit providers should be deleted from this provision. This was because there was potential for frivolous and uncompetitive behaviour.

Mr Lesiba Mashaba, Company Secretary at NCR, stated that credit providers would not have the information to make a determination that a credit agreement was made recklessly, and this also goes into competition issues. He agreed that debt counsellors must be obliged to report on agreements that appeared to be reckless to the court – the reason was to ensure that it was legally resolved.

Ms Masotja suggested that reporting by debt counsellors could be extended to the National Credit Tribunal (NCT) to make it easier for debt counsellors to report it.

Prof Joseph Maseko, NCT Executive Chairperson, said that practically speaking when persons come to ask for credit they produce certain required documents and an assessment is conducted, but consumers are not always honest about their incomes when desperately seeking credit. They could mislead and the credit provider may not know what information was produced to the previous credit provider. This makes it impossible to implement because the credit provider does not have the right to request that information from another credit provider. This provision would encourage credit providers to share trade secrets. This is not something Parliament seeks to accomplish through this Bill. Even when they come before the NCT, they always request and insist that such information be kept confidential.

The Chairperson asked Adv van der Merwe what she proposes to address the reporting by credit providers and debt counsellors of reckless lending.

Adv van der Merwe suggested that reckless lending should not be made an offence, in that sense it would not be self-incriminating but there will still be practical problems that would need to be solved because this would be something new for credit providers. As for debt counsellors, they have only practical problems on how the information can be obtained. The problem would not be a constitutional one. The Committee could define certain things better in the Bill and try to ease the practical concerns that debt counsellors have. She was uncertain about how reporting by credit providers could be solved.

The Chairperson said that initially when the bill went to the Subcommittee, one of the main factors to be addressed was reckless lending but it does not seem it can be addressed.

Mr Williams said that this was the clause that would make the credit provider think very carefully before granting credit recklessly. The DTI says this cannot be done, but that is a strange excuse and is wrong – fundamentally, how could South Africa be such an over-indebted country if reckless lending had not taken place? The very reason this country is over-indebted was because of reckless lending. This clause would address reckless lending, and if it is taken out, what is the fundamental function of this Bill? He maintained his stance that credit providers be obligated to report reckless lending.

Mr Macpherson said that Members were getting side-tracked on this matter. If Members want to deal with reckless lending – the two clauses were not the way to do it because the clauses dealt with reporting of suspected reckless lending. If Members wanted to limit reckless lending, the starting point was looking at the affordability assessment process. These clauses just deal with reporting.

Mr Cachalia said that the question of whether reporting should be an obligation and to whom needs to be considered carefully. If it is reported to the courts that would not necessarily speed up the process, in fact, it would delay the process even further. He saw the need to prevent reckless lending, but the unintended consequences it will have on the industry would be dire, it would also clog up the NCT with unscrupulous players delaying others. This would create all sorts of unnecessary problems. He suggested that the Committee consider it very carefully.

The Chairperson said this may need to be flagged for further engagement.

• Suspension of the credit agreement by the NCR: The concern was that the NCR’s role as the regulator would be compromised. The problem is that the NCR would investigate, regulate and adjudicate the matter of the suspension of the credit agreement if it deemed it was granted recklessly. So there is a bit of “fairness” challenge in being the investigator, regulator and adjudicator. However, the decision could be overturned by the NCT but that has its own consequences. If it is suspended by the NCR, a period of time would have elapsed when the process was referred to and considered by the NCT. If it the credit agreement was not granted recklessly, the Bill would be prejudicing the credit provider unfairly. With the uncertainty around it, she was concerned about the fairness of the suspension before there is an actual adjudication by the NCT and the NCR’s duplicate role to investigate, regulate and adjudicate.

She recommended that if there was a report to the NCR, the suspension function was taken away from the NCR and it rather be requested through NCR oversight. The Committee could ask the NCR and NCT how long something sits with them before it was considered. She also recommended that Members try and shorten the turn-around times in both the NCR and NCT through using oversight rather than allowing the NCR to play both policeman and judge.

Mr Macpherson said that the chief concern he had was the time it would take for applications to be adjudicated on, specifically those that were suspected to be reckless in nature. Members are aware that the time it would take to apply at the NCR through to extinguishment was quite long. During the process, the consumer would continue paying the reckless debt that was granted recklessly until such time it was officially declared reckless. It is not morally correct to ask someone to continue paying something that was not supposed to be granted in the first place. There must be a mechanism that, if a loan is suspected to be reckless, the consumer should not continue paying until that loan is declared reckless or otherwise. One of the concerns raised was that the loan would continue to incur interest during that process. He suggested that interest should not be incurred until such time it is adjudicated.

The Chairperson said that the problem was that this should not be addressed at the NCR level but elsewhere. Members all agree that it must be addressed.

Prof Maseko said that there is a mechanism that the NCR is already empowered with called compliance notice issuing. If there is something that the NCR thinks is unbecoming, and through its investigations the outcome confirms that belief or suspicion, it has the ability to issue a compliance notice. This could be imported here and tweaked accordingly. If the credit provider agreed with the notice, it would comply immediately which makes it an immediate mechanism. However, if the credit provider disagreed, then it would proceed to the Tribunal for further interrogation and adjudication.

Mr Williams agreed with Mr Macpherson that if there is a mechanism where it can be speedily established if the loan was reckless, it would be useful so consumers could avoid continuing to pay the potentially illegitimate debt. Members cannot simply remove this and hope that someone comes with a mechanism. The Bill should have a clear mechanism so consumers do not continue paying off loans that eventually are deemed reckless.

Mr Macpherson asked if a consumer goes to the NCR and says that the loan was reckless, and the NCR based on the investigation believes that there is a prima facie case that the loan was granted recklessly, why is the NCR not able to say that there is a case to answer and the loan should be suspended until such time that it is adjudicated on. The NCR would not be judge and jury in this instance, as the court is the jury.

Adv van der Merwe responded that the NCR cannot police and judge. She agreed with the concerns raised about suspension and that it would be problematic to allow the NCR to make that pre-decision and suspend, because suspension is a form of pre-decision. There must be a mechanism to provide a quick resolution. The NCR in conjunction with the NCT can be tasked to come up with that mechanism which would then be included in the Bill. The compliance notice is already a mechanism if the parties agreed, but if not, there should be a measure put in place.

Ms Masotja agreed that it would not be desirable for the Regulator to adjudicate, the roles must be clear. The adjudicating role should be assumed by the NCT. She also agreed that the consumer should be protected from paying off the debt and the interest during the period of suspension until a decision is made.

Members decided to proceed to the next point.

• Adv van der Merwe spoke about whether reckless lending should be a stand-alone application or form part of the debt review when brought before the court. She suggested that this uncertainty could be fixed and it made clear in the Bill that this was optional.

Members agreed to this.

• Adv van der Merwe said that concerns were raised about the inability of debt counsellors to report reckless lending to the Regulator because the Regulator would refer them to the courts. She suggested that this should be tweaked in the Bill to allow debt counsellors to report reckless lending to either the courts or the Regulator.

Members agreed to this.

• Mandatory credit life insurance: Adv van der Merwe said if the Bill required credit life insurance to be mandatory for a transaction greater than six months and less than R50 000 for the targeted group, the concern was what if there were no credit life insurance products available in the market for this targeted group. If that were the case, it meant that no one can legally enter into an agreement to borrow less than R50 000 for more than six months.

She proposed that it is made clear in the Bill that the commencement date for this clause could come into operation at a later stage. This would allow the Ministers of Finance and Trade and Industry to sit with the Financial Services Board (FSB) and the insurers to consult the insurance service providers and determine the appropriate credit life insurance products for the targeted group before the clause came into operation .

The Chairperson said that the insurers could be encouraged to be proactive here.

Mr Macpherson said that it is a bit concerning that the Committee has not yet engaged the FSB and insurance organisations to ascertain whether this was possible. A discussion still needed to be held with the insurance industry about its views on how such a product should be priced.

The Chairperson said the Committee did engage with the insurance companies and the FSB with the Standing Committee on Finance. This was raised there but Mr Macpherson was absent in those meetings.

Mr Williams said he was under the impression that the clause would ensure that all credit would have life insurance attached to it, not just for the criteria or the targeted group.

Mr Macpherson said that this applied only to loans more than six months or shorter than six months, below R50 000 for people earning less than R7 500. It was specifically targeted to that group.

The Chairperson reminded Members that the intention of the Bill was not only to address the credit burden but to ensure that a savings culture was encouraged through the Bill. She agreed with Mr Macpherson that the intention was to focus on the targeted group. However, she asked if there was a reason why the Committee should not encourage all those who enter into credit agreements across the board to have credit life insurance.

Mr Macpherson said it is optional on all credit agreements. The logic behind this point was that the Committee wanted to limit these once-off debt relief scenarios taking place. To do that, Members need to insure against that risk, and he suggested credit life insurance should be mandatory for unsecured credit agreements.

The Chairperson suggested that this needed to be explored on the legal side, she asked the Members to explore the mandatory issue for the target group. It should be mandatory for the targeted group.

Adv van der Merwe said that it is not just for people earning less than R7 500, it was for all loans that were more than six months, and less than R50 000. The reason it was decided to limit it to the targeted group was because it is quite costly, and it is a monthly payment. The clause was inserted that the Minister must in consultation with the Minister of Finance determine the rate of that credit life insurance product.

The Chairperson advised that the Committee would pursue further legal opinion on this.

Members agreed.

• Type of risks the credit life insurance should cover: Adv van der Merwe said that she did not have an answer to this question. Perhaps Treasury could advice the Committee on this. The more risks covered affected the likelihood and the price. This is not a question that could be answered now; it could be addressed at a later stage and then inserted into the Bill.

Mr Siphamandla Kumkani, DTI Director: Policy and Legislation, said that credit life insurance regulations stated that the cover included retrenchment, death, injury during the course of work. Risk spoke to the likelihood of these happening and the failure to pay the debt at a later stage. DTI ensured that it is capped at R4.50, but an extra R1 can be added as per the regulations should additional risk be covered.

• Adv van der Merwe asked if the R7 500 group was clearly defined in the Bill. She asked whether a retrenched person who was earning more than R7 500 but who is now retrenched and earning less should qualify for debt intervention. Those individuals should be able to apply because at the time of application, they would be earning less than R7 500, but that must be true for at least a period of three months.

Mr Williams said that is how it should be, there is a process that is employed, if you qualify then you qualify. If they ascertain you can pay, then you will pay. People need to be informed that this is going to be a process.

• Adv van der Merwe asked if the R50 000 amount was solely the capital amount, and it excluded interest and charges. Treasury said that it is very easy for a small debt to become huge.

Mr Williams said that it is about the amount borrowed, which would have been less than R50 000 but had escalated to that amount due to interest and defaulting.
 

Adv van der Merwe concluded that those were the big issues that still need detailed consideration.

Other decisions
• Adv van der Merwe said that there was a concern that the Act has limited application for incidental credit agreements. Incidental credit agreement referred to debt credit agreements that were never intended to be credit agreements; it did not require an affordability assessment. When people go under go debt review, incidental debt would be applicable. She was of the view that it should be included in the debt intervention measure as well. Thus, if it is included in debt review, it should also be included in debt intervention.

Members agreed that incidental credit agreements would be included.
 

• Mr Macpherson, on a tangent, said that the inability to deal with unscrupulous lending has always bothered him about the Bill. If someone should come to the NCR and indicate that they incurred debt that was done outside the Act, can an order be made on an agreement that is not legally binding i.e. loan shark agreements?

The Chairperson said that loan sharks / mashonisas are illegal, and there was no way the debt can be enforced. The Committee could consider encouraging people to come forward and report these.

Adv van der Merwe said that those credit agreements were unlawful but they were not reported by consumers.

• There were concerns that the debt intervention measure was not made available to corporates but only applicable to natural persons. There were questions about whether trusts, sole proprietors and stokvels should be excluded from the measure. The stokvel was not included in the definition of juristic person in the Act, and the Bill specifically qualifies natural persons. A trust is already included in the definition of a juristic person. As for the sole proprietor, she suggested that they should be included because it would be difficult to distinguish between their personal finances and their business finances. She asked DTI why stokvel were not included in the definition of a natural person and if it is something that should qualify for debt intervention.

Ms Masotja replied that it is one of those areas that still need to be considered, but a stokvel is an organised entity which takes them outside the scope of a natural person; it is not a natural person.

Mr Kumkani suggested that this area be flagged until the DTI has furnished the Committee with a detailed report on it.

Mr Williams suggested that stokvels should not be included in the definition of a natural person. It could be quite a long process and it would stall the Bill but an amendment could be brought in at a later stage, once technical issues have been resolved or a mechanism was established. He asked how the sole proprietor should be included in the definition of natural person, because the person and their business finances are tied together.

Mr Kumkani agreed with Mr Williams that sole proprietor should be excluded based on the fact that they are defined as a form of business entity under the Companies Act and this particular measure sought to assist consumers or natural persons.

Members agreed that stokvels should not be included because the nature of their activities is of a business nature.

Prof Maseko said that sole proprietors run at different levels, from small garages to spaza shops, and are owned by people who are often trying to make ends meet. He suggested that this could perhaps be included but be capped at a certain turnover limit per annum.

The Chairperson said that this point could be brought back at a later stage.

Adv van der Merwe responded that sole proprietors were not included in the definition of juristic person in the Companies Act. They are a natural person and already they will be limited because the income of the sole proprietor would need to be R7 500 in order to qualify for debt intervention.

• Adv van der Merwe referred to comments about whether the court may consider debt intervention matters. Previously it was noted that the court can refer a matter to the NCR for the debt intervention process. She recommended that this should be optional. If the matter is already before the court, why cannot the court make the decision? However, the court may not necessarily have all the facts at hand, unless there was a debt review process conducted prior. It will be in limited cases where the court may have all the necessary facts before it to consider making the order for debt review. Under those circumstances, there was no reason why the court should not proceed with the debt review application.

Members agreed that the clause should be optional, and the court may also consider the debt review if all the facts were before the court at the time of the application.

• Rehabilitation: Adv van der Merwe said that the Bill provides that the debt intervention applicant must fulfil the obligations that were due on the application date for debt intervention. Everything that was considered must be paid in full. The question raised was how one calculates the outstanding debt at the end of rehabilitation period. The credit providers expected the debt to run through the rehabilitation period and continue incurring interest.

Mr Williams said that he was not sure about this. The Committee needs more discussion on it. If you go through the debt review process and it was found that you must pay everything back then all that accumulated interest would disadvantage the consumer. With that being said, he understood the credit provider’s position on why the interest should not stop running when the process is granted.

Mr Macpherson said that this is something that the Subcommittee needed to still engage on. Members were aware that at best this is a three year process.

This matter was flagged to be dealt with at a later stage.

Prof Maseko said that the Committee was not talking about something that was already in existence. It is much cleaner when the consumer is expected to pay back the amount that was frozen at the time the application was made so that when it is revived later, only the frozen obligation would be paid back.

Mr Macpherson said that it would not be possible for the debt amount to be frozen. This could potentially crash the market with nine million people qualifying for debt intervention because all those debts could be frozen, and that might crash the system. Therefore, this was not possible.

Adv van der Merwe said that when a person applies they are not allowed to enter into a credit agreement and conversely the credit providers could not harass them but the interest kept running. So if you are going to follow the debt review process as it is, interest will continue to run but the NCR officials will engage in a negotiation process to reduce the payments.

• Adv van der Merwe said that Treasury indicated that financial training and literacy is being developed, if there is something that is being developed then it can be made mandatory.

Mr Williams suggested that this point be put on hold until what was being developed by Treasury was made available.

Mr Macpherson said that the Bill would be self-defeating if it did not address habits. He was uncertain if this could be outsourced at a later date. He would prefer that when the Bill comes into effect, that training and literacy programme is ready because this would most likely mean that the first group of applicants for debt intervention may not have access to that service.

Members agreed to leave the clause until Treasury has completed the development of the financial and literacy programme.

Adv van der Merwe said that the debt intervention measure would not be implemented immediately, so when the Bill comes into effect, the financial training and literacy programme could be developed during that time. The whole Act will be made operational when the system in the NCR was set up and that could be in a couple of months. Therefore, when the Act comes into effect, it would be noted that the Act comes with the training and literacy programme.

Members welcomed the suggestion.

• Another point was whether the power to declare a credit agreement unlawful should be reserved for courts only. The Tribunal is a form of judicial entity, and she did not see any reason why it could not declare credit agreements unlawful.

Prof Maseko said that the Tribunal has to deal with prohibited conduct which is unlawful when it occurs as well as required conduct that has not yet been adhered to. The unlawful term to him meant that it can be declared or it can be fined when the Tribunal came across unlawfulness. If the activity is of a criminal nature that meant the sentence could only be given by a court of law. The enforcement of the sanction is what was lacking in the Tribunal’s powers.

Members welcomed the point that the Tribunal could declare credit agreements unlawful.

• Adv van der Merwe said concerns were raised about whether offences should be criminalised. People were asking why the Committee was bringing in criminal penalties into a civil matter. The penalty is ten years imprisonment, or an equivalent fine. If it is a company, 10% of the annual turnover or R1 million fine – whichever is greater. The Department of Justice felt that this could be too harsh. She suggested that the Committee look at each action and determine if it should be a crime as well as the appropriate penalty for that crime.

If a consumer submits false information intending to mislead or deliberately alters their financial conduct, this was considered a crime. The question raised was whether this was an actual crime and whether it was serious enough that a person should go to prison for ten years. However, the ten year period is a maximum sentence depending on the merits of the case.

Mr Williams suggested that the ten year sentence should be reduced. The proposed penalty when you deliberately alter your finances should be that you are permanently taken out of the credit market. The ten year sentence should be reduced to at least two years, it is too harsh.

Mr Williams asked if there is currently a penalty if he were to lie in his application for credit, what would happen to him. If there is nothing there, then it should be the same across the board. Why should the targeted group be penalized for lying in their application, when other income groups do not get the same treatment when they mislead or lie in their applications?

Mr Macpherson said that perhaps the process could be dealing with people that are not formally in the market, those with informal income. The Committee needs to think carefully about the penalties but it should not be too lenient. In addition, what Members may view as intentional misleading could be an honest mistake and that may be the grey area that the Committee needs to deal with.

Mr Williams said that the application form is a very important aspect of this.

Prof Maseko highlighted that even when the person is misleading, in hearings at the NCT, the Tribunal Members would be able to distinguish if the NCR was being deliberately misled or it was an honest mistake. The fear can be alleviated by the fact that the NCT can evaluate the evidence presented and is able to make those determinations.
 
Adv van der Merwe said that if a person applies for credit but they lied on their application, that is fraud, but if there is prejudice to the credit provider, the credit provider would lay a charge against that consumer. The state would have to prove that the person was deliberately misleading.

With regards to unlawful practices, currently the penalty is that the Tribunal can order that the entire credit agreement be declared unlawful and impose an administrative fine. So does this mean we have to make it an offence i.e. a criminal record? The question that came up was whether the current penalty is sufficient?

Mr Williams said that it is an offence, and we have to start putting pressure on the credit providers so that they stop giving credit unscrupulously. It must be quite harsh if they participate in unlawful practices.

The Chairperson said that even with shoplifting, it may not be about the cost of the stolen product but it is about the principle. That is harsh, and it needs to be balanced out.

Mr Williams suggested that all the fines should be adopted with regards to credit providers until s57(b)(2).

Mr Macpherson said that the important thing is to create consistency when dealing with offences. He referenced the R300 million African Bank fine which was negotiated down to R20 million. The fines must be non-negotiable. We cannot have bad behaviour rewarded through negotiations which is precisely what happened with African Bank.

The Chairperson said that the point Mr Macpherson was making was that the fines should not be negotiable.

Adv van der Merwe said that the African Bank fine was an administrative fine which is different and can be negotiated, but not a criminal fine. She suggested that the Committee should be careful about taking the discretion away. She felt that this is something much better monitored through oversight than legislation because you are taking certain discretion away.

The Chairperson came back to the shoplifting example and said that when you commit the crime, you get recorded and then the individual does not qualify to get a job in government. If we are going to start talking about judicial consistency, we need to be realistic because the reality is that when you are poor, you are already at a disadvantage in the judicial system. We need to make the punishment fit the crime. She was not suggesting that they take away the discretion of the court.

Ms Masotja said that for consumers, since they are already in a dire situation, the penalty should not be harsh. However, with the credit providers, since they are the ones responsible for all the damage in the market, the penalties must be harsh and that might regulate the behaviour.

Mr Macpherson said that industry is always allowed to get away with their behaviour, and the only way you will stop reckless lending is through their bottom line.

The Chairperson said that Members agreed. This measure is not just about the debt intervention but about reversing the over-indebted culture in South Africa. When people get credit cards, they actually assume that is their money and they seem to forget that it is a loan. Perhaps the financial literacy could do something about it. If nobody else is going to do this, the Committee needs to ensure that responsible lending and borrowing takes place in the country. So if that can be achieved to some degree through the Bill, that would be ideal.

Mr Williams pointed out to s57(b)(2) which indicates that ‘any person that sells debt under a credit agreement to which this Act applies” – this is different from a company.

• Prescription: Adv van der Merwe reminded the Committee that in the previous amendment to the National Credit Act they brought in section 126(b) that dealt with prescription and the fact that consumers were not made aware of their rights concerning prescription. They were fooled into acknowledging that they owe the debt and the debt is revived. It was dealt with through that Amendment Act but the problem is that it has no teeth. It is a prohibited conduct and the NCT can order an administrative fine and the debt itself is prescribed. The NCR made it clear that it is still a big problem and the only way to deal with it is by making it an offence. However, it would be a very difficult offence to prove because there will be a dispute and there are so many factors that come into play such as the court considering whether the consumer acknowledged the debt when they answered their phone. It will be a factual dispute. Credit providers will make a note when they communicate with someone to record the information so that it can be proven in a court.
 
The Chairperson said that the Committee considered the comment and suggested that this is flagged and be dealt with at a later stage.

Mr Williams said that now that he has an understanding of the problem, the penalty in the Bill should be left as is: the ten years; the million rand or ten percent of the turnover. The practice needs to be disincentivized.

Members agreed on the position put forward by Mr Williams.

• Registration offences: Adv van der Merwe said this issue referred to loan sharks – this would be an offence. The one concern was that the Act did not provide for a formal procedure for a mediation process on this. Perhaps, the Members could think about the unintended consequences, but the sentiment from the Committee was that failure to register would result in an offence. It could simply be a matter of anyone without a formal business lending credit, that would be a suitable defence against this as a crime.

Mr Macpherson said that illegal lending was a key principle because those consumers do not have recourse at all. He still believed that the Bill fell short in offering recourse to those people. Those lenders do not even do their tax returns. It should be a criminal offence to lend someone money if you are not registered with the NCR. The Committee was still missing out on providing some recourse to people who are victims of that system. He did not think that the proposed penalty would be suitable for these illegal credit providers because they probably do not even keep records or submit tax returns. How would the NCR determine their turnover or fine them R1 million? He suggested that an appropriate penalty should be imprisonment.

The Chairperson said that if the credit provider was an illegal credit provider, then they do not have to be paid a cent.

Mr Macpherson said that it is be nice to say this in an air-conditioned room in Parliament, but these people are continually harassed and even threatened, they have their identity books forcefully taken from them and sometimes experience bodily harm. There must be a mechanism that protects them in their application or pursuit for their debt to be extinguished. The lack of enforceability is always spoken about by the NCR, and he has consistently asked how many people have been imprisoned for such activities.

The Chairperson said that this was raised before in the Committee that the NCR works together with the police by conducting raids and arresting people. Perhaps the NCR could provide a list of the arrests made by the police.

Mr Mashaba said that the only crime that the illegal credit providers were criminalised for were taking people’s IDs and SASSA cards. Currently, being an illegal credit provider it is not criminal offence. That is why the NCR supports the proposal to make this a criminal offence. The NCR would issue a compliance notice to stop them and take their loans to the Tribunal to declare them unlawful.

Mr Macpherson said that this was precisely why protection for people who have been lent money illegally needed to be seriously considered by the Committee.

Mr Williams proposed that the Committee should put a hardcore maximum sentence for such lenders and insert such a clause into the Bill. Hopefully, this would put these people in prison.

The Chairperson said that perhaps it could criminalised.

Members agreed to the proposal.

The Chairperson said that the Committee has not yet agreed on the penalty, but whilst the arrests are taking place they should be removed from their places of business and placed in the cell without bail until they come before a judge.

Adv van der Merwe said that when a person who is not registered is arrested, that person has the right to be granted bail but it must be on condition that they do not commit the same crime.

Ms Masotja said that a matter had come up that week about debt counsellors abusing the process and sending out messages there that they are reducing debt for consumers at lower rates. She handed over to Mr Kumkani to elaborate on the matter.

Mr Kumkani said that after the Committee embarked on this process of debt intervention, consumers have been contacted by debt counsellors in the Western Cape offering to half their debt charges and interest on loans without actually informing them that they are entering into a debt review process. Some of the consumers, when approaching their banks, would find out that it reflects that they are under debt review and thus cannot receive credit. This has far reaching implications for this debt intervention process, because two years later when this process is finalised, some research would suggest that this was just one of the processes that led to many people being trapped under debt review. Those cases have been referred to the NCR for further investigation. The fact is that if there is an indication on your record that you are currently applying for debt review, the system automatically kicks you out.

The Chairperson thanked the DTI for this information as well as Adv van der Merwe for assisting in the drafting of the Bill.

The meeting was adjourned.