National Credit Bill: formal briefing

Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
8 June 2005
NATIONAL CREDIT BILL: FORMAL briefing

Chairperson:

National Credit Bill [B18-2005]
Department of Trade and Industry (DTI) briefing on National Credit Bill
DTI's Consumer Credit Reform

SUMMARY
The Department of Trade and Industry gave the Committee a presentation on the National Credit Bill which will repeal the Usury Act of 1968, the Credit Agreements Act of 1980 and the Exemption Notice in terms of the Usury Act. It also codified Common Law principles. The Bill provided enhanced consumer protection, promoted competition and transparency in the credit market and controlled over-indebtedness and reckless lending.

The first three chapters set out the scope of the Bill and its administrative requirements. Chapters 4 and 5 were the core of the Bill and contained the main provisions for consumer protection. Chapters 6, 7 and 8 contained the enforcement provisions for credit providers and the regulators of the Bill and alternative dispute resolution provisions. Chapter 9 and the Schedules contained transitional arrangements. The Bill's objects were to promote a fair and non-discriminatory market place for access to consumer credit and improved information standards as well the establishment of the National Credit Regulator and the National Consumer Tribunal.

The Committee asked about the rationale for having the Minister review the National Credit Regulator and the National Consumer Tribunal every five years, the Minister's power to decide interest caps and also if the Bill did not give more power to the Minister than was necessary. Other questions included whether an impact study had been done to determine the consequences of the Bill; if the Bill took into consideration the effect of retrenchments and if income level could be used to determine the interest payable; as well as the Regulator's ability to control informal lenders and ‘loan sharks'.

MINUTES
DTI presentation on National Credit Bill
Ms Astrid Ludin (DTI Deputy Director-General: Corporate Consumer Regulation Division) gave the formal briefing (see document). She pointed out that consumer credit was dealt with by the Usury Act, the Credit Agreements Act and the Exemption Notice in terms of the Usury Act. Banks, financial service providers and retailers mainly used the Usury and Credit Agreements Acts, while micro-lenders fell under the Exemption Notice. The Credit Agreements Act dealt with instalment finance. The National Credit Bill would repeal the three Acts and codify some Common Law principles.

Objectives of the Bill
The Long Title of the Bill set out its objectives which included the promotion of a fair and non-discriminatory market place for access to consumer credit and improved information standards. The Bill provided for debt re-organisation, the registration of credit providers and the creation of a set of national norms and standards. It established the National Credit Regulator (NCR) and the National Consumer Tribunal (NCT).

Chapter 1 Interpretation, Purpose and Application of Act
This section contained provisions about the interpretation, application and purpose of the Bill.

Chapter 2 Consumer Credit Institutions
This chapter dealt with the establishment of the consumer credit institutions. The core function of the NCR was to promote the development an accessible credit market. The NCT was given a broad role including the power to adjudicate other consumer matters. It also dealt with co-operation between national and provincial institutions.

Chapter 3 Consumer Credit Industry Regulation
This chapter dealt with registration requirements.

Chapter 4 Consumer Credit Policy

This chapter dealt with consumer rights and protection against discrimination in credit applications.

Chapter 5 Consumer Credit Agreements
This chapter dealt with Consumer Credit Agreements.

Chapter 6 Collection, Repayment, Surrender and Debt Enforcement
This section was important as there had been a lot of abuse in the housing market.

Chapter 7 Dispute Settlement Other Than Debt Enforcement
Alternative Dispute Resolution provided an alternative to going to court.

Chapter 8 and 9 Enforcement of Act and General provisions
These chapters contained general principles.

Discussion

Ms F Mohamed (ANC) asked if the ‘thresholds’ referred to in Chapter 1 were numeric. She asked what the rationale was to have the Minister review the NCR and NCT every five years. She asked how the previously disadvantaged were empowered by this Bill and how this Bill related to the Estate Agency draft legislation. She also noted that she had gone to various banks looking for credit, but had always been asked about her husband’s credit worthiness. She said this was wrong.

Mr M Moeletsi (DTI Chief Director: Policy and Legislation) responded that there were provisions in the Bill that dealt with Broad-based Black Economic Empowerment. Ms Ludin said that Clause 48 of the Credit Bill dealt with Broad-based Black Economic Empowerment. The rationale behind the five-year review was the result of past experiences and what other countries had done. The results of the initiatives would only be visible after five years; after implementation and teething problems had been dealt with. It was important for banks to assess the credit-worthiness of both spouses where both had applied for credit. The Estate Agency Bill dealt with industry-specific issues, while this Bill dealt with credit matters only.

Mr G Davel (Chief Executive Officer: Micro Finance Regulatory Council) said that the ‘thresholds’ were numerical and depended on which category they fell into.

Ms B Ntuli (ANC) asked how ‘loan sharks’ and excessive bank charges were dealt with by the Bill.

Mr Moeletsi conceded that the Regulator would not be able to catch all informal lenders or ‘loan sharks.’ The Bill gave these informal lenders an opportunity to be regulated, and provided a level playing field for all the operators. Even if informal regulators did not register, the rules in the Bill still applied to them. This Bill did not cover bank charges.

Dr E Nkem-Abonta (DA) asked if the Bill did not give more power to the Minister unnecessarily. He said that it was better if the board was given the power to appoint the CEO. He noted that the Tribunal was not a court of law, and said that it was better if it were made into a court of law sat over by a Magistrate to de-politicise the issue. The Bill called for provinces to have their own regulators which would still be subject to a national regulator, this would be costly to implement. This would also diminish the relevance of the provincial regulators.

Mr Davel replied that registration would not be too expensive because of the sophisticated technology that would be used. The Government register would also be used. The various bureaux would co-operate also, which would save money.

Ms Ludin said that the Tribunal was given powers by the Constitution and any ruling it made had the same standing as that of a court of law. The Tribunals could not be turned into special courts as there was a back-log of cases on the court roll. Commercial matters did not have the same priority as criminal ones, and so the Tribunals needed to stand on their own. The Minister was not given too much power, and in any case those powers were subject to public comment and administrative justice. She said that the issue of concurrent jurisdiction was a problematic one, but the role of the provinces was still important.

Dr Nkem-Abonta asked if income could not be used to determine the interest payable. He also asked the rationale behind having someone’s bad debt record expunged, and if this did not lead to unforeseen consequences. The Minister was given the power to decide the amount of interest. He said it would be better if the Minister consulted with the industry and other stakeholders before this decision was made.

Ms Ludin said that the Bill could not deal with every situation where poorer people paid more interest. It did deal with some of the issues, and provided more consistent rights for consumers and tried to encourage competition and product innovation.

Mr L Labuschagne (DA) asked if an impact study had been done to determine the consequences of the Bill. How would the Bill regulate unregistered service providers? Did the Bill deal with the consequences of repealing the Usury Act? How would the pending Data Protection legislation affect this Bill? He noted that some of the penalties were extreme which was unfortunate as most of the problems in credit transactions were with micro-lenders.

Ms Ludin replied that an impact study had been carried out and the Department was satisfied with the results. It was important to repeal the Usury Act as there had only been five convictions under this Act since the 1960s. Transitional measures were in place to replace the Usury Act. The South Africa Law Reform Commission had not talked to the Department about the Data Protection draft legislation that SALRC was currently finalising. The high administrative penalties would act as a deterrent to possible offenders, and these represented the maximum penalties, and were not the standard.

Mr L Zita (ANC) asked how the Bill dealt with retrenchments and how retrenchments affected credit ratings.

Ms Ludin replied that the affected persons needed to talk to their service providers to try and reschedule their payments, and this was more an issue of debt counselling. She said that there had been a call for an amnesty for debts, but the problem was that this would always keep coming up even though amnesties were supposed to be once-off measures. This would also require discussions with service providers to expunge someone’s record. It was pointless to call for an amnesty when the behaviour of these service providers remained unchanged.

Mr J Maake (ANC) said that there must be a ceiling on how much interest must be paid. He asked if there would be double-registration by service providers if they had to register provincially and nationally. He disagreed with how Clause 125 imposed penalties on those who paid their debts before they were due. He added that the Bill did not do enough for consumers to allow them to receive documents in more than two languages.

Ms Ludin said that any regulations the Minister made regarding interest caps would be available for public inspection and comment. The issue of language was important but it was necessary to balance the need for access with the cost of doing so, especially where the costs were passed onto consumers. Provincial and national registration had been split to prevent double-registration. A service provider had to register nationally only if they had an office in more than one province.

The Members of the Committee raised more issues but the meeting had run for too long. They would be given an opportunity to ask more questions at the meeting of the 14 June.

The meeting was adjourned.