National Credit Amendment Bill [B30-2018]: briefing

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Meeting Summary

The Parliamentary Legal Advisor briefed the Committee on the National Credit Amendment Bill. The Portfolio Committee on Trade and Industry in October 2016 had initiated the Bill to provide debt relief measures for the most vulnerable of consumers. One of the main themes of the Bill was to create a targeted debt intervention measure for over indebted consumers who were unable to qualify for, or afford existing debt relief measures. Qualifying criteria for debt intervention measures provided for in the Bill was that the person needed to be a natural person or joint estate. The principal debt amount should not be more than R50 000 and that the person during the six months preceding the application was earning no more than R7 500 per month. The person had to be over indebted and was not sequestrated or subject to an administration order. The rest of the briefing covered specific provisions/clauses of the Bill.

The Chairperson urged Members to ask only clarity seeking questions as there would be sufficient time later on in the process to fully engage on the Bill. Members appreciated the good intentions of the Portfolio Committee on Trade and Industry in initiating the Bill but was concerned about the Bill having unintended consequences. Members felt that the Bill was complex, not practical and will not be understood by the intended target group.  The National Credit Regulator (NCR) was asked whether it had sufficient capacity. Members asked whether a study had been done on how and why ordinary people got themselves into these debt traps. Was reckless lending taking place? Given that it was the first time that the Committee was dealing with a bill that was introduced by a committee of parliament Members asked to be enlightened around the process when the Bill went to the provinces for public hearings. Who would be deploying support staff to provinces to assist during public hearings? The Chairperson urged that municipalities be brought on board during public hearings on the Bill. Members asked how vulnerability would be measured when a person applied for assistance. Members also asked whether there was consequence management when it came to reckless lending by credit providers. Why did the Bill stop short of saying that financial rehabilitative justice was compulsory? Members observed that loan companies/credit providers having access to people’s personal information was one of the main reasons why people incurred such huge debts. Members themselves were not immune to constant calls from loan companies/ credit providers on a daily basis. The issue was around how loan companies got access to people’s personal information. Members raised concerns about people’s houses being sold off to cover debts and that in many instances there were unscrupulous practises at play especially in townships. Members urged that financial literacy be taught at schools from a young age. Members asked that a simplified form of the Bill be provided when it went to the provinces for public hearings. One option was to print flyers.

Provincial briefings on the Bill would take place 23-30 October 2018 and public hearings would take place 30 October 2018 – 2 November 2018. Final mandates on the Bill would be dealt with on 5 December 2018.

Meeting report

Briefing by the Parliamentary Legal Advisers Office and the Department of Trade and Industry (DTI) on the National Credit Amendment Bill
Adv Charmaine van der Merwe Senior Parliamentary Legal Advisor, briefed the Committee on the Bill. The Committee was provided with insight into the process around the development of the Bill. The Portfolio Committee on Trade and Industry in October 2016 had initiated the Bill to provide debt relief measures for the most vulnerable of consumers. The rationale for the Bill was that existing natural person insolvency measures were not accessible to all consumers and hence there was unjustified and unfair discrimination on socio-economic grounds.  Yes the National Credit Act was there to protect consumers but the reality was that debt counsellors did not feel it a worthwhile exercise to assist persons who earned R7 500 and less per month. These consumers found it difficult to get out of the debt trap. One of the main themes of the Bill was to create a targeted debt intervention measure for over indebted consumers who were unable to qualify for, or afford existing debt relief measures. Qualifying criteria for debt intervention measures provided for in the Bill was that the person needed to be a natural person or joint estate. The principal debt amount should not be more than R50 000 and that the person during the six months preceding the application was earning no more than R7 500 per month. The person had to be over indebted and was not sequestrated or subject to an administration order.

The debt intervention measure will be administered and processed by the National Credit Regulator (NCR) without charge to a qualifying applicant.
Clause 3 sets out the functions of the NCR related to the debt intervention measure: The NCR must assist a debt intervention applicant with the process to be declared over-indebted; to rearrange her obligations; to have her debt obligations suspended and possibly extinguished where applicable; to have her application for debt intervention and thereafter for rehabilitation, if relevant, considered.
Clause 3 also empowers the NCR to appoint debt intervention officers.

Clause 6 requires the NCR to keep a record of debt intervention measure applications;
Clause 7 provides for information related to debt intervention measure applications, the status of such applications and orders related to such applications to be accepted by Credit Bureaux without charge to the NCR.
Clause 8 requires a clearance certificate to be issued for debt intervention applicants who have satisfied all obligations or showed an ability to settle all obligations. It also provides that a consumer may approach the Tribunal to review any decision or failure by the NCR in respect of the issuing of such a clearance certificate.
This clause copies section 71 (1)(a) and (3), which deals with clearance certificates issued by a debt counsellor for a debt review applicant.
Clause 9 provides for the submission of relevant debt intervention information by the NCR to credit bureaux and for the removal of such information by the credit bureaux when they receive information that an order related to the debt intervention measure has run its course (e.g. the period during which the right to apply for credit has been limited, has run out; the debt intervention measure applicant successfully applied for rehabilitation).
Clause 9 further provides for a dispute mechanism related to the information so submitted to a credit bureaux – applicants may approach the Tribunal
Clause 9 also requires credit providers to update their records with 7 business days from the date on which an order related to the debt intervention measure was served upon them.

The National Credit Act, 2005, currently only requires a debt counsellor to consider whether a credit agreement is reckless, if the consumer makes such a request. Clause 12 now requires a debt counsellor to ALWAYS consider whether a credit agreement is reckless.
Clause 10 requires a debt counsellor to report an agreement where there are reasonable grounds to suspect that it is reckless credit agreement to the NCR for investigation of the complaint (where debt review is not recommended), or to a Magistrate’s court (with the debt review referral)
Credit providers MUST within seven business days of receipt of a request for information; provide the debt counsellor with that information. If a credit provider intentionally fails to provide the information, the Tribunal may impose an administrative fine.
Failure to report is NOT made a criminal offence as there are different methods of determining whether an agreement is a reckless credit agreement and thus it cannot be determined with certainty.
The Department will consider the methods of calculation and attempt an alignment so that there is certainty.

Clause 31 provides that the National Credit Amendment Bill applies retrospectively. I.e. it applies to a credit agreement that was made before its commencement date.
-Rationale: consumers are over-indebted under existing credit agreements. If this clause is not inserted, the measure will only be available iro credit obtained after the commencement date, which thus nullifies the intent of the Bill.
Clause 32 provides the short title and that the Bill will only become operational upon proclamation by the President in the Gazette.
-This is to allow the NCR, credit providers, credit bureaux and debt counsellors to update their systems and make provision for the new debt intervention measure. It also allows the NCR to appoint the necessary staff to administer the measure.

(See the full presentation document)

Discussion
Mr L Magwebu (DA, Eastern Cape) said that there was no doubt that the Portfolio Committee on Trade and Industry had good intentions when it had drafted the Bill. The reality unfortunately was that there could be unintended consequences. The Bill was an onerous thing. How practical was it? He felt that it was complex. The facts were that it affected illiterate people. How would they understand what the Bill was saying? How were the figures of R7 500 and R50 000 arrived at? Did the NCR have sufficient capacity? Would the R100m set aside for capacity building come out of the fiscus? The briefing had spoken about an impact analysis being needed to be done later on. He asked whether a study had been done on how people got themselves into these dire financial situations. Was reckless lending taking place? He reiterated his concern that the Bill was hugely complex. He asked for practicalities on how the Tribunal would limit the right to extend debt after debt had been extinguished.

Dr Evelyn Masoja, Deputy Director General: Consumer and Corporate Regulation Division, DTI, responded that the Portfolio Committee on Trade and Industry had deliberated on the practicality of the Bill. The NCR and the National Consumer Tribunal were experienced on credit matters. There was existing infrastructure and systems in place. Estimated figures were considered. The Tribunal was already dealing with cases. There was already a system on debt review. The issue of funding was considered. The NCR would come up with its own resources. There was an interest bearing fund within the NCR. Licence fees were paid by credit providers. National Treasury was aware that funding was needed. The most vulnerable people like domestic and mine workers for instance needed assistance. What was provided for in the Bill could be tested to check on whether it worked or not. The Bill did have mechanisms for monitoring and evaluation on whether things were working. The Tribunal dealt with serious matters on a daily basis and had large volumes of cases. The Tribunal did have capacity. A great deal of thought had been put behind what was being proposed in the Bill.

Adv van der Merwe referred to the R7 500 and R50 000 and said that consultations with stakeholders had taken place. Input from debt counsellors had also been obtained. R50 000 was the limit set for debts where administration orders could be obtained. The figure was used as a guide. A study had been done by National Treasury. The National Credit Regulator (NCR) had also done a study. On limiting the right to access to credit, the Regulator had to provide information to the credit bureau.

Ms Nomsa Motshegare, Chief Executive Officer (CEO), NCR, on the practicality of the Bill, stated that the NCR and the Tribunal would have to be capacitated. She pointed out that the processing of applications would be Information Communication Technology (ICT) driven. There were systems already in place. Existing systems would be used and perhaps these would be enhanced. Most of those who earn R7 500 and less were ordinary people. There was a need for processes and campaigns to be simple for people to understand things. There was understanding on what the target market was. Call centres were manned by staff who spoke different languages. On funding, she stated that the amount of funds distributed by Payment Distribution Agencies (PDAs) ran into billions. Interest on these funds were kept in an account at the NCR. Perhaps these funds could be used for debt intervention. Debt counselling could also be done.

Mr Joseph Maseko, Executive Chairperson, National Consumer Tribunal, said that the Tribunal was a judgement producing body in the credit sphere. The Tribunal had expanded its Information Technology (IT) System. The Tribunal’s debt counsellors and adjudicators could work from wherever they were located. The IT System allowed the Tribunal to process many cases per day. Only a few cases were argued in hearings. The Tribunal had the capacity to deal with 40 cases from the NCR via its IT System. The Tribunal tried to interface its IT with that of the NCR. There was already familiarity with credit providers on striking deals with debt counsellors. He suspected that the Tribunal would obtain more consent orders and very few cases that needed to go to hearings. It was not only the poor that were struggling with debt; it was high earning individuals as well. High earners could declare insolvency which at present was not an option for the poor. The poor at present did not have an equal right to justice. Many companies also wrote off bad debts.

Mr W Faber (DA, Northern Cape) asked about the qualifications of the persons who worked at the Tribunal. Where would they be coming from? He was concerned that poor people’s lives would be placed in the hands of Tribunal staff.

Mr Maseko, on the composition of the Tribunal, said that out of 18 staff there were two or three that were economic graduates. The rest of the staff were admitted attorneys, professors of law and advocates. They were persons of high calibre. On quality control, when matters of the Tribunal went on review it went to High Court. The last time matters were taken on review was six years ago when one or two matters of the Tribunal were overturned. Tribunal members were appointed by the President. The DTI called for nominations of persons. 

Mr M Rayi (ANC, Eastern Cape) stated that Members needed to ask clarity seeking questions as there would be ample time later in the process to deliberate. He pointed out that it was the first time that the Committee was dealing with a bill introduced by a parliamentary committee. The Committee usually dealt with bills introduced by the Executive. If a bill was a section 76 bill in terms of the constitution permanent delegates would usually go to the provinces assisted by departments. The situation at present was different and he asked to be enlightened on the process.

Adv van der Merwe stated that she would be able to assist the Committee in Parliament. In the provinces, the Department of Trade and Industry (DTI) would assist. She would not be able to attend the provincial public hearings.

Mr Maseko said that administrative staff would be deployed to the provinces when public hearings on the Bill took place.

The Chairperson said that the NCR, the Tribunal and the National Consumer Commission (NCC) should be provided with the schedule when the Bill goes to the provinces. Municipalities should also be brought on board during provincial public hearings.

Mr B Nthebe (ANC, North West) asked how vulnerability was measured. He asked what the threshold on assets was when it came to the limitation on assets by a person applying for an intervention (Slide 4). What was considered a necessity on the part of the Minister of Trade and Industry (Slide 4)? On reckless lending (Slide 6) he felt that the greater responsibility lies with the funder. Was there consequence management? He noted that it took years for people to remove adverse credit information about them from credit bureaus. He asked whether people approached the Tribunal as individuals (Slide 7). Why did the Bill stop short of saying that financial rehabilitative justice was compulsory (Slide 9)?

Adv van der Merwe stated that there was no limit on the number of assets. Assets only came into play when there was no requirement for assets. On reckless lending and the irresponsible lender, part of it was found in the regulations. All these types of things had to be looked at. The Bill did not address it. 
On the removal of persons from credit listings, it was covered on pages 5 and 6 of the Bill ie Clauses 8 and 9. Names had to be removed from credit listings within seven days of an order. She pointed out that rehabilitation was not compulsory.

Mr Madoda Sambatha, ANC member of the Finance Committee in the North West Province, stated that he wished to highlight critical issues on credit and debt rehabilitation. He observed walking around Cape Town that registered credit providers used the logos of the NCR and that of the South African Police Services (SAPS). In his view this was unfair advertising. He pointed out that lenders having access to peoples personal information is what led to people in the end incurring debt. These lenders who had peoples personal information called up people. They had peoples’ identity numbers and their bank account details. Debits came off automatically from accounts. He had experienced debits coming off his bank account yet the loan was on a different person’s name and surname. If he had not queried the debits it would still be deducted from his account. The issue was around how loan companies got access to people’s personal information. It was not supposed to be allowed but yet it was happening. It needed to be stopped. The majority of South Africans did not query these things. He asked who was responsible for credit amnesty. Was it the NCR? He said that extinguishing debt did not replace amnesty. The briefing had spoken about persons’ right to property and also about not being discriminated against on socio-economic grounds. He was concerned about people losing their houses because of debt. Lawyers dispossessed houses from people on behalf of banks. Many times houses were sold off for amounts less than what the debt amount was. For instance if the debt was R20 000 the house would be sold for R1 500. It was the lawyers themselves who bought the houses for next to nothing. He asked who was responsible to take up these types of issues. Was it the NCR? People were losing their homes due to lawyers and banks conniving with each other. This was the reality in townships. He felt that the Department of Basic Education had to be taken onboard to ensure that financial literacy was part of life sciences. Education had to start at a young age.
   
The Chairperson stated that he had articles in his possession that was taken off the parliamentary website which covered some of the matters that Members had raised. It would be forwarded to them. The presenters need not go into detail on matters raised if it did not relate to the Bill.  

Dr Masoja said that financial literacy would be looked at. 

Ms Motshegare, on branding, explained that a credit provider was required to display the NCR logo if it was registered with a credit bureau. She explained that credit amnesty was not about extinguishing debt. In 2014 when it was done it was about the removal of adverse credit information at credit bureaus. The amnesty had been for two months. Persons still had to pay their debts. Educating youngsters at school level was welcomed.
 
Mr Maseko explained that the property rights referred to was money being owed to a credit provider.

The Chairperson urged Members only to ask questions of clarification on what had been presented. He asked Members not to raise other issues. Yes issues were relevant and the NCR and the National Consumer Commission (NCC) had to prepare themselves that these types of issues would be raised. Staff needed to be deployed to the provinces when public hearings took place.

Mr Nthebe asked whether the Bill could not be simplified when it went to the provinces for public hearings by stakeholders.

The Chairperson said that it was a good suggestion so that it would be easier for people to understand. Perhaps flyers could be printed. He noted that the ordinary person did not have access to IT even though processes were very much IT driven between the NCR and the Tribunal.

Mr Maseko said that people would approach the NCR. Cases were referred to the Tribunal by the NCR. People would not directly approach the Tribunal.

The Chairperson said that he was aware that the NCR had a call centre.

Ms Motshegare responded that the NCR did have a call centre but that there were also walk-ins from the public. There were plans to develop a cell phone application. The NCR would work with consumer protection offices in provinces.

The Chairperson said that provincial briefings would take place 23-30 October 2018 and that public hearings would take place 30 October 2018 – 2 November 2018. Final mandates on the Bill would be dealt with on 5 December 2018. The process would not go beyond the closing of Parliament for the year.

KZN Oversight Visit
The Committee briefly discussed its oversight visit to KwaZulu-Natal Province the following week.

Committee Minutes
Minutes dated 5 and 12 September 2018 was adopted unamended.

The meeting was adjourned.

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