'Debt Intervention' National Credit Amendment Bill, 2018 - as published on 29 May 2018 for public comment
Call for comment on specific clauses: deadline 11 June
The Committee, with the Parliamentary Legal Advisor, continued working through the outstanding matters on the National Credit Amendment Bill:
The Committee agreed to advertise and call for comments because section 87(1A) gives the National Consumer Tribunal (NCT) the powers to lower interest rates on credit agreements but not the courts. An insertion was proposed in Clause 12(b) to give powers to the Court to reduce interest rates, charges and fees to zero for the period in 86A(6)(d) (5 years). The public could comment on this.
In 87A(8)(a), once the Tribunal has extinguished the debt, there must be a consequence for the consumer – their right to apply for credit must be limited for a period. The length of the mandatory credit limitation period and an additional discretionary period was again flagged. The Committee requested a diagram of the two streams of the application process for the debt intervention measure. Before making a decision, Members wanted to be clear on how the two streams would function.
Members agreed that the financial literacy and capability training programme must be compulsory for all applicants; however, there was no consensus on when the training should take place. Suggestions were that it should take place at the initial stage of the application during the first suspension period. The Committee will re-visit the clause to reach a consensus.
On the penalties for offences committed by the consumer or the credit provider, it appeared that the Committee would agree to two-year maximum imprisonment and/or a fine, and for creditor providers committing certain prohibited actions and failing to register, ten-years maximum imprisonment and/or a fine.
The decision on whether to allow the Minister to prescribe a debt intervention measure was again flagged.
'Debt Intervention' National Credit Amendment Bill: outstanding matters (continued)
Clause 14 / Clause 12(b)
Adv Charmaine van der Merwe, Parliamentary Legal Advisor, referred to s87(1A) which deals with the rearrangement of the consumer’s obligations. The provision is giving power to the Tribunal, because the National Credit Regulator (NCR) is being given the power to conduct the debt review process. In subsection 1(A) the DTI had raised the concern that this may not allow one to lower the interest rate and fees and charges to zero. She proposed this addition:
"determining the maximum interest, fees or other charges under a credit agreement, which maximum may be zero, for such a period as the Court deems fair and reasonable but not exceeding the period contemplated in section 86A(6)(d)’’.
By allowing the Tribunal to reduce the interest rates to zero, that would mean the courts cannot do so. This is the down side. If the Committee were to add magistrates, then the Committee would have to advertise for public comment because it will be something new. Alternatively, include the magistrates can be accepted in principle for now by the Committee and flagged to be included in the DTI's bigger project of amending the National Credit Act.
Mr D Macpherson (DA) asked if the Act does not allow the magistrate to rearrange credit agreements. They can extinguish reckless ones but can they rearrange them?
The Chairperson said she would have hoped that there would have been an interpretation that all magistrates could pursue this. She asked for clarification.
Adv van der Merwe said S87 says magistrates can rearrange, but the Act allows them to make an order for rearrangements in a manner contemplated in section 86(7)(c)(ii). If the amount of payment is reduced, by implication the interest rates should be reduced as well – as she interpreted but this is open for interpretation. This is an interpretation matter – an Act must be interpreted for the purpose it was established. She did not think that the purpose was to reduce the payment amounts but for the interest rate to remain unchanged. Unless we have a high court decision, she doubts that this is something that will go to the Constitutional Court. This can be fixed for the Tribunal but if it is fixed for the magistrate courts then the Committee will have to advertise and call for public comment. She suggested that this is something the Committee kept in mind.
Mr Macpherson said he was not sure whether reducing the amount payable should include reducing the interest rate. Perhaps, the interest rate reduction can be advertised for public comment as well.
The Chairperson said looking at the principal Act, it is very clear that the interest rate is an obligation, and the rearrangement of obligations should include the interest rate as well. It has been working in that manner, debt counsellors have been working with magistrates in that manner. Thus, this matter should not be complicated.
Ms Nomsa Motshegare, National Credit Regulator CEO, said rearrangement in this instance meant lowering the instalment amount but not tampering with the interest rate. There were instances where both the parties agreed to lower the interest rate but the magistrate threw that out because the Act does not allow for that even though the credit provider agreed to that. Hence, she suggested that the Tribunal should be able to lower the interest rate to zero.
Mr B Radebe (ANC) agreed with Mr Macpherson that when the Committee calls for comment on some of the clauses, the lowering of the interest rate must also be included.
Prof Joseph Maseko, National Consumer Tribunal Chairman, agreed with Adv van der Merwe’s proposal because magistrates have the right but they may not be aware of it. The problem is the capacity to understand by magistrates. There is already a provision in the Act that interest stops running when the unpaid interest equals the outstanding capital amount.
Mr Macpherson formally supported that this provision must be advertised for public comment because we cannot have something available for the NCT but not for the courts.
Clause 15 – section 87A(3)
Adv van der Merwe said this provision was a drafting technicality; the Committee has been speaking about the “total unsecured debt” that it may not exceed R50 000. On the previous draft it was discussed whether the R50 000 included the interest and other charges, and it has now been amended under the definitions so that it is clear that it refers to the principal debt due. She realised that when it comes to the extinguishing clause, only the principal amount is extinguished or extended. She proposed that instead of talking about the “total unsecured debt”, the R50 000 only refers to the principal debt. It is not the intention that only the principal debt be extinguished – all costs of credit must be extinguished. Basically, the consumer applies, the Regulator will look at the total unsecured debt of R50 000, when suspending and extinguishing it is everything, i.e. all charges and interest rates.
Members agreed to the proposal.
Clause 15 – section 87A(5)(b)(i)
Adv van der Merwe said this was an incorrect drafting reference, the reference should not be to section 86A(8) because that deals with voluntary rearrangements where there was no agreement. The correct reference should be to 86A(6)(d), but that would read funny as this would be referred to twice in short succession. She proposed that make a recommendation to the Tribunal in the prescribed manner and form for an order contemplated in section 87(1A).
The Chairperson reiterated that it was just the reference that was wrong but it now has been fixed.
Clause 15 – section 87A(8)(a)
Adv van der Merwe said this was a policy issue and it was not agreed on in the previous draft. The discussion was two-fold, the one depends on the other. In 87A(8)(a), the Tribunal is now actually extinguishing debt, once it has been extinguished there must be a consequence for the consumer or applicant – their right to apply for credit must be limited for a period. The Committee did not agree on whether there must be a mandatory period and an additional discretionary period. If the consumer was not at fault for defaulting, for example retrenchment, the Tribunal will exercise its discretion on the credit limitation period, which must include a discretionary period. The question is how long the mandatory period should be. And if there is a discretionary period after the mandatory period, the Committee needs to decide how long that discretionary period should be.
Mr G Cachalia (DA) asked if Members were aware of international practice on this.
Mr Macpherson recalled that if the circumstances of the individual have changed and the individual wants to settle the debt, the individual should be able to no longer be excluded from the credit market. Secondly, it is a balance of not wanting to give people a free ride for those who have gone through the process but also not be too restrictive for people wanting to re-enter the credit market if they can settle their debts. In the UK it seemed to be 12 months but the system was quite advanced and well organised with educational awareness. He did not think 24 months was unfair.
Mr S Mbuyane (ANC) asked how long is the application going to take? And if it takes up to 12 to 24 months, then he proposed 12 months.
Mr Radebe said considering best practice in the world would be a good start. However, if the person gets a job after the process has been completed – he suggested that it must be as minimal as possible.
The Chairperson asked Adv van der Merwe to refresh their memory on how the process would unfold.
Adv van der Merwe said when the period of credit limitation comes in, it is in fact at the end of the process, so from the date of application, the consumer may not further apply for credit. Then there is a 12 month suspension. If there is an additional suspension of 12 months, and then two years would have passed before the consequence of extinguishing. Then the credit is extinguished, it is at that stage the order comes into effect. If the circumstances of the consumer change before the extinguishing, then that would not be problematic because the consumer can then settle their obligations. However, if it happens after the extinguishing, there is a provision made for it. At the point of extinguishing, a two-year limitation period would have already been in effect.
Mr Radebe suggested that the period thereafter should be 12 months.
Adv van der Merwe said there are two streams of debt intervention. The first stream is where the consumer can pay within five years. The second one is where the consumer cannot pay their obligations within five years; the Regulator refers the application to the Tribunal for the first suspension of 12 months but eight months into that period, the Regulator must review the financial circumstances of the applicant and make recommendations to the Tribunal. If within those eight months, the circumstances have changed so that the person can solve within five, the Tribunal will then refer that person for debt rearrangement. For the period of five years of rearrangement, they are not allowed to apply for new credit and this is the consequence for the second stream.
The Chairperson said that she was tempted to flag this issue.
Mr Radebe agreed with the Chairperson.
The Chairperson suggested a diagrammatical flow of the two streams of consumers and listing all the possibilities within each stream. Secondly, the Committee needs to take into account the critical urgency of capacitating the Tribunal and the Regulator. Thirdly, the Committee needs to kick in the empowerment education earlier, perhaps before extinguishment – and it must apply to everyone who applies. The Tribunal and Regulator should provide input on the implementation and how this can pan out with availability of financial resources because these go together.
Adv van der Merwe said that the Committee needs to keep in mind the criticism of this policy issue and the concern that when you extinguish the debt, there must be consequences.
Clause 15 – section 87A(8)(b)
Adv van der Merwe said when there is an application, the Regulator must counsel the applicant and make available access to financial literacy and capability. The Committee have decided that it must be compulsory, whereas in earlier drafts of the Bill it was discretionary. This is something that should be required but the problem was the availability of a financial literacy programme. Now the Committee is aware that Treasury is working on this programme. There is no dictating on the training programme content; we do not say what it must look like in Bill. When you go through extinguishment, then you must go through the training. Should it be compulsory at the final stages or only at the time of extinguishing or at the time of suspension?
The first stage for training to happen is at the suspension stage. One might argue for this because one runs the risk of someone not getting training after managing to get out of the intervention due changed financial circumstances. It is important that the Committee determine at what stage the training should take place notwithstanding the fact that the programme is still being developed by Treasury.
Mr Cachalia said it should be in sync with the period of suspension, the earlier the better. He was inclined for a longer period of suspension so that the training can run concurrently with the suspension period.
Mr Radebe said that the training must be compulsory because it seeks to empower. As to when, this can be debated, but the training must be spread out so that it can reach everyone.
Mr Macpherson said this provision makes this Bill special because now the Committee is resolving something that should have happened a long time ago. It makes it important that the Committee gets it right. He certainly agreed that the training should be compulsory and that it should take place during the suspension period. If a person’s circumstances change and a person manages to get out of the intervention without the training there is a risk of having that person fall back into the problem.
The Chairperson said that Members agreed on the principle.
Clause 15 – section 87A(12)
Adv van der Merwe said this was a drafting technicality (see document).
Secondly, with regards to the sunset clause, the question was whether it should be 24 months or not. If we retain the review and possible extension in paragraph (b) it may not be easy to determine the impact within a period of 24 months – the suspension is for 24 months, so no debt will even have been extinguished by the time the Minister must review the impact. This time period is a policy decision, but she recommended a period of four years for referrals.
Mr Macpherson wanted to get the rationale for the four years.
Adv van der Merwe said if we allow the Minister to review the impact of extinguishing, we already have two years that must lapse first which is the two suspension periods before the debt is extinguished. Once the sunset clause is effective, it cannot be reviewed.
Ms Mantashe indicated that the proposal was acceptable.
Clause 19 – section 106(1A)
Adv van der Merwe said any credit agreement that exceeds six months must have credit life insurance, with a principal debt not exceeding R50 000. As this is a long-term provision, the question was whether in five to ten years, that will be a valid sum. Hence, the proposal is to add "or as may be prescribed by the Minister" to the period and the amount. This was agreed to.
Clause 26 – section 161(aA)
Adv van der Merwe noted that the question was raised whether two years was not too steep as a penalty for consumers providing misleading information or manipulating data for the debt intervention measure (section 157A). The previous maximum of ten years was brought down to two years. The most serious offence for the Committee is section 157C – operating as a credit provider without registration. The question is whether this provision should be tweaked.
The Chairperson said it was reported that these unregistered credit providers were not arrested for being unregistered and conducting unlicensed credit agreements but rather for only the retention of people’s identification.
Mr Radebe said that the maximum of 24 months imprisonment for consumers in the event that they misled the NCR was sufficient. Consumers need to be responsible. However, for credit providers, it must not be changed from a maximum of ten years because reckless lending has serious implications on the economy.
Mr Macpherson said that the penalties clause is a clause that either makes the Bill credible in the eyes of the public or not. He agreed with the DTI comments on this matter. Unless there is a detrimental punishment or sanction, people continue to take advantage of the system, where the harsher sentence is applicable, that must be retained.
The Chairperson said that during public hearings, the ten years was contentious so when the Committee takes this decision, it must appreciate the seriousness of its decision.
Adv van der Merwe pointed out that the wording of the sanction is to allow as much broadness as possible in the sanction – giving the court discretion of a "fine or imprisonment not exceeding 10 years or to both a fine and such imprisonment". The court may exercise its own discretion up to a maximum of ten years' imprisonment depending on the circumstances.
Members agreed to this penalty for credit providers committing certain prohibited actions and failing to register.
Clause 29 – section 171(2A)
Adv van der Merwe said the question raised here was whether this was too wide a delegation given to the Minister. Secondly, in section 171(4), was the phrase “significant exogenous shock” clear enough? She said it is difficult to give a clear definition of this as well as “regional natural disaster”. There were concerns about the constitutionality of this prescribed measure,
The Chairperson said that those fires in the Knysna area may be classified as a 'regional natural disaster' but that phrase did not specify fires only natural disaster.
Mr Radebe said that if this raises matters of constitutionality, it might be taken to the Constitutional Court before implementation.
Mr Macpherson said there is an arbitrariness in determining a natural disaster, what may be seen as natural disaster in some areas, may not be declared as such. Government has not worked quick enough to determine natural disasters in some areas, for instance the drought in the Western Cape. That debate went on for many years until it was too late. He supported the DTI position that it should be removed from the Bill and that it is unconstitutional.
The Chairperson referred to the Disaster Management Act, saying when it came to “regional natural disaster” definition the Committee is covered. She indicated that “significant exogenous shock” was also covered in that Act, but she heeded the DTI proposal that the Committee needs to be careful with this one.
Mr Radebe suggested that the prescribed measure should be retained.
Mr Macpherson said the Committee needs to ensure that there is no arbitrariness in allowing the Minister to prescribe a debt intervention measure; the section must be removed to ensure that the Bill passes constitutional muster. In any case, where an exogenous shock or natural disaster may take place, you cannot take away the rights of the credit provider. The Committee should either take the advice that has been given or reject it, but critically a forward-looking decision must be taken on this clause otherwise there will be a constitutional challenge to this.
Members agreed to flag this for further deliberation.
The Chairperson thanked Members and Adv van der Merwe as well as the DTI for the outstanding work.
The meeting was adjourned.
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