"Debt Intervention" National Credit Amendment Bill: revised version

Meeting report

"Debt Intervention" National Credit Amendment Bill: revised Bill deliberations
Adv van der Merwe went through the revised draft Bill:

Long title: Once the Bill is enacted, it will be incorporated into the principal Act. The Bill's Long Title will be incorporated into the Act's Long Title. Members must remember that this is an Amendment Bill.

Clause 1
The definition clauses may not have substantive-ness; they only describe what the words meant.

Section 171(2A), outlines the prescribed measure of the Bill. For debt intervention applications, the credit agreements must be unsecured. Joint estates also qualified for debt intervention because it is regarded as one person. Over-indebtedness was not initially included in the previous draft. However, statistics show that most people who earn an income of R7 500 are actually paying their debts, so the Committee decided to include over-indebtedness as an underlying criteria.

‘Extinguish’: This definition was one that Members  felt must be clear in the Bill. The National Credit Regulator and Tribunal said that even if the agreement was invalid, credit providers felt there was an element of unjustified enrichment for consumers. Thus the common law enrichment clause was in the revised draft Bill, and made prospective.

‘Financial capability’ and ‘financial literacy': This was proposed by the Tribunal and added to the Bill.

‘Total unsecured debt’: This referred to the total amount of debt that can be extinguished or suspended with a maximum principal debt of R50 000 in unsecured debts.

Amendment of Section 3 of Act 34 of 2005
There was a proposal in the public comments to put this separately. This method still provides for debt intervention but avoids diluting the objects of the Act.

Insertion of Section 15A into Act 34 of 2005
The National Credit Regulator will act in the capacity similar to debt counselling. In the Act where it provides for inspectors, she adjusted the debt intervention counsellor to be a person.

Insertion of section 69A in Act 34 of 2005
This provision was debateable. The reason for the proposed amendment was the clause gives people the right to apply for credit, but the Bill in itself limits people from applying for credit. She recommended that it must be clear that where the Act says your right can be limited, that right must be limited.

Amendment 70 of Act 34 of 2005
This deals with credit bureau information. Any information provided to the Tribunal by a credit bureau may not be charged a fee.
 
Amendment of section 71 of Act 34 of 2005 as amended by section 21 of Act 19 of 2014
The provision makes the role of the Regulator it clear what the role of the Regulator is.There must now be a clearance certificate to remove the information by credit bureaus.

Amendment 71A of Act 34 of 2005, as inserted by section 22 of Act 19 of 2014
There was a request for Clause 9(3C) as the NCR cannot arbitrate a dispute in the event that a credit provider or consumer disputes information submitted by the NRC in terms of subsection (3B). The NCR cannot arbitrate and submit the information; this is an administrative matter, so the Minister is brought in to determine the correct information. Once the credit provider has received an order – the credit agreement information must also be amended.

Insertion of section 82A in Act 34 of 2005
This provision would increase the costs of debt counsellors, but the credit provider must provide the required documents to debt counsellors within five business days at a fee not exceeding the maximum prescribed fee. The information or documents may be required to enable the debt counsellor to consider whether a credit agreement may be a reckless credit agreement. The Regulator can act on a complaint.

The Tribunal said the biggest delay was with the Department of Justice; thus, it proposed that there must be dedicated consumer courts so that there is a direct line with the appeals.

Clause 11 – Substitution of section 85 of Act 34 of 2005
When the court looks at over-indebtedness, the court may enquire if the consumer wants to be part of debt intervention or review. If there is sufficient information before the court, the court can exercise its discretion based on the information before the court. The process in this provision empowers the court to make an order.

Clause 12 – amendment of section 86 of Act 34 of 2005, as amended by section 26 of Act 19 of 2014
The provision provides that reckless credit agreements must be checked regardless of whether the consumer asked or not.

Clause 13 – insertion of section 86A in Act 34 of 2005
This provision referred to the application for debt intervention; but with regards to the total unsecured maximum amount of R50 000, as the Bill now provides for a long term “debt review measure” administered by the Regulator. Adv van der Merwe suggested that the amount (R50 000) be “R50 000 or as may be prescribed” so that this is still an appropriate amount in five years’ time.

Clause 14
The clause simply allows the Tribunal to re-arrange the consumer’s obligations.

Clause 15
This provision is where the Committee deliberated about the suspension and the extinguishing of debt. Initially it was discussed in the Committee that it may be a single member of the Tribunal that may exercise discretion on whether to suspend or extinguish debt, now there will be a prescribed manner and form for this to be done.

There was criticism that it was unclear, but now the clause makes it clear how the process will unfold. Debt will first be suspended for 12 months and then the rest of the process will take place depending on the financial circumstance of the consumer. Guidance to the Tribunal member is also provided with to consider both the credit providers and consumer’s role. None of the circumstances listed in the clause are neither negative nor positive, its circumstance that the Tribunal can consider, because the facts may be either way.

The Tribunal can declare the credit agreement extinguished, but applicable to only the total unsecured debt - the tribunal has been given discretion, but Tribunal must look at the referrals and the inputs of the credit providers in exercising its discretion. Members must note that debt may be extinguished wholly or partly depending on the financial circumstance of the consumer. The extinguishing of debt does not necessarily mean that all of it will be extinguished.

There was agreement that there must be a further discretionary period, whether two years or five years – the Committee must decide on the period. However, the question was whether 24 months was sufficient, people would only in practise be able to apply for extinguishment once. Section 12(a) – sunset clause may be moved to a different section. She recommended a period of 36 months at least because it may not be easy to determine the impact within a period of 24 months and still consult and do the notice. The Minister may only have 12 months’ data to consider and those 12 months will include teething problems.

Clause 16
Outlines what will happen after the application of debt intervention. The consumer cannot enter into another credit agreement, if they do so, that agreement cannot be brought to the Tribunal – the consumer will have to sort that out by themselves. On the creditor’s side, it may be declared reckless.

On the period of limitation, say the consumer was retrenched and struggled to find work for 24 months, in the first year of the limitation period where the person cannot apply for credit get a job, the consumer or that person can apply for rehabilitation and settle obligation or the order as of the date of application. When applying for rehabilitation, provision is now made for the NCR to review the circumstances of the debt intervention applicant – the process is now clear.

Clause 19
This provision relates to credit life insurance that which is now mandatory, the biggest issue for the clause was that it sounded like the credit provider must enter into a credit insurance but now that is rectified, the credit provider must ensure that the consumer enters into a that insurance with another party on their own. The provision makes it clear that the burden and onus for credit (life) insurance rests on the consumer.

Clause 25
The clause deals with offences, if one does not comply with the prescriptions of the Act that will constitute an offence. However, incidental debt is excluded in the provision as per section 157C(2)(c).

Clause 26
The only that changed in respect to offences in relation to debt intervention is the period of imprisonment which is now reduced from ten to two years. One of the criticisms indicated that you cannot jail someone for not having money. However, that is not the issue but the fact that the consumer misled the credit provider – administrative actions now made an offence.

Clause 27
Outlines that the Tribunal can now declare something an offence.

Clause 29
With regards to “significant exogenous shocks” – this was part of the criticism that came forth because it is a difficult term to define, it is too broad. The Committee agreed to remove the clause provided for “no effective measure” – section 171(b)(b)(iii).

Clause 31
With regards to retrospectivity, only certain things were not made retrospective such as credit life insurance but debt intervention measure can be retrospective.

She thanked the Committee for the opportunity to present the Bill, and indicated that this would be the draft considered for gazetting if the Committee adopts it.

The Chairperson handed over to Mr B Radebe (ANC) to proceed as the Acting Chairperson.

The Acting Chairperson gave the Department an opportunity to comment.
 
Department, NCR and NCT response to revised Draft Bill
Dr Evelyn Masotja of DTI congratulated the Committee and Adv van der Merwe for the job well done. The flagged clauses will be looked into in consultation with Adv van der Merwe. She will take the Ministerial powers provision to the Minister, to chat about it. Overall most of the issues have been addressed; the DTI will ensure that it works on the finer details of the flagged clauses.

Prof Joseph Maseko, National Consumer Tribunal chairperson, said that 99% of the work was done and the Bill is implementable. All the concerns have been catered for at this point, and the only thing remaining was the drafting of the regulations and other related matters. Policy issues on the Committee’s side have been addressed.

Mr Lesiba Mashaba, Company Secretary at NCR, said that all the issues that were raised have been incorporated, but there was one major issue that was not included in the Bill on the power of the Tribunal to effect interest rates and fees to a maximum of zero which would enable the NCR to resolve the payment plans – this was missing. He believed that this should be included because it would hamper the ability to solve payment plans. This was included in the original Draft Bill but not in the current Draft 6. Secondly, the power of the Tribunal to make a combination of orders such as reducing interest rates, suspend agreements and restructure, was missing in the Bill and these would allow flexibility for the Tribunal to assist over-indebted consumers.

The Acting Chairperson suggested that he put his concerns in writing.

Mr D Mahlobo (ANC) said the team has worked very hard. This project commenced with bigger issues in mind. The Committee may need to note that this should be used as an instrument to ascertain how deep the levels of inequality are in South Africa. Policy makers and legislators must not look at this measure as a means to an end, but as a means to a bigger picture. The consumer court must be looked at because it would contribute to the speediness of the process. The R50 000 nominal amount may need to be adjusted from time to time to factor in the change in money value.

Mr G Cachalia (DA) asked about the one-page report on the overseas trip – he wanted to gain more insight about the trip. It is envisaged that there will be NCR satellite offices across the country, what are the costs as well as the training required for setting them up? He asked if there will not be any conflict as the Regulator will be tapping into the turf of the debt counsellors.

The Acting Chairperson said that the one-pager is not a report, but a working document provided as a courtesy for Members. Once the team is ready, it will present an official document.

Mr S Mbuyane (ANC) asked for clarity on the power of the Minister to investigate in clause 9 amending section 71A(3C).

Ms P Mantashe (ANC) referred to page 11 in section 82A(2) and suggested that a sanction should be considered for credit providers to ensure that they comply, because they may be reluctant to provide the information. On page 19, in clause 15 amending section 87(8)(a) she felt that the minimum period should be 24 months as opposed to 12 months. She said that on page 25 in section 106(1A) the R50 000 amount should perhaps be re-looked because in the United Kingdom, the maximum amount is set at 20 000 pounds.

Ms Mantashe asked for clarity on the “in consultation” provision in Clause 19 amending section 106(8)(b) because it may be problematic.

Ms E Ntlangwini (EFF) suggested that the overseas trip one-page report must be withdrawn until the team has worked on it, and it should not have been handed out to Members.

Adv van der Merwe replied to Mr Mashaba that she will consult with the Tribunal on the combination of orders. She did not agree because that requirement was just slotted into section 87A. It does not specifically say that the Tribunal may lower the interest rates and make a combination of orders. The original Draft Bill took what one can do with a debt review and put that as orders the Tribunal can make because we provided for a separate system. However, now we are using the debt review system, it is outlined in the Bill on pages 15 and 16. It is clearly covered but she will confirm with the Tribunal as well.

From the side of the Regulator, the plan is that there will be satellite offices and the existing infrastructure will be utilised; hence the date of the Bill was changed because these things need to be set up first. Treasury has been on board and it is aware of the costs involved. The “in consultation” provision only refers to the prescribing of the interest rates as the Minister of Finance will have to prescribe those as it is within the finance mandate.

On a potential conflict with debt counsellors, she replied that there will be none because it has been made clear that the Regulator will assist the people that fall within the gap as outlined in the criteria. It is not worthwhile for debt counsellors to assist consumers that are unable to solve within five years and have an income of less than R7 500 with R50 000 maximum total unsecured debt. The measure is specifically referred to as debt intervention to ensure that it is not confused with debt review.

Dr Masotja added that debt counsellors charge fees which are expensive and the debt intervention measure is provided for free, and the targeted group is not catered for, so there will be no confusion. She informed Members that the Department already has a productive working relationship with the Minister of Finance; it sits in some of the meetings on the regulations. Therefore, it is within that working relationship that any potential delays on the regulations will be managed.  

The Minister’s powers to investigate is flagged because it could be given to the Tribunal or the Regulator or another body. The reason for putting the Minister was to allow some flexibility. The 24 months and R50 000 were also flagged.

On the proposal for a sanction if the credit provider does not respond within five business days, the Act states that if there is something that one should be doing but not doing, one may be liable for an administrative fine. So Ms Mantashe’s concern is covered. She agreed that sanctions must be imposed; hopefully, the administrative fine would suffice.

The Acting Chairperson indicated that there must be a balancing act between the administrative fine imposed on the creditor and imprisonment for the consumer. This can be considered going forward.

Consideration of the Budget Vote
The Chairperson suggested that Members present the Budget Vote Committee Report to their party caucuses and return with recommendations which will be considered on Thursday afternoon. She briefly took the Members through the Budget Vote Report.

The meeting was adjourned.