A summary of this committee meeting is not yet available.
TRADE AND INDUSTRY PORTFOLIO COMMITTEE Mr B Martins (ANC)
10 August 2005
NATIONAL CREDIT BILL: HEARINGS
Documents handed out:
TRADE AND INDUSTRY PORTFOLIO COMMITTEE
Mr B Martins (ANC)
National Credit Bill [B18-2005]
Submission by First National Bank
Submission by Wesbank
Supplementary presentation by Wesbank (see Appendix)
Submission by Balboa Finance (PTY) Ltd
Submission by Imperial Holdings
Submission by Trans Union ITC
Submission by the Credit Bureau Association
Credit Bureau Association: Written "speech"
Microfinance South Africa presentation
Submission by Microfinance South Africa
The Committee conducted public hearings on the National Credit Bill. First National Bank (FNB) expressed that three situations still needed to be covered by the proposed Clause 101. The first was where a cheque was returned to the drawer. The second was where a consumer had exceeded their credit limit by cheque or credit card. The third situation was where a consumer paid late, or less than the agreed instalment. FNB wanted the debt enforcement procedure shortened and fixed to allow the credit provider to retrieve a credit card from an over-indebted customer sooner. The review and appeal procedures were confusing and led to more litigation. Clause 86(10) allowed the credit provider to terminate a review process begun by a credit counsellor if it was not completed within 60 days. However, Clause 86(11) allowed a court to undo the termination. This prolonged the debt enforcement procedure.
The Department of Trade and Industry (DTI) said that they wanted the disclosure of credit to occur upfront and the credit contract had to be enforced in a specific way. Many institutions locked consumers into high fixed rate contracts even though they knew that interest rates were going down. The Bill was designed to protect consumers against this.
Wesbank presented two forms of credit agreements. The first was a direct deal where the credit provider concluded a deal directly with the consumer. The second was a discounted deal, where the deal was concluded between the dealer and the consumer, and the rights from that agreement were ceded to a bank. The credit provider’s rights were unenforceable under the proposed Clause 84(1)(c) when the credit agreement was suspended. This was a problem in asset-based finance as it left the providers unable to prevent damage to the goods or to make sure that they were insured. Wesbank suggested that the right to protect goods from damage, loss or depreciation should be excluded from the unenforceable rights list. Clause 121 that dealt with the ‘cooling-off’ period did not cover the issue of depreciation, especially considering asset-based finance. The DTI said that the person who legally provided the credit had to register with the National Credit Register.
Balboa Finance (Pty) Ltd said that the Bill sought to outlaw mobile sales agents at the consumers’ workplace and home. Many of these agents were the sole breadwinners of their families. A total ban on this type of business would lead to unemployment. The DTI said that incidences of over-indebtedness had occurred in areas where agents were used to sell credit. A lot of unconscionable conduct occurred as the agents worked for commission.
Microfinance South Africa (MFSA) said that the image of their industry was tainted. Some of the definitions regarding incidental credit needed to be reviewed as they were open to abuse. Pawnbrokers affected the ‘second economy’ in a big way, but needed to be regulated and registered. Small lenders like the MFSA had been denied access to the National Payment System, which would have helped them manage and reduce costs.
Imperial Holdings said that the provision that gave consumers the right to terminate a credit agreement within five days and return the goods had the potential to have a serious impact on the motor industry. The method of recovering depreciation was problematic too. It entailed going to the Tribunal and potentially to court, which could be a lengthy, expensive process for the parties.
The Credit Bureau Association explained how the credit information system worked. Countries like Australia and New Zealand only kept ‘blacklists’ and some countries in Europe kept information of unpaid debts indefinitely. South Africa had positive and negative information and fixed data periods. The DTI had investigated a sample of complaints and in none of the cases were the bureaux at fault. The removal of information when debts were paid was a way of giving consumers a chance to rehabilitate themselves, but this had had some unintended consequences.
Trans Union ITC said that there were many misunderstandings about credit bureaux. The management of data was their main job. The DTI said that there had been no regulation of credit bureaux, and that since the ITC said that data quality was a competitive issue among bureaux, there was no guarantee that they kept the same information of the same quality. The State therefore had to intervene and ensure that all of the information was of the same standard.
Members wanted to know FNB’s policy on giving consent for rescissions of judgement where the debt had been paid. They asked for more information about the Joint Bank Credit Bureau, and whether consumers had access to the information held there. The Committee asked the credit bureaux about their policies for publishing information about debts that had proscribed, and whether they expunged the records of judgements that had been rescinded. They asked how the bureaux could compete on quality if they claimed that they merely stored information. The Committee felt there was not enough transformation in the credit bureaux.
First National Bank submission
Mr P Mtshaulana, Legal Representative, said that they supported the aims of the Bill and identified with the submissions made the Banking Association on 8 August. There were three situations that should have been covered by Clause 101 but were not. These situations created an administrative burden for the bank. The first was where a cheque was returned to the drawer. When a customer had insufficient funds, forgot to sign or used the wrong date, the cheque became stale. A bank employee had to call the customer to explain the situation. FNB wanted a fee for this to be included in Clause 101. Where a consumer had exceeded their credit limit by cheque or credit card, the bank had to decide whether to honour the cheque or pay the credit card debt. The costs incurred in making this decision ought to be recovered. The third situation was where a consumer paid late, or less than the agreed instalment amount. The bank had to find the reasons for the failure to pay the required amount. Again, the costs for this had to be recovered. Banks needed to value properties in determining whether to grant a mortgage and its value. FNB wanted this ‘’valuation fee’ included in Clauses 101 or 102. FNB proposed that a cancellation fee be included in the Bill for all fixed rate contracts and for medium and large transactions. This fee would make fixed rate contracts cheaper.
There were two types of credit card machines. For withdrawing small amounts, no authorisation was required to assess if there were enough funds in the account. Where a consumer exceeded their limit however, Clause 129 stated that they must be given a notice. Clause 86 said that after ten days, the consumer could go to a debt counsellor to be declared over-indebted. The credit provider cannot retrieve the credit card, allowing the consumer to continue making transactions. Only after 60 business days had lapsed would the provider be able to retrieve the card. FNB wanted the debt enforcement procedure shortened and fixed to allow the credit provider to retrieve the credit card sooner than at present. Credit was a national problem. High consumer debt had macro-economic implications.
Clause 86(10) allowed the credit provider to terminate a review process begun by a credit counsellor if it was not completed within 60 days. However, Clause 86(11) allowed a court to undo the termination. This prolonged the debt enforcement procedure. A Magistrate must make a determination in terms of subsection 11 without reinstituting the review process. The process had to be shortened. If the procedures were to remain as they were, FNB asked the Committee to consider making a distinction between ‘big’ and ’small’ customers. ‘Big’ or rich customers could afford lawyers so they did not require as much protection as poor customers.
The review and appeal procedures were confusing and led to more litigation that drew out the process. This would increase the cost of credit. Parties would dress up reviews and appeals as reviews and appeals depending on the situation. Instead of a complicated procedure, there must be one possibility for the Tribunal to deal with the matter. Once the decision was made, the case must be referred to court. The definitions in the Bill were not connected with the law as it were.
Mr G Davel(Chief Executive Officer: Micro Finance Regulatory Council) said that the Usury Act included definitions from a number of instruments. The DTI wanted to move away from this position. They wanted the disclosure of credit to occur upfront and the credit contract must be enforced in a specific way. There was a multiplicity of fees and consumers could not understand why. That was why the DTI tried to limit the number of fees in the Bill. Many institutions locked consumers into high fixed rate contracts even though they knew that interest rates were going down. The Bill was designed to protect consumers against this.
Mr M Stephen (UDM) said that FNB did not differentiate between fees that related to banking as a service, and fees that related to credit. Charging a fee for calling someone who put the wrong date on a cheque was charging for a service. This was outside the purview of this Bill. FNB had tried to import their own charges into the National Credit Bill. FNB’s comments on cancellation fees were misleading. When interest rates went down, the cost of borrowing became cheaper for the bank. They were not unduly affected by an early cancellation. He asked FNB’s policy on giving consent for rescissions of judgement where the debt had been paid.
Mr Mtshaulana replied that Clause 101 said that credit providers could not charge any fees other than the ones mentioned there. If the aim of that provision was only to deal with credit, then FNB’s interpretation was incorrect.
He said that FNB did not oppose rescission of judgements where the debt had been paid, and in some cases gave its consent depending on the speed with which the debt was repaid.
Dr E Nkem-Abonta (DA) asked the DTI if they had done a feasibility study to assess the administrative costs of implementing the Bill. He said that poor people could use illegal means to delay the debt enforcement process. The Bill should not be weighed too much in favour of the poor. It should protect all customers. Did the bank make decisions based on the level of income of the consumers?
Professor B Turok (ANC) asked for more information about the Joint Bank Credit Bureau, and whether consumers had access to the information held there. He also asked for FNB’s opinion about the other credit bureaux and if they were credible. He asked why banks did not inform customers in time about a change in costs. If banks made errors, there was no repayment for costs incurred by the customer in trying to fix the error yet the banks wanted to charge the customer for their errors.
FNB was unable to comment on the Joint Bank Credit Bureau. With regards to fees, the bank was merely trying to recover specific fees for transgressions in specific instances without spreading them out among all the customers. The bank had to look at what it did for customers who incurred administrative costs as a result of its errors.
Ms F Mohamed (ANC) asked how FNB’s rules for credit provided for ‘big’ and ’small’ customers. Mr Mtshaulana replied that enforcement procedures had to be made as tight and as short as possible. Many of the problems with credit related to poor people not having enough money to protect themselves. FNB did not differentiate between rich and poor. Whether the differentiation was to be made was a decision that rested with the Committee.
Mr S Rasmeni (ANC) asked why FNB had made its own submission even though its parent body, the Banking Council, had made a presentation earlier. Mr Mtshaulana replied that FNB made their own submission to emphasise certain issues that the Banking Council did not have time to cover in its submission.
Wesbank explained that there were two forms of credit agreements. The first was a direct deal where the credit provider concluded a deal directly with the consumer. The second was a discounted deal, where the deal was concluded between the dealer and the consumer, and the rights from that agreement were ceded to a bank. The ceded deal was Wesbank’s preferred method of business. The dealer did not retain the rights from this deal for more than a few minutes. Thus, it served no real purpose for these dealers to register as credit providers. Wesbank suggested that these dealers should be exempt from the provisions of Clause 40.
Under Clause 84(1)(c), when the credit agreement was suspended, the credit provider’s rights were unenforceable. This was a problem in asset-based finance as it left the providers unable to prevent damage to the goods or make sure that they were insured. Wesbank suggested that the right to protect goods from damage, loss or depreciation should be excluded from the unenforceable rights list. The consumer should be compelled to return the goods during the suspension period. It did not make sense that the consumer was allowed to keep the goods but did not have to pay for them. Clause 121 gave consumers a ‘cooling-off’ period of five days where goods had been earmarked for importation or where they were manufactured according to the specifications of the customer. The Credit Agreements Act created an exception for such goods falling under the ‘cooling-off’ period. This should be imported into the Bill. Clause 92 gave customers an opportunity to ‘shop around’ for five days. In reality, it gave customers a mechanism through which they could avoid any increase in price over those five days. The obligation on the credit provider to keep the goods in stock for those five days must be removed.
Clause 106 was intended to limit the type of insurance that a credit provider could require a customer to maintain. For example, DirectAxis did not require a consumer who entered into a loan agreement with it to purchase or maintain credit life insurance, but offered such insurance on a voluntary basis. On the wording of Clause 106, voluntary insurance fell within the ambit of the clause. This was not the intention of the clause. Subsections three and four had to be amended to make it clear that the clause dealt only with compulsory insurance.
Clause 121 that dealt with the ‘cooling-off period did not cover the issue of depreciation, especially considering asset-based finance. Clause 129 gave the consumer the right to reinstate the credit agreement at any time depending on certain circumstances. This was unfair.
Mr G Davelsaid that the person who legally provided the credit would have to register with the National Credit Register. The imported goods exemptions could be dealt with in other legal instruments. They did not really have a place in a credit bill. It was important that the five day ‘cooling-off’ period was kept to give consumers a choice so that they could shop around to reduce over-indebtedness.
Dr Nkem-Abonta asked if there was anything to be gained by asking for an exemption from registering if the registration process was not onerous. If a borrower was forced to return goods if the lending was reckless, was that not ratification of that credit transaction? He asked if was advisable to make it mandatory for consumers to insure the assets for the replacement value of the asset.
Wesbank replied that an exemption for registering was requested as it created an added administrative burden on the dealers and the regulatory body. This was unnecessary as the financiers did the administration of the credit agreements. If an agreement was unlawful, restitution had to take place. Both parties had to return what they had received. At the moment, customers were required to take out comprehensive cover on the asset that would generally cover the replacement value of the asset and the outstanding balance of the agreement.
Professor Turok asked where Wesbank got its information on consumers’ credit histories. Wesbank said it used the services of credit bureaux.
Balboa Finance (Pty) Ltd submission
Mr Rael Landau, legal consultant, said that the Bill sought to outlaw mobile sales agents at the consumers’ workplace and home. Many of these agents were the sole breadwinners of their families. A total ban on this type of business would lead to unemployment. Consumers benefited in terms of convenience, time and price from these mobile agents. The cost of doing business would rise as fixed retail premises would have to be found and maintained.
Clause 111 provided that the consumer had additional time to dispute claims and refer them to a Tribunal. This right could be abused by consumers referring frivolous claims to the Tribunal to frustrate the credit provider’s attempts to claim unpaid debts. The Bill curtailed the use of traditional debt collection agencies by using the Credit Tribunals to enforce consumer and credit providers’ rights. Long delays would result before debts were collected.
Ms M Mpahlele (DTI Deputy Director-General) said that incidences of over-indebtedness occurred in areas where agents were used to sell credit. A lot of unconscionable conduct occurred here as the agents worked for commission. Thus, they were more reckless in how they lent money.
Dr Nkem-Abonta asked what remedies were available to the borrower who had been recklessly lent to. Mr Davelreplied that if the lender was registered with the Micro Finance Regulatory Council, there were rules by which the lender was bound. Thus, the borrower had recourse.
Microfinance South Africa submission
Mr H Ferreira (Chief Executive Officer) said that the image of their industry was tainted. Mr N Moeketsi (from Media 24) explained how microfinance had affected his life. Mr Ferreira said some definitions regarding incidental credit needed to be reviewed as they were open for abuse. Educational loans needed to be addressed also, and the industry could have a great impact here. He said that all players in the credit industry should be treated equally. Pawnbrokers affected the ‘second economy’ in a big way. They needed to be regulated and registered as this was an area of great abuse. There was also a need for the control of credit bureaux.
As the Bill stood now, it was not explicit enough that there would be mandatory interaction between the industry and the Minister. That was a way to ensure that regulation was practical. The MFSA was concerned about the strength of the consumer body in South Africa. Including consumers in the consultative process of the Bill would strengthen them and lead to robust and sensible debate.
Small lenders like the MFSA had been denied access to the National Payment System. Access to the system would help them manage and reduce costs. It was critical that the debt counsellor system worked well. The skills of the staff would have to be high. They had to be mature and have insight and experience. The system needed to be driven by good technology and administered by people with the requisite skills. A standard agreement must be drawn up in all languages to provide access to credit in their own languages. The issue of the interest cap required everyone to be practical and needed a consultative process.
Mr Davelsaid that pawnbrokers should not be included in the Bill. It was desperation credit in a sense but it did not have the same risks of creating over-indebtedness as the pawnbroker would keep the asset. It was feasible to develop a standard agreement in all the official languages.
Mr Stephen asked if they had an agreement with the credit bureaux as an organisation, or if each of their members had their own agreements. Did the agreement allow the MFSA to expunge the information they had given the bureaux, or were there restrictions on the requests to remove the information? He asked if the MFSA passed on information to the bureaux of a rescheduling of debt and if they checked whether the information was updated.
Mr Ferreira replied that the MFSA did not have an agreement with credit bureaux. Each member had his/her own agreement. There was a National Loans Register that was a closed user group. Members loaded consumer information onto the system that was accessed by the other members.
Dr Nkem-Abonta asked if the MFSA supplied information to the credit bureaux and if the bureaux had any right to alter the information. Who did the ‘blacklisting?
Mr D De Beer (MFSA Chairman) said that their members were required to list all their positive and negative information on the National Loans Register. Some of their members also used the primary credit bureaux. He had never heard of a situation of a bureau altering credit information. The ‘blacklisting’ was done by the credit providers.
Mr Rasmeni asked if the MFSA paid the credit bureaux, and if so, how much? Did they agree to the cap on interest rates if emergency loans were to be retained?
Mr Ferreira said there could not be a cap on interest rates where there was access to emergency loans because the business had to be sustainable. The MFSA suggested that an emergency loan should be registered as such and the financier’s books were audited thoroughly as this was an area of abuse. The MFSA’s members paid between R300 and R400 per month to credit bureaux for their services.
Professor Turok asked what the MFSA wanted Parliament to do about ‘loan sharks.’ Mr Ferreira felt a massive education process should begin, and those who followed the rules should be credited for this. It was doubtful that all the ‘loan sharks’ would be removed from the industry.
Ms F Mohamed (ANC) asked what the MFSA was doing in terms of advocacy and what it did to defaulters among its members. Mr Ferreira said the MFSA was committed to the transformation process and this was underway. The MFSA did not have any defaulters.
Imperial Holdings submission
Mr R Venter, Imperial legal representative, said that the provision that gave consumers the right to terminate a credit agreement within five days and return the goods had the potential to have serious impact on the motor industry. A car once sold, depreciated about 10% as soon as it left the shop floor. The method of recovering that depreciation was problematic too. It entailed going to the Tribunal and potentially to court, which could be a lengthy, expensive process for the parties. Imperial retailed about 70 000 new vehicles per year. About 5% were returned. If it were easy to cancel the contracts, this number would increase.
Credit Bureau Association submission
Ms A Singh, legal representative, explained how the credit information system worked. Where a consumer had credit and paid their account when due, this information was passed onto the credit bureau in a positive light. If the consumer sought credit from another provider, that provider could check whether that consumer had paid their account on time. At least 80% of the information on the credit bureau was positive and facilitated access to credit. If the consumer stopped managing their finances properly and fell into arrears on both accounts, the providers may list the consumer as a defaulter or ‘blacklist’ her. It was in fact the credit providers, not the credit bureau that blacklisted consumers. Education would rectify this misconception. Credit bureaux merely reported information given to them by the providers and court orders and judgements which was public information.
The World Bank had researched credit bureau information systems in 135 countries. They had given Africa an excellent score of five out of six. Countries like Australia and New Zealand only kept ‘blacklists’ and some countries in Europe kept information of unpaid debts indefinitely. South Africa had positive and negative information and fixed data periods. The DTI investigated a sample of complaints and in none of the cases were the bureaux at fault.
Clause 70(2) stated that the bureaux had to verify any information reported to it. Currently, the bureaux received at least 36 million pieces of information about account payments from credit providers. It was impossible for the bureaux to verify each piece and they had no way of knowing if the consumer had paid or not. The credit providers had the direct relationship with the consumer while the bureaux relied on what the providers reported. According to the Bill, if any piece of information was incorrect, the bureau was negligent, and liable to a fine or imprisonment. If Clauses 70(2)(c) and 70(6) were not amended the bureaux could not operate. The CBA proposed that the Minister had to prescribe what information the bureaux must verify, taking into consideration what was practically possible. Also, credit bureaux should be given the chance to investigate a complaint first and if the information was incorrect they had to remove it.
The Bill allowed the Minister to prescribe standards and fees for the filing, retention and reporting of credit information. If the standards were fixed competition would end on pricing, quality of data and products. The Minister must be allowed to set ‘minimum’ standards and allow for competition above the minimum standards set. Clause 68 (1)(a) should allow for additional uses of credit information such as the monitoring of identity theft and fraud prevention. The CBA proposed that persons should not face criminal liability and imprisonment for commercial errors as this would deter commerce. Prohibited conduct must also be properly defined.
The removal of information when debts were paid was a way of giving consumers a chance to rehabilitate themselves but this had some unintended consequences. Credit providers would see the information as less reliable and incomplete. They might increase prices for everyone to protect themselves from bad debt. It was unnecessary to create a National Credit Register when an infrastructure existed within the private sector to host a register of credit agreements.
Trans Union ITC submission
Mr Andrew King, Chief Executive Officer, said that there were many misunderstandings about credit bureaux and how they were portrayed. The management of data was their main job. There was someone in the organisation at director level that was responsible for data to ensure that the best processes were applied to it. They welcomed any regulatory assistance or otherwise to improve the accuracy of their data. Data quality was one of the competitive issues that drove a credit grantor to use them or another bureau. The market they operated in was very competitive.
The Bill had to make it clear that the price of a credit report had to be negotiated with the customers. In some cases credit reports were sold through resellers. This allowed the ITC to pass on information easier, faster and more effectively. They were not credit bureaux, and were thus not covered by the Bill. A section to regulate these resellers would be welcomed. It was not clear whether a report of information by a bureau under Clause 70 of the Bill would be considered a report under Clause 68(1) and subject to the conditions therein. If this was the case, it could delay the provision of credit and increase costs.
Mr Davelsaid that there had been no regulation of credit bureaux. These companies made a business out of persons’ private information. The Bill did not require each and every piece of information to be verified but called for appropriate procedures to receive and analyse the information.
Ms Mpahlele added that since the ITC said that data quality was a competitive issue among bureaux, there was no guarantee that they kept the same information of the same quality. The State therefore had to intervene and ensure that all of the information was of the same standard.
Mr Stephen said that credit bureaux had a role to play in modern economies. But, their businesses had to be run in line with the law and with sensitivity to citizens’ rights and fairness. He likened credit bureaux to publishers. They were liable for negligence, and there was no reason why credit bureaux could not be so liable. He said that the majority of the information they published was prejudicial and potentially defamatory. Their industry was protected by a conspiracy of silence. He wanted to know their policy in publishing information about debts that had proscribed, and whether they expunged the records of judgements that had been rescinded. If not, why not?
The CBA replied that the bureaux were not editors of information. They wanted the Minister to prescribe what was possible to be verified. They said that debts that had proscribed should not be listed. The reason why bureaux existed was to gauge future behaviour by looking at past actions. Data was retained for as long as it was predictive. Credit bureaux collected rescission orders from court, and so that judgement was removed from the system.
Dr Nkem-Abonta asked how the bureaux could compete on quality if they claimed that they merely stored information. It was also impossible for the bureaux to verify the veracity of each piece of information.
The ITC said that some credit providers sent them customers’ full credit information. They received information from various sources including the courts. Some of this information was not complete. For example, some of the information lacked identity numbers. Some of the information was subjective, and this created differences in the quality of the information.
Ms Mohamed asked why the credit bureaux did not force their suppliers to provide them with information within a reasonable period of time. They had to redefine their agreements with the credit providers. She said that there was not enough transformation in these credit bureaux. These was a problem with the attitudes of the officials in them. There was too much judgemental thinking.
Mr Rasmeni wanted to know under which laws the credit bureaux operated. He also asked for the credit bureaux to outline their composition.
The CBA replied that there was no regulatory framework for credit bureaux. They operated under a code of conduct.
Mr L Zita (ANC) said the bureaux needed a more inclusive methodology to assess credit risk rather than the fact that the customer had paid or not. He said that the South African Communist Party had called for an amnesty for ‘blacklisted’ persons. What was the bureaux’ view?
The CBA said that if all the information about who had been ‘blacklisted’ was removed, what would they use to assess risk? The ITC said that the amnesty would only impact on the credit grantor and not the bureaux.
Ms Ramodibe said that the bureaux had no mercy for poor people in their unregulated industry.
Professor Turok asked if the bureaux assessed their own role in society and why there was so much ignorance about them. He also asked who they reported to and who controlled them.
The CBA had an Annual General Meeting run by a board of directors. ITC was a private company and had normal corporate reporting lines. There was much ignorance, but providing consumer education was not their responsibility alone. The whole industry had to do the job. The only time members of the public would come into contact with bureaux was when they were ‘blacklisted.’
The meeting was adjourned.
SUPPLEMENTARY REPRESENTATIONS MADE BV WESBANK TO THE PORTFOLIO COMMITTEE OR TRADE AND INDUSTRY ON THE NATIONAL CREDIT BILL
5 August 2005
1 THE PURPOSE OF THE SUPPLEMENTARY REPRESENTATIONS
1.1 Wesbank submitted written representations to the Portfolio Committee on 29 July 2005.
1.2 Subsequent to those representations having been delivered, it has come to light that those representations omitted to deal with an aspect on behalf of DirectAxis, a subsidiary business of WesBank.
1.3 We beg leave for the Committee to accept these supplementary representations at this late stage
2 THE BUSINESS OF DIRECT AXIS
DirectAxis is involved in providing personal loans to consumers ir the order of R4 000,00 to R25 000,00.
3 SECTION 106 : CREDIT INSURANCE
3.1 Section 106 is apparently intended to limit the type an« ambit of insurance that a credit provider may require a consumer to maintain, ie compulsory insurance, and to lay down requirements in respect of such insurance.
3.2 The wording of section 106, and in particular of section 106(3) and (4), may be wide enough to include (and therefore lay down restrictions in respect of) both insurance policies which the credit provider does require the consumer to maintain (ie which are compulsory), and optional insurance policies which the credit provider may offer to the consumer, but not require him to purchase or maintain.
3.3 DirectAxis does not require a consumer who enters into a loan agreement with it, to purchase or maintain credit life insurance, but offers such insurance on a voluntary, optional basis. On the present wording of section 106, insurance may fall within the ambit of the section, whereas that does not appear to be the intention of the section.
3.4 We would suggest, in order to make it clear that the section is intended to deal only with compulsory insurance, that sub-sections (3) and (4) be amended, in the following respects (only the relevant parts are quoted) : "(3) Despite sub-section (1), in respect of insurance which a consumer is required to maintain, a credit provider must not offer or demand ...
(4) If the credit provider proposes to the consumer the purchase of a particular policy of credit insurance which a consumer is required to maintain as contemplated in sub-section (1) or (2) -
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