National Credit Amendment Bill: response to submissions & legal opinion & deliberations

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Trade and Industry

31 July 2018
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

Members of the Trade and Industry Committee returned to Parliament during the constituency period to deal with the pressing matter of debt relief legislation.

Advocate Charmaine van der Merwe, Parliamentary Senior Legal Advisor, presented a legal opinion from Senior Counsel on three clauses in the National Credit Amendment Bill on the constitutionality of the debt relief measure created by the Bill, as well as the measures provided for the Minister to prescribe debt relief. In respect of the debt relief measure, Adv Trengrove had agreed that the Act entailed the deprivation of property, but it was permissible and lawful under Section 25(1) of the Constitution. It passed constitutional muster as it occurred in terms of a law of general application. The Bill was not arbitrary and was procedurally fair. He had raised a constitutional concern regarding the clause which allowed the Minister to extend the operation of the measure related to extinguishing debt. His second constitutional concern related to the clause which empowered the Minister to prescribe a debt intervention measure. Those clauses constituted a delegation of plenary powers, and the Constitution limited Parliament’s capacity to delegate its legislative powers. The Bill placed almost no limitation on the delegation of power to the Minister relating to the prescription of debt relief. He added that the definitions relating to that section on the Bill did not help, as they were not good definitions.

When looking at the clauses in the entirety of the Bill, the Adv Van der Merwe said that she could certify the Bill as constitutional. She did, however, advise that the clause relating to the Minister’s power to prescribe debt relief be revised and that the Minister be required to carry out an assessment of the debt relief measure and report to Parliament. Parliament would then decide whether to extend the measure or not. She also believed that the provision for the Minister to make regulations had become redundant in the re-drafting of the Bill to allow ongoing relief, instead of a once-off relief measure.

One Member was concerned that the Bill was being pushed through just before elections. Members asked whether the Bill in its entirety was constitutional and whether the Bill could be made less complex and more easily readable. Did prescribing a debt intervention measure by the Minister and the extension of the operational period of the measure potentially fall foul of the Constitution? Was it a plenary power that was being delegated? Was public and procedural probity potentially being bypassed? If there were a massive shock of retrenchment or if a natural disaster took place and the clause had been removed, would it be possible for Parliament to make any amendments to legislation in a short period of time?

The Department of Trade and Industry responded to the submissions by ten credit industry stakeholders on the three clauses that had been advertised for public comment. The submissions generally opposed the clause that prescribed criteria to guide reductions in interest and fees. The DTI did not support that view, as zero-rated interest would occur only in extreme cases. Stakeholders were concerned that the National Credit Regulator was the only entity that could process debt intervention applications and was, therefore, in the position of being both a regulator and registrant in repayment plan cases. They also objected to courts exercising broad and unrestricted powers in respect of the credit agreements. The DTI responded that the credit regulator would not be deciding on the repayment plans but would process and recommend the debt review, and that guidelines would be provided to courts in terms of the reduction of interest rates.

The clause relating to the funding of financial literacy training was generally supported, although not all credit providers expressed a willingness to contribute towards the training. Stakeholders expressed concern that the Minister could include a much greater number of over-indebted consumers, and that the Minister’s powers could create long-term uncertainty in the market. The DTI pointed out that the Minister would be obliged to consult stakeholders.

The Parliamentary Legal Advisor observed that stakeholders had raised concerns about processes, deprivation of property, and the impact on the sanctity of contracts. While she agreed that the debt relief measure was a deprivation of property, it was not an arbitrary deprivation and therefore was constitutional. She countered the argument by stakeholders that courts were not permitted to lower interest rates by explaining that that was precisely the reason for including the matter in the Bill. Concerns about the capacity of the National Credit Regulator and the cost of training had been raised, but those issues had already had been addressed by the Credit Regular and the Department of Trade and Industry.

There were concerns that the adjustment to the maximum gross income figure and the maximum total unsecured debt would cause uncertainty in the market. The Legal Advisor considered the concerns to be largely misplaced, and that the policy questions had already been made known and would not be an unknown factor. She had no concerns about the adequacy of consultation, as the Bill had not changed materially, except for the three clauses advertised in May. Various clauses had been re-shuffled, but that had not changed the Bill materially. Any other significant changes were the result of stakeholder input. Parliament was not obliged to continually call for public comment, although the Committee could do so if it wished.

Members expressed conflicting views on whether they were satisfied that the Bill was constitutional and whether sufficient public comment had been allowed. There was consensus that there was a case to be made for the removal of Clause 29(b) which allowed the Minister to adjust gross income and maximum debt.

Members were concerned about provisions being made for the funding of financial literacy training. How many meetings had been held with National Treasury? What would such training cost for the first year? What were the operational costs for the National Credit Regulator to deliver on the mandate? Where would the Credit Regulator get the people to do the training? They asked whether those who had made public comment would get the opportunity to present their cases orally to the Committee. Could the Committee simply disagree with and reject public input? Would the Bill make credit more expensive, and would it make it more difficult for the poor to obtain credit? Would poor people be forced to make use of unregistered loan sharks?

The Chairperson reminded the Committee that the Bill would go to the National Council of Provinces, where the entire process would start again. The National Council of Provinces would again make the Bill available for comment and that would provide stakeholders with a further opportunity to make input. The process that the Bill had to go through in the National Council of Provinces meant that the Bill would probably not be gazetted before May 2019.

Meeting report

Opening remarks
 

The Chairperson explained that the Committee had received special permission to meet during the constituency period to deal with legislation. She thanked the Members for their attendance, even though she knew they would probably prefer to be engaging with their constituencies. The Chairperson welcomed everyone to the meeting, including the Department of Trade and Industry (DTI) and the Senior Legal Advisor. She was particularly pleased to welcome stakeholders who had an interest in the Bill, including the National Credit Regulator and the National Consumer Tribunal.

The agenda had been amended to allow Adv Charmaine van der Merwe, Senior Legal Advisor, to present before the DTI.

Mr D Macpherson (DA) indicated that he had written a letter to the Secretary and Chairperson, asking that it be tabled with the Committee so that it could be discussed, as it had serious consequences for the DTI. He wished to know when the Committee would be able to discuss it. His second point was to enquire when the hearings into procurement would resume, specifically around Transnet, as he noted that the circumstances had changed quite significantly.

The Chairperson said that she had previously indicated that the Bills had to take priority, but the inquiry into procurement was not off the table. Legislation took priority. With respect to the letter, she needed to go over it with the Secretary. She thanked Mr Macpherson for raising the matter.

The Chairperson raised the matter of the Committee Programme. During discussions with staff, it had become clear that there had been far more responses to the Copyright Bill than expected, and the Committee staff and the DTI had requested that the meetings of 7 and 8 August 2018 be postponed to later in the month. The response from the Ministry of Justice was not yet with the Committee, and a couple of other pertinent issues were outstanding. The Chairperson of Chairs would not allow the Committee to use those two days, which had been set aside for the Copyright Bill, for other matters.

It had also been her intention to bring the South African Bureau of Standards (SABS) back to the Committee on 2 August 2018. However, the Minister had made changes and the SABS was meeting with the Auditor-General (AG), and they would need time to be effectively prepared for the engagement. Mr Andre Hermans, the Committee Secretary, would factor in the SABS later in the programme.

With respect to the International Trade Administration Commission of South Africa (ITAC), the Committee was considering having a closed meeting for certain parts of the ITAC meeting as, in the legislation, certain matters could not be discussed in a public arena. It was on the agenda, but she was consulting the legal office bearers of Parliament. The programme would be finalised for adoption by the following day.

She requested Mr Macpherson to adopt the agenda. Mr A Williams (ANC) proposed adoption of the agenda, seconded by Mr S Mbuyane (ANC). Mr Macpherson explained that he did not have a copy of the agenda.

Legal opinion on National Credit Amendment Bill

Adv Van der Merwe began by presenting the opinion of Adv Trengrove SC. He had been asked to consider the constitutionality of the debt relief measure created by the Bill, as well as the measure provided for the Minister to prescribe.

In respect of the debt relief measure, Adv Trengrove had agreed that the Act entailed the deprivation of property, but it was permissible and lawful under Section 25(1) of the Constitution. It passed constitutional muster, as it occurred in terms of a law of general application. The Bill was not arbitrary, and was procedurally fair. Draft Five of the Bill had not had a fair procedure, but the Committee had amended it. He had stated that credit providers were afforded an opportunity to place evidence before the Tribunal whenever a decision was to be taken to suspend or cancel the rights of the credit provider. The decision to suspend or cancel was an administrative action and would, in any event, fall under the administrative justice principles. It was not arbitrary, as there was a procedural leg and a substantive leg. Adv Trengrove had commented that the purpose and effect was to afford poor people the kind of relief that had always been available to more affluent debtors in distress, i.e. to relieve insolvent debtors of the indefinite burden of debts that they could not realistically ever repay. In fact, in terms of the Bill, the debt was cancelled only when the claim became irrecoverable and worthless.

Adv Trengrove had raised a constitutional concern regarding Clause 13 (section 86A (12) (b) and (c), which allowed the Minister to extend the operation of the measure related to extinguishing debt – the “sunset clause.” His second constitutional concern related to Clause 29 (section 171 (2A)), which empowered the Minister to prescribe a debt intervention measure. Those clauses constituted a delegation of plenary powers. The Constitution limited Parliament’s capacity to delegate its legislative powers. He was concerned that almost no limitation was placed on the delegation related to prescribing debt relief.

Adv Van der Merwe remarked that the first draft of the Bill had had a flow, but it had been re-packaged so that the first step was a debt review. The first thing was for the Regulator to see if the debt could be paid and, if not, re-structured. There was a need for the provision to be there as a permanent measure for relief, as it was not cost effective to implement the measure for only a short period of time. Thereafter, there was a provision for a period of suspension and that extension was limited to 48 months, but the Committee Bill did not allow the measure to continue after 48 months unless the Minister had undertaken an impact assessment and, based on the results of the assessment, decided to extend the measure. Constitutionally, according to Adv Trengrove, that was exceeding the powers that could be delegated to the Minister. Adv Van der Merwe said she disagreed with that opinion.

Adv Trengrove had noted that there were almost no limitations to the Minister’s powers. The definitions relating to that section did not help, as the definitions were not good. The definitions did not say more than the words themselves.

Adv Van der Merwe believed that Senior Counsel had provided an opinion that was very theoretical and very strict, and she believed constitutional law would not be so strict. Adv Trengrove had provided examples of applicable case law, but she believed that case law should not be applied too strictly.

Adv Van der Merwe said that she disagreed with Adv Trengrove, as well as the National Treasury and DTI opinions. She believed that if the line was clear, it would pass constitutional muster. She believed that the Committee could leave the measure in, as it was constitutional, but neither of the two clauses identified by Senior Counsel as unconstitutional were key to the Bill or to achieving the aims of the Bill. However, because others disagreed with her view, she recommended changing the sunset clause and requiring the Minister to undertake an impact study 36 months after the implementation of the Bill, and to table that report in Parliament. The Committee could then draft a Committee Bill to extend the measure. That would not take longer than three to four months.

If the Committee decided to retain the clause, she would be able to certify the Bill as constitutional, because she believed that the disputed clause was an implementation clause and not an amendment clause.

She added that the Bill, which had been a once-off measure for people who had occurred debt in the past, had been changed during deliberations because consultation had advised a more permanent approach. If the debt relief measure was limited to those earning less than R 7 500, there was no need for the Minister to make regulations on prescribed debt relief. The requirements on the Minister were onerous. She advised the deletion of a certain portion of the regulations that dealt with prescribed debt.

Senior Counsel had also pointed out that the Bill was extremely complex, hard to decipher and understand, replete with inconsistencies and vagueness, and seemed to be made up as the drafters went along. Adv Van der Merwe did not agree, as Senior Counsel had considered the clauses without taking into account the whole Bill, as had been the instruction. She did agree that it was a complex Bill. The Amendment Act came across as patchwork, as it had to be read in conjunction with the principal Act. There was no contradiction, as the debt review set the same maximum salary requirements for all applications.

Adv Trengrove had asked whether the rehabilitation period was necessary, although that was not a constitutional issue. The Committee could decide to eliminate the rehabilitation period. Adv Trengrove had questioned the lack of direction regarding operational issues. Adv Van der Merwe explained that the Committee had made a conscious decision not to legislate too many operational matters so as not to limit and restrict operational processes.

Questions that the Committee would have to take decisions on, subsequent to the Senior Counsel’s opinion, were:

1. Should Clause 13, the sunset clause, be amended so that instead of giving the Minister the right to extend the measure, he be required to present a report on an impact assessment to Parliament? Parliament would then decide whether to extend the measure.
 
2. Should the provision about making regulations be deleted from Clause 29 Regulations?

3. Should the rehabilitation clause be omitted to simplify the Bill?

The Chairperson appreciated the comprehensive explanation offered by Adv Van der Merwe.

Discussion

Mr J Esterhuizen (IFP) noted the work done by Adv Van der Merwe, but thought that it was necessary to establish whether the debt would be completely written off or whether it would be restructured. He asked why the debt had originally been given to the person. Why were funds given to those who could not afford to repay?

The economy was hinged on spending, which was a problem as everyone wanted credit and credit was very expensive. He was concerned about the Bill and the policy being pushed through just before the elections. He also asked where the banks got the money to give low rates to those who had money. Banks got that money from the poorest people. The poor were suffering, and would suffer more through the debt counselling.

Mr Macpherson expressed his admiration for Adv Van der Merwe and her learned legal mind, but he had to disagree with her on several points. Having read the Senior Counsel’s legal opinion and the public submissions, he had noted that the Senior Counsel’s findings had been based on two clauses and not on the Bill in its entirety. She herself had said that that Senior Counsel’s opinion was based on individual clauses. The Committee, therefore, did not know whether the Bill, in its entirety, was constitutional. That was cause for reflection.

His view was that there were persistent problems within the Bill. He would welcome the withdrawal of the Minister’s powers in the Bill, but operationalisation of the Bill could not simply be outsourced to the National Credit Regulator and the National Consumer Tribunal. He commented that the worst legislation was legislation that simply could not be implemented. The ANC Secretary-General, too, had previously noted that some legislation was simply unimplementable from the start, and that had been one of the biggest failures of government. The Senior Counsel had recognised the difficulties in the operationalisation of aspects of the Bill.

Mr Macpherson added that it was difficult to get lawyers to agree, but when three senior counsel agreed on substantive points, red flags had to be raised. Where was the Bill headed? Was the Committee sticking to the original principle? Could the Bill be made more easily readable? Law was not made for Parliamentarians. He asked the Chairperson how and when Members would engage with Adv Van der Merwe regarding public comments.

Mr G Cachalia (DA) shared his colleague’s concerns. There were two questions. Firstly, was it a plenary power that was being delegated? Secondly, was public and procedural probity potentially being bypassed? Did prescribing a debt intervention measure by the Minister and the extension of the operational period of the measure fall potentially foul of the Constitution? That was an extraordinarily serious framing of the question, because if it did not pass constitutional muster in that regard, then the Committee was “barking up a crazy tree.”

Mr Cachalia noted that Adv Trengrove plus two other counsel, the DTI and National Treasury, had said that the Bill was a real concern. Adv Van der Merwe was a lone voice against their views, but she still wanted to delete the sunset clause and amend the prescription clause. He would like to see the amended version being given to the advocates -- and Adv Trengrove in particular -- for review, given the serious constitutional concerns. He urged Members to take Adv Trengrove’s comments, numbered 20, 21 and 50 in his opinion, very carefully.

Mr A Williams (ANC) thanked Adv Van der Merwe for her input. He believed that the Constitution was intended to protect the people. If there were a massive shock of retrenchment or if a natural disaster took place and the clause had been removed, it would be impossible for Parliament to make any amendments to legislation in a short period of time. Parliament took a long time to get anything done, and that was the very reason for putting the clause in the Bill. The clause should therefore remain in the Bill to address the potential problem of a natural disaster or crisis in which thousands and thousands of people were affected. The clause should stay within the Bill and be tested constitutionally. If something did happen and people asked government what it had done about the matter, the Committee would have to say that the clause had been removed because it was unconstitutional. He strongly supported the retention of the clause.

Ms P Mantashe (ANC) wanted to correct Mr Esterhuizen. The Bill was not about elections. It might be because ANC Members had a different constituency from him that they saw the urgent need for the Bill. The process of drafting the Bill had begun long before elections, and people were always suffering from retrenchment and unemployment. Aged people were often given loans by loan sharks, even though they were dependent on a social grant. That was the reason why the ANC wanted the Bill. Otherwise, she agreed with the views of Mr Williams.

Mr S Mbuyane (ANC) asked for clarification on section 86(a), as Adv Van der Merwe had spoken of unconstitutionality in respect of that section.

Mr B Radebe (ANC) appreciated the incisive input by the Advocate, but the Constitution protected the people who were trapped by debt, and that was why Parliament needed to address the matter. However, the legal opinions had to be taken into consideration. The Committee had to move very carefully and did not want to pass a Bill that was unconstitutional. However, the Constitution protected the vulnerable and provided for social support, and Parliament could not sit back and do nothing. One had to look at the Constitution in its entirety. He requested that the DTI give input and that the Committee take a decision thereafter.

The Chairperson asked for further clarification from the advocate, but added that the Committee should hear the DTI’s input before further engagement by the Committee Members. She addressed the question of the Bill being an “election Bill.” The Bill had been introduced three years earlier, before several Members had joined the Committee, but at the time all Members had approved the Bill. There was a great need to deal with substantive issues. She asked Adv Van der Merwe to respond directly to the question and for the DTI to present before there was any further engagement.

In response, Adv Van der Merwe referred the Committee to section 86(a) of the Bill. What it said was that a debt intervention applicant -- and one had to consult the definition of a debt intervention applicant -- could apply to the National Credit Regulator in the prescribed manner and form only if that debt applicant had a total unsecured debt of no more than R50 000. She referred the Committee to the relevant definition on page 4 of the Bill, which set down the requirements for those who were permitted to apply for debt intervention. Sub-section 6 (e) referred only to an applicant who earned less that R7 500 and whose debt was less than R50 000 and could not repay the debt. The Bill allowed the Minister, in the regulation clause -- Clause 29 (2B) -- to adjust those two figures for debt intervention applicants. So, the candidates for debt intervention might change. However, only those who earned up to R7 500 and had debt of less than R50 000 could apply for their debt to be absolved or extinguished.

Department of Trade and Industry: Response to public submissions

Dr Evelyn Masotja, Deputy Director-General: Consumer and Corporate Regulation Division, DTI, made a presentation on the DTI’s response to submissions by ten credit industry stakeholders on Clause 12 (b), Clause 29 (a) and Clause 29 (b).

The DTI had consolidated the responses and drafted a matrix to analyse the issues raised by the public. Comments went beyond the three clauses advertised, but the focus in the response of DTI was on matters relating to the three clauses. Dr Masotja referred to the key issues raised by the public:

Clause 12 (b) -- the reference to reduction of fees.

It was proposed by stakeholders that the clause should be removed in its entirety, as there was a voluntary debt restructuring mechanism in place, including concession rules agreed to by credit providers. Guidance should be given to all role players. There was a need to look at the unintended consequences of the clause.

The DTI’s response was that the industry agreement (Task Team Agreement) and its agreed concession rules were voluntary and minimal, and its usage was very low, at about 18% of the industry. The DTI agreed on the need to prescribe/determine criteria to guide reductions in interest, but that zero-rated interest would occur only in extreme cases. Mortgages should be included in the restructuring. Unintended consequences would be mitigated by criteria to determine reductions which would be fair and sustainable.

Also, on Clause 12(b), stakeholders were concerned that the NCR was the only entity that could process debt intervention applications and was, therefore, in the position of being both a regulator and registrant in repayment plan cases. They also objected to courts exercising broad and unrestricted powers in respect of the credit agreements.

The DTI responded that the NCR would not be deciding, but would process and recommend the debt review. Guidelines would be provided to courts regarding the reduction of interest rates.

Clause 29(a) -- funding of financial literacy.

Submissions proposed an additional levy on the service fee to accommodate the training. The Bank Sector Education and Training Authority (SETA) could assist in respect of financial literacy training.  

The DTI did not agree with adding to the burden of over-indebted consumers. Credit providers should be levied. The DTI acknowledged the existence of the Bank SETA material for literacy and financial education of consumers, which could be adapted and translated.

Clause 29(b), Minister to adjust gross income and maximum debt.

There was concern that the Minister could include a much greater number of over-indebted consumers, and that the Minister’s powers could create long-term uncertainty in the market.

The DTI pointed out that the Minister would consult stakeholders. Policy and the authority of the Minister had already been decided upon by the Committee

In summary, Clause 12(a) was not supported by stakeholders; Clause 29(a) was supported in principle by stakeholders; stakeholders did not support Clause 29(b).

The DTI, the NCR and the National Consumer Tribunal (NCT) were in support of the specific sections being discussed and urged that the Committee further deliberate on them. They considered it advisable that the Committee publish the revised Bill in the Government Gazette for broader public input.

The Chairperson asked the Legal Advisor to provide a legal perspective on the public submissions.

Ms Mantashe reminded the Committee that the study tour had revealed that, in other countries, the service providers paid the levy and not the consumers.

Legal opinion on public comment

Adv Van der Merwe noted the support for Clause 12(a) by the Black Sash, the Congress of South African Trade Unions (Cosatu) and the Debt Counsellors Association of South Africa (DCASA). She noted that other stakeholders had raised concerns about processes, deprivation of property, and the impact on the sanctity of contracts as well as credit life insurance. She agreed that debt relief was deprivation, but it was not an arbitrary deprivation and was, therefore, constitutional. There was a debt review process, and the court had to conduct a hearing. It was not something that would happen in a vacuum. In addition, the Bill would have to provide for additional regulations. She countered the argument that the courts were not permitted to lower interest rates by explaining that that was why the matter had been included in the Bill. She said that the Committee had determined to address the issue of credit life insurance.

Clause 29(a) -- funding for financial literacy and capability programmes -- was strongly supported. Concerns about the capacity of the NCR and the cost of training had been raised, but those concerns had already been addressed.

There was a concern that it was a Money Bill, but it was not. A framework Act that talked about money, taxes, etc, did not make it a Section 77 Money Bill. The Credit Amendment Bill spoke about levies, but did not impose the levy, so it was not a Money Bill. The proposal for a levy by Nedbank could not be considered, as that would turn the Bill into a Money Bill.

Clause 29(b) -- adjustment to the maximum gross income figure and the maximum total unsecured debt -- was supported by the Consumer Goods Council of South Africa (CGCSA), the Black Sash, COSATU and the DCASA. There were concerns by other stakeholders, however, that it would cause uncertainty in the market; that the Minister’s powers were too broad; and the extinguishing of debt was arbitrary and other factors also played a role in whether a consumer could repay debt, and not just income. Adv Van der Merwe considered the concerns to be largely misplaced, and that the concerns spoke to policy questions that had already been considered.

She had no concerns about the adequacy of the consultation, as the Bill had not changed materially, except for the three clauses advertised in May. Various clauses had been re-shuffled, but that had not changed the Bill materially. Any other significant changes were the result of stakeholder input. Parliament was not obliged to continually call for public comment, although the Committee could do so if it wished.

The Chairperson asked the meeting to observe a minute of silence for the late Professor Bongani Mayosi before the tea break.

Discussion

The Chairperson asked for a full Committee debate, as it was essential that the Committee applied its mind during deliberations on the Bill.

Mr Radebe commented that the reports from the DTI and the advocate were clear and succinct. The opinion of Adv Trengrove was that the Bill was constitutional. The Committee could pat itself on the back. However, the Committee could not disregard the opinions of the stakeholders. The Constitution demanded that public input be considered. If the public considered that Clause 29 gave too many powers to the Minister, that had to be addressed. As Nelson Mandela had said, one had to accommodate even those that one did not agree with, but at the same time, ensure that the Bill would protect the poorest of the poor. The Committee should show that it could give and take. The big thing was that the Bill was constitutional and, for the sake of the people who were in need of relief -- the most vulnerable people -- the Committee should climb down and take out Clause 29.

Mr Macpherson noted that Adv Trengrove had been asked to comment on certain clauses only, and not the whole Bill. He felt that the DTI document was very superficial. He wanted the public to present their views orally. There were issues with Clause 12 (b), and one could not simply draw up guidelines and hope for the best. How had mortgages crept into the debate? The worst-case scenario still had to be determined.

Regarding the funding of financial literacy in Clause 29 (a), Adv Van der Merwe had said that the Bill set the scene but was not a Money Bill. If the Bill were enacted, that part of the Bill could not be fulfilled if there was no money to fund the financial literacy.

Mr Macpherson was dead set against Clause 29(b), and welcomed Mr Radebe’s comments on the clause. He was interested in the National Consumer Council’s comments, as its role was pertinent, and he wanted to engage with the Council.

He agreed with Dr Masotja’s suggestion about publishing the latest draft Bill, because the Bill had changed quite substantially from the beginning and now needed to be engaged with in its entirety. How did the impact study speak to the Bill? Until all of that happened, it was difficult to chart a way forward. He asked the Chairperson to respond to his questions. Would people be able to come and support their submissions? Could the Bill be published in its entirety? When would Members get the impact assessment?

Mr Williams said that the Committee had engaged with many, many people. It was a stalling tactic. The Bill looked so different because all the input had been taken into account. There was no need to hear more. He also pointed out that the Chairperson could not make dictatorial decisions. If Clause 29 was the stumbling block to the Bill, he would withdraw it.

The Chairperson was shocked to hear Mr Williams say that he was prepared to withdraw the clause.

Mr Williams responded that he would rather withdraw the clause on the Minister’s powers than see the Bill in the Constitutional Court.

Mr Cachalia said he did not want to flog a dead horse, but he had received a dense presentation on Adv Trengrove’s opinion that was 15 pages long. It made compelling and disturbing reading. He read Adv Trengrove’s conclusion – that the Bill was subject to constitutional dispute and Section 29 was unconstitutional. There were very pertinent questions raised by Adv Trengrove which, in his opinion, had not been considered by Adv Van der Merwe. He was worried about the rejection of stakeholders’ input, but Mr Williams’s offer to withdraw support for clause 29 was encouraging.

Ms Mantashe said that the ANC drew comfort from Adv Trengrove’s statement that the debt relief measure, as provided for by the Bill, was constitutional. She agreed that the Committee should re-consider Clause 29. She appealed to her colleagues to consider the purpose of the Bill and to approve it so that the Committee could give relief to the poorest of the poor.

The Chairperson pointed out that the Committee was not going through the process of adopting the Bill in the meeting. The intention was to deliberate on the input by Adv Trengrove and stakeholders, or members of the public. Only certain clauses had been sent to Adv Trengrove, as the Committee had been concerned about constitutionality and not about policy, as there need not be agreement about policy.

The Committee had published the new aspects of the Bill, and the public had commented on aspects beyond the scope of the advertised clauses. The Committee could incorporate broader comments from the public, but it was a Committee Bill and Members were not obliged to include such comments. The process for a Committee Bill was slightly different, but the Bill had been tabled as a Section 76 Bill and would go to the National Council of Provinces (NCOP). At the NCOP, the process would start again, which she knew annoyed some people, but it should be remembered that the NCOP was the first House of Parliament. Once the Committee had completed the Bill, it would be made available for comment again and the NCOP might not even agree with the Committee. No one could contend that the Bill had been railroaded. It had, in fact, been on an extremely slow track.

She needed to respond to Mr Macpherson, who had directed a question to her. He had been responded to by the Committee. The reality was that each Member was the Committee. As the Chairperson, she had certain powers, such as a casting vote, which she had exercised only once in 24 years. She thanked Mr Macpherson for his contribution to the Bill, both in the sub-Committee and in the Committee itself.

The Chairperson asked for responses from the DTI and the advocate.

DTI’s response

Dr Masotja, responding to Mr Macpherson, said the DTI had considered most of the comments, although most of them were unfortunately very broad. The Department had created a matrix of 104 pages. It had restricted the presentation to the advertised issues. The presentation had focussed on issues relating to clauses, not individuals.

The DTI had raised the issue of wider consultation, not because it was recommending wider consultation, but because the Department wanted to ensure that the Committee noted that point made by certain submissions. The unintended consequences had been raised by the stakeholders, and again the DTI wanted to alert the Committee to those points, However, it was very happy with the intended consequences, which were that the vulnerable people were represented in matters of financial distress.

She asked Mr Lesiba Mashapa, Company Secretary: NCR, to address the reference to mortgages.

Mr Mashapa said that the stakeholders had responded to the advertised clause by referring to the Task Team Agreement to reduce rates for financially distressed consumers. He informed the Committee that guidelines had been agreed upon by credit providers and the NCR, but were not widely used in the industry. Only 18% of credit providers were giving concessions to over-indebted consumers. The DTI, therefore, agreed with the Committee’s position that there should be different interest regimes for different consumers. There were rules for re-structuring debt. If a consumer had only a small amount of money, none of his creditors would get their money. Debt counsellors should never pitch the interest rates at zero as a starting point. Only where a payment plan could not be reached, even on a descending scale of interest, could the advisor use the zero rate. The rules treated secured credit differently from personal loans, in that the interest rate on secured credit was never reduced to zero.

The Chairperson asked for a clarification of the Task Team Agreement.

Mr Mathoni, Director: Socio-Economic Impact Assessment System (SEIAS), DTI, explained that the Task Team Agreement had been entered into between the NCR and credit providers in 2008 to address the bottleneck in debt counselling. There used to be thousands of debt applications stuck in the magistrate’s courts, because credit providers were asking for the contractual interest. Under such a regime, no payment plan could solve the financial distress of a consumer. The NCR and credit providers had come together and drafted rules to guide the restructuring of interest for over-indebted consumers. They had begun to unlock many of the cases stuck in the magistrate’s court. Five years previously, the majority of payment plans could be presented to the Tribunal, but the percentage of the credit providers adhering to the agreement had declined substantially to 18%.

Prof Joseph Maseko, Chief Executive Officer (CEO): National Consumer Tribunal (NCT), said that he had nothing to add, as the Deputy Director General (DDG) had addressed all the issues.

The Chairperson asked for confirmation that there was an agreement with service providers, but that it was not being adhered to, and that was why the NCT supported the inclusion of negotiation of interest rates in the legislation. Prof Maseko concurred.

Ms Nomsa Motshegare, CEO: NCR, said that unless the Task Team rules were included in legislation, consumers would not get relief. She added that the courts would continue to reject proposals for concessions to consumers unless that was covered in legislation. She confirmed that reduced interest rates really did provide relief to embattled consumers.

Further discussion

The Chairperson asked if Committee Members wished to respond.

Mr Macpherson wanted to reiterate the point around reducing the interest rate to zero. Public submissions stated that the proposed amendment might be unconstitutional if contractual rights were abused where there was no fault on the part of the credit provider in granting that credit. His concern had always been whether the Bill would make credit more expensive and make it more difficult for the poor to obtain credit. Credit providers made a profit on the interest they charged. He was not talking about reckless credit, but expressed concern that taking away the ability of registered credit providers to make a profit would result in his concerns coming to fruition. Such registered credit providers would be reluctant to lend money to certain people, and would open the market to unregistered providers.

He asked Dr Masotja for a response to his questions on what would happen if there were no provision for financial literacy training. His view was that the process of debt relief could not be concluded if consumers could not attend financial literacy training. How many meetings had been held with Treasury? What would such training cost for the first year? What were the operational costs for the NCR to deliver on the mandate?

He asked to put two questions to the Committee, as Mr Williams was correct that it was not the Chairperson’s mandate to make such decisions. He put it on the table that the Committee should consider allowing those who had made representations to present to the Committee. He had many questions about the positions encompassed in the submissions. He put it to the Committee that once the Bill was in its final draft, and before the line-by-line reading of the Bill, the Bill should be gazetted for public comment, as encouraged by Dr Masotja.

The Chairperson said that she would put the matters to the Committee after the meeting on the following day.

Mr Williams said thatin response to the submissions about moral hazards, costs, etc, he wished to state that a number of Committee Members had recently visited the United Kingdom (UK) on a study tour to find out about debt relief measures in that country. They had repeatedly asked about the moral hazard, whether there had been an increase in debt and whether the cost of debt had increased. The answer to each question had been in the negative. Debt relief legislation in the UK had not resulted in negative consequences, nor had there been a moral hazard or increase in debt, and there had been no increase in the cost of credit. The same situation prevailed in a number of countries where debt relief had been legislated.

The Chairperson reminded Members that the study report had been distributed that morning. She added that possible moral hazards had been expected in Wales, which had been heavily over-indebted, but no moral hazards had arisen.

Mr Radebe believed that the Committee had moved on the matter, but he wanted to respond to Mr Macpherson, who was concerned about prejudicing credit providers. When Members went back to their constituencies, they found that people had committed suicide because of over-indebtedness. Did Parliament serve the needs of the people or not? Did people have to commit suicide before the issue was taken seriously? It was like expecting to draw blood from a stone. Madiba had used a process of give and take, and even the credit providers should come to the party in terms of give and take. He reminded the Committee that the NCOP would start the process from the beginning. When it went to the NCOP, the Bill would be spread across the country. Those who wished to engage further with the Bill could do so through the NCOP process.

Mr Macpherson said that Mr Radebe had spoken about give and take, and he appreciated that aspect of the process. Personally, he appreciated the way in which parties had engaged on the Bill, and that had been a fantastic opportunity and an example to other Committees as to how Parliamentarians should engage with each other. He simply wanted to point out that he did not want to see the Bill collapse the formal credit market, only to make way for the informal credit providers. To kill the formal credit market would result in the rise of the unregulated informal credit market, and no one wanted to encourage the use of the ‘umashonisa’ (loan shark). There had been give and take on everyone’s part. A credit provider had to make a profit responsibly. He wanted to see a way of protecting the formal credit providers. The opportunity did exist for someone who was over-indebted to find relief. Mechanisms existed, even if they were not perfect. Debt counselling and debt relief should be made easier, but the one way that would not solve the problem was to prevent legitimate lenders from making a profit.

The Chairperson noted that everyone in the room had had the opportunity to engage. Everyone had participated. She called on Adv Van der Merwe to respond to the issues raised.

Legal response

Adv Van der Merwe said that she had made a statement that was very unfair to herself. The first two opinions given to the Committee from National Treasury and DTI were on the prescribed regulations. Both opinions had expressed concern that the powers given to the Minister were too broad. However, the current draft reflected the changes proposed by both those opinions. So in fact, there were two senior counsels who agreed with her that the prescribed measures in the current Bill were constitutional. She read from the opinion of Counsels Malindi and Budlender, which indicated that given the definition of those who could seek debt relief, together with the unpredictability of an exogenous shock, the measures that the Minister could take were reasonable. The other legal opinion had come from Counsels Marcus and McConnachie, who had recognised that the circumstances would be unpredictable but that the provisions provided guidance for the Minister, although they could be improved. Nevertheless, the provisions were constitutionally compatible.
So, two legal opinions supported her. She had done the Committee a disservice by saying that three opinions opposed her opinion. The first two opinions were in relation to a broader issue and the proposals of Counsel had been incorporated in the Bill.

Whether the whole Bill was constitutional was related firstly to the process that it followed through Parliament and, secondly, whether it affected the Bill of Rights. Currently the Bill was constitutional in terms of the process through Parliament. The Committee had identified those clauses in the Bill of Rights that were affected by the Bill. The only clauses affecting a right were those dealing with the interest rates and with the debt intervention and debt relief measures. Adv Trengrove was of the opinion that those issues were constitutional, as the Bill was not arbitrary, and was a Bill of application. The issue of the reduction of the interest was governed by a process to be followed, and so was constitutional. There was no question of constitutionality in respect of the rest of the Bill. Adv Van der Merwe added that the prescribed measures for the Minister were superfluous, as the measures were already in the Bill.

Mr Cachalia had asked about rehabilitation (paragraph 20 of the legal opinion). The Committee had previously decided upon a reduced period of rehabilitation, and that was a policy decision. The issue of rehabilitation would not affect the constitutionality of the Bill, but its removal would simplify the process and simplify the Bill. The second paragraph that Mr Cachalia had referred to (paragraph 21) was about who placed facts before the Consumer Tribunal. Adv Van der Merwe suggested that the National Credit Regulator and the National Consumer Tribunal should state whether they needed any operational measures stipulated in the legislation, or whether their normal operational procedures would suffice. She had understood that the NCR and NCT wanted as few operational issues to be legislated as possible.

She had gone through all the issues raised by Adv Trengrove. The inconsistency that he had pointed out was not an inconsistency – it was the result of it being an Amendment Bill, which was a very difficult type of Bill to work with. She reminded the Committee that the Bill would be checked and edited before being presented.

The question about mortgages was not applicable to debt relief, but did apply to debt review. The concern about the lack of funding for financial literacy training would not affect the Bill, as it had been drafted so that it would not become operational immediately. The reason for the delay was that the Department would need a couple of months to set up systems, including the financial literacy training. She added that National Treasury might already have the money. She also reminded Members that the President would set the date for the implementation of the Bill in a gazette.

Mr Cachalia said that he had also raised issues which related to paragraphs 41, 42 and 43 in the legal opinion.

Mr Macpherson repeated his previous questions. If literacy was mandatory and there were no funds available for the programme, how would someone be able to go through a programme that did not exist, and how would that affect their ability to go through debt relief? He had also asked the DDG three questions. How many meetings had been held with Treasury? What would such training cost, for the first year? What were the operational costs for the NCR to deliver on the mandate?

Adv Van der Merwe informed Mr Cachalia that she agreed with Adv Trengrove that the definitions did not seem to mean more than a dictionary definition, especially the definition for an exogenous shock. The definitions had not added anything. The definition for disaster had been taken from the Disaster Management Act, and nothing had been added, but the two circumstances had a specific meaning and they would trigger the need for the Minister to make regulations. However, she could not see how either of the triggers could result in a measure that was different from the measures in the Bill. If the regulations were retained, they would have to be amended, so that it was only the measures in the Bill that the Minister could prescribe. The Bill would then be telling the Minister that he could prescribe regulations as long as they were the same regulations as those in the Bill, which became a circular argument and therefore superfluous. That had occurred because the Committee had changed the debt relief measure from a once-off measure to something that was permanent. The fact that the terms were so difficult to define supported her argument for the deletion of those powers for the Minister.

Dr Masotja said that the DTI acknowledged the need for funding for the financial literacy training, and it had had discussions and engagements regarding the funding for financial literacy. The DTI had, at one stage, presented its estimation of the costs involved to the Committee. It was currently involved with the budgetary process and was hinting to National Treasury that there was a need for funding for the Bill. She agreed that the Bill would not be enacted immediately and that there would be some months before the Bill was implemented. The DTI was prepared to present estimates of the cost of financial literacy training to the Committee, if so required.

Mr Siphamandla Kumkani, Director: Credit Law and Policy, DTI, said that if the Bill were passed, there would be various options. According to the Bill, people had a constitutional right to financial literacy programmes. Accommodation had been made in the Bill for a period of waiting while negotiations took place. There could be a twelve-month waiting period, but there was a constitutional right for consumers to engage in a financial literacy programme. He added that not all sections of the Bill would be implemented immediately upon assent.

Mr Macpherson responded to Mr Kumkani. He said that financial training was a fundamental part of the process, so he could not see how the process could go ahead without funding for financial literacy training. If one wanted to undermine legislation, one simply had to ensure that the legislation was unimplementable. There had to be a concrete plan as to how it was going to be rolled out, as that issue was going to be the one big stumbling block if the legislation was enacted. Where would the NCR get the people to do the training, etc.? Suspending part of the package was of no help to the people who needed financial literacy. He asked that DTI give the matter serious consideration. He would like to see a roll-out plan presented to the Committee.

The Chairperson noted that the Banking Association of South Africa (BASA) had shared financial literacy material that had been developed by the banks. The Bank SETA might also have done certain things. There might be some responses on that matter at the next meeting. She thought that there had been a broad agreement in the Committee, before the Parliamentary recess, that there was a need for the financial literacy programme. All parties had agreed on that principle. Mr Macpherson’s question about funding and material was valid, but the Committee did know that material was available. If the Act were assented to, it would probably happen only in May or June 2019. The first thing would be the three-month application period. The DTI and National Treasury had assured the Committee that there would be some funds available. Everyone had said that there was material available. The BASA material was not entirely accessible, but it could be translated into other languages.

She accepted Mr Macpherson’s question about where the funding for the training would be coming from, as a valid concern. She asked the DTI and the Secretary to present something on what they had regarding a financial literacy programme the following day. She cautioned against the easy use of suspending parts of the legislation. as the Committee wanted to see the legislation implemented. Nevertheless, the power to suspend parts did remain.

Closing remarks

The Chairperson assumed that Members had exhausted comments for the moment, and that they would like an opportunity to go over the input. Mr Hermans had put only the legislation on the agenda, as per the instructions of Mr Frolick, the Chair of Chairs.

Mr Radebe noted that permission had been given for Members to discuss legislation, and not other matters.

The Chairperson agreed that the study tour report would be held in abeyance until after the recess. The meeting would be adjourned and re-convened the following morning.

Adv Van der Merwe informed the Chairperson that she had a draft framework for the amendments to the Bill, but she had not been instructed as to what the Committee wanted.

The Chairperson thought that the framework would allow the Committee to provide instructions on a draft Bill. She asked for Mr Cachalia’s opinion on the matter.

Mr Cachalia agreed that the advocate should present a draft framework the following day.

The meeting was adjourned

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