National Credit Bill: hearings

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Trade and Industry

16 August 2005
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Meeting Summary

A summary of this committee meeting is not yet available.

Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
17 August 2005
NATIONAL CREDIT BILL: HEARINGS

Chairperson:

Mr B Martins (ANC)

Documents handed out:
 

Submission by the SA Money Lending Affairs Council
Submission by Cell C and MTN
Submission by Telkom South Africa
Telkom South Africa PowerPoint presentation
Submission by the Association of Debt Recovery Agents
Submission by Professor Kelly-Louw
Submission by Truworths
Truworths PowerPoint presentation
Submission by the Law Society of the Northern Provinces and the Law Society of South Africa
Submission by the National Student Financial Aid Scheme
Submission by the Financial Sector Campaign Coalition
Submission by Vodacom South Africa
Vodacom SA PowerPoint presentation
Standard Bank SA presentation
Submission by Standard Bank SA
MSA And NAMO submission
Mortgage South Africa submission 1 and 2

SUMMARY
The SA Money Lending Affairs Council (SAMLAC) felt that it was important that everyone registered, irrespective of the size of the transaction. If it was illegal to give credit while not registered, it must be illegal to take credit from an unregistered provider. SAMLAC recommended that the National Credit Regulator (NCR) and Tribunal be made organs of the state to function under the control of the Department. SAMLAC said that the collection, repayment, surrender and debt enforcement provisions needed to be reviewed. If these rules remained unchanged, the entire credit system could collapse within three months.

Mortgage South Africa (MSA) said that banks had to provide training and keep a register of the employees of the originator. This training obligation was problematic as the bank could insist on each employee being trained by each individual bank where the originator originated from more than one bank. There was provision in the Bill for an identification card, but it was not clear whether in the case of a corporate originator, the card was allocated to MSA as an agent, or to each employee of the agent. Mr G Davel (Chief Executive Officer: Micro Finance Regulatory Council) said in response to SAMLAC that the Bill applied to all credit agreements whether or not the credit provider had registered. In response to the MSA, some their points about training were valid.

Vodacom said that the nature of the cellular industry was such that Vodacom did not have many credit agreements with customers, and customers therefore did not need the same protection from them as contemplated by the Bill. The Bill’s application was too wide as it lumped the provision of services without finance charges under the ambit of the Bill. Vodacom also had a problem with the definition of an ‘instalment credit agreement’ and the retrospective application of the Bill. The way that consumers’ rights were protected placed the rights of providers in jeopardy.

Cell C and MTN gave a joint presentation. They said that the services of cellular companies were unintentionally affected if the Bill was left in its current form. The Credit Regulator must have the power to exempt certain industries or types of agreements from the scope of the Bill.

Telkom said that but there was uncertainty to the extent to which the Bill applied to telecommunications operators. The Department said that major consistencies arose in the Bill where exemptions were provided for every different case.

The Association of Debt Recovery Agents (ADRA) said that as a debtor’s information may only be used in the event that they had consented thereto for tracing purposes, large quantities of information held by the bureaux was rendered useless. When making a determination in terms of over-indebtedness and reckless credit, the value of any credit facility should be the settlement value at the time of the granting of that facility. Department said that the debt counselling process was not only about getting the consumer to repay their debts. It was a holistic approach to educate them about financial issues and will manage their affairs properly in future. When a consumer gave his consent to other people, it was for certain purposes only, not to trace them.

The National Student Financial Aid Scheme (NSFAS) said that was a special case and had to be treated as such. As such it had to be excluded from the scope of various sections of the Bill.

Professor Michelle Kelly-Louw said that said that the definitions of ‘juristic persons,’ ‘non-returnable goods’ and ‘debt counsellor’ needed to be redefined. The negative effect of section 84(2)(b) needed to be reviewed also. The costs of using alternative dispute resolution services had to considered.

Truworths said that the Bill said that credit providers had to make documents available in at least two official languages. ‘Documents’ had not been defined, and there were huge cost implications if different languages were used in different areas. Retailers used scorecards and models to price credit risk. If all default information was removed the credit bureaux their ability to make accurate decisions was affected. The Department said that it largely disagreed with Truworths’ recommendations. The credit system in South Africa was far too permissive.

The Law Society of the Northern Provinces and the Law Society of South Africa said that the Bill did not help the consumer and harmed the economy, employment creation and the interests of consumers compared with Credit Agreements Act. The infrastructure and skills for handling the huge volumes and cases contemplated by the Bill already existed. The National Credit Tribunal was not equipped to handle with the volumes. The LSNP and the LSSA strongly objected to the requirement that attorneys had to register as debt counsellors if this was the intention of the Bill. If a debt counsellor was placed at each Magistrate’s Court, it would provide access to justice to many who did not have access to attorneys. They did not support any measures that limited the information kept by the bureaux.

Standard Bank SA said that the Bill ensured that all credit transactions were treated in a transparent and consistent manner but some provisions created the opportunity for abuse by consumers who did not require protection. The application of the Bill had to be limited to the level of income, balance sheet size or size of the relevant loan and the conflicting sections that related to credit history had to be clarified. The Bill could leave consumers exposed to risk in terms of short-term insurance cover on mortgage properties and credit life cover for credit facilities. The bank was worried about its capacity and resourcing to practically implement and manage the Bill.

The Financial Sector Campaign Coalition (FCSS) asked the Committee to amend the Bill to include an amnesty to all South Africans who were blacklisted by credit bureaux. The Bill was a step in right direction but it did not go far enough. Few people had escaped the spiral of debt when they got trapped. They often got trapped when they borrowed for essentials such as school fees or funerals. The FCSS saw the blacklisting issue as a national crisis that denied access to housing loans and jobs.

Members asked if the credit provider had a right to compensation after the credit had been suspended without cost or interest for a period of six months, and the consumer was found guilty by the Tribunal. They asked if the cellular companies hid the cost of their phones in the service charges and to what extent the cell-phone companies acted differently from ‘normal’ credit providers from whom they wanted to be distinguished, in terms of unpaid debts.

The Committee asked more about the identity of the ADRA were and if they had a relationship with consumers as well as credit providers. Could they explain their collection methods? Did they do more than just trace debtors? Members wanted to know if the ADRA collected debts on behalf of someone else or on their own behalf after they took cession of the debt. Did they collect the debt once it was due, or when it was late

MINUTES

SA Money Lending Affairs Council submission
Mr C Van Rensburg (SAMLAC Director) said that it was important that everyone registered irrespective of the amount or size of the transaction. If it was illegal to give credit while not registered, it must be illegal to take credit from an unregistered provider. SAMLAC recommended that the National Credit Regulator (NCR) and Tribunal be made organs of the state to function under the control of the Department. The penalties and fines imposed by the Bill were not in line with other legislation. There was concern that the financing of the NCR burdened the industry to the detriment of the consumer.

The requirements of the Consumer Credit Policy placed an administrative and financial burden on ‘pay day loans’ (PDL). Small loans were become more unaffordable. Mr Van Rensburg said that lower tiers of the industry should be exempted from these requirements or only be required to register annually a maximum available credit facility for a particular consumer.

Mr Van Rensburg said that the collection, repayment, surrender and debt enforcement provisions needed to be reviewed. Contractual default by consumers was promoted by the fact that credit could be suspended without cost or interest for a period of six months. If this rule remained unchanged, the entire credit system could collapse within three months.

Mortgage South Africa submission
Mr A Rubin, MSA legal representative, said that section 163 of the Bill provided that a mortgage lender could only operate as such if it was appointed in terms of a written agreement by a credit provider and had been appointed as an agent. This in itself was not an issue, but the problem was that there were certain obligations imposed on banks to allow companies like those in the MSA to trade. The banks had to provide training and keep a register of the employees of the originator. This training obligation was problematic as the bank could insist on each employee being trained by each individual bank where the originator originated from more than one bank. MSA employed over 600 people, but the drafters of the Bill did not consider the ramifications of this training requirement on groups like the MSA.

Mr Rubin said that there was provision in the Bill for an identification card, but it was not clear whether in the case of a corporate originator, the card was allocated to MSA as an agent, or to each employee of the agent. This had an impact in how MSA conducted its business. The cards had to be shown when an agent was soliciting or concluding a credit agreement. With technological developments such as the use of the internet or call centres, there was not always personal interaction. He wanted this cleared up.

Section 165(4) allowed consumers a choice in choosing which insurance company to use. MSA welcomed this. There was provision in 165 that where the consumer had exercised their right of free choice, the credit provider could require the consumer to give an instruction to the provider to pay the insurance broker their premium by debit order. There was a fee for this. The benefit the bank received was that it knew the premium was paid and would not lapse. If the bank received the benefit, it could not pass this onto the consumer. If the administration fee was allowed, it had to be capped by the Minister.

Department response
Mr G Davel (Chief Executive Officer: Micro Finance Regulatory Council) responded to SAMLAC that the Bill applied to all credit agreements regardless of whether the credit provider had registered. The administrative requirements for small loans were an important issue. The solution was in treating small, medium and large loans differently. Once the requirements were clear, the cost of complying with them went down. In response to the MSA, some their points about training were valid.

Discussion
Mr M Stephen (UDM) asked SAMLAC what exactly the costs they referred to were. He asked the MSA if it was the banks that paid their fees. He did not see a problem with the requirements about showing identification cards as only agents had to display them.

Mr Van Rensburg from SAMLAC said that there had not been an increase in 12 years on what they charged. Before granting credit, they had to access the National Credit Register. There was a cost for this and there was a limit to how often they had access to the Register. The cost for SAMLAC increased where the loans were small. Mr Rubin said it was the bank that paid the commission.

Dr E Nkem-Abonta (DA) asked if the credit provider had a right to compensation after the credit had suspended without cost or interest for a period of six months and the consumer was found guilty by the Tribunal.

Mr Davel replied that this was not an issue in the way the Bill was drawn up.

Vodacom submission
Mr W Mwepe (Vodacom Regulatory Advisor for Special Regulation) said that Vodacom welcomed the Bill. But the nature of the cellular industry was such that Vodacom did not have many credit agreements with customers, and customers therefore did not need the same protection from them as contemplated by the Bill. The Bill’s application was too wide as it lumped the provision of services without finance charges under the ambit of the Bill. Mr Mwepe recommended that the reference to ‘goods or services’ in section 8(3) be deleted and a definition of ‘deferred’ be included to further clarify the issue.

Vodacom also had a problem with the definition of an ‘instalment credit agreement’ and the retrospective application of the Bill that made it impossible for the providers to comply fully with all the requirements of the Bill, and impacted on the ability of credit providers to manage debts or risk. Vodacom noted that there was no adequate recognition of electronic transactions and agreements under the Bill in terms of the Electronic Communications and Transactions Act. The way that consumers’ rights were protected placed the rights of providers in jeopardy.

Cell C and MTN joint submission
Ms K Pinheiro from the MTN Legal and Regulatory Department supported the general tenor of the Bill. The services of cellular companies were unintentionally affected if the Bill was left in its current form. The broad definitions of the credit facility, incidental credit agreements and instalments agreements included service contracts such as theirs under the scope of the Bill. Mr M Falconer from Cell C’s Regulatory Department recommended that there should be a new section included in the Bill as section 4(6) to exclude their services from the scope of the Bill. The Credit Regulator must have the power to exempt certain industries or types of agreements from the scope of the Bill to ensure the Regulator was not overburdened with regulating sectors of the economy or agreements that were never intended to be regulated by the Bill.

Telkom submission
Adv B Lekalakala, the Telkom legal representative said that Telkom welcomed the work on the Bill so far. But there was uncertainty to the extent to which the Bill applied to telecommunications operators. The intention was to exclude providers of ‘incidental credit’ from the credit lending industry regulatory parts of the Bill. Currently, the position was obscured.

Both utility services and incidental credit warranted differentiated treatment in terms of the Bill. Telkom suggested that credit afforded pursuant to the provision of goods that were logically associated with and incidental to the rendition of utility type services be treated as ‘incidental credit’ for all purposes under the Bill.

Department response
Mr Daval said that it was important to begin the question ‘what was a credit agreement.’ He admitted that some of the issues and rules were complicated. The right place to deal with those complex transactions was the Tribunal. Major consistencies arose in the Bill where exemptions were provided for every different case.

Discussion
Mr Stephen asked what happened if a consumer wanted to get out of a two-year cell-phone contract. Could they return the phone and pay only for their use of the phone up to that point?

Professor B Turok (ANC) asked if the cellular companies hid the cost of their phones in the service charges. He asked Vodacom if they did not practice ‘pressure selling’ to attract young people.

Ms V Van Zyl (Vodacom Executive for Special Regulation) replied that Vodacom were totally ethical in their advertising and were in line with the Standards Associations guidelines on advertising.

Dr Nkem-Abonta said that Vodacom exploited customers. For example, they did not tell customers where there was coverage for their network, and yet the consumer could not get out of the contract.

Ms V Van Zyl replied that it was possible to go onto their website and find out if there was coverage in a specific area.

Dr M Sefularo (ANC) wanted to know to what extent did the cell-phone companies acted differently from ‘normal’ credit providers whom they wanted to be distinguished from, in terms of unpaid debts.

Ms V Van Zyl said that certain measures had to be instituted to minimise their risk. In that regard, they were in touch with credit bureaux. They supported the protection of consumers, but they had the option of going for the prepaid option without the potential of getting into debt. All the fees and costs were given up front. Vodacom gave customers the option to pay up front for the services they wanted to use.

Mr S Rasmeni (ANC) asked why the customers who used prepaid phones paid more in costs than those who were on contracts. Ms V Van Zyl said that prepaid tariffs were actually the same as contract tariffs. Customers were not abused.

Association of Debt Recovery Agents submission
Mr B Maseko said that as a debtor’s information may only be used in the event that they had consented thereto for tracing purposes, large quantities of information held by the bureaux was rendered useless. A three-year phase-in period was necessary. The ADRA suggested that the credit history should not be expunged so that the proper assessment may be made of the consumer’s credit position. The in duplum rule should be reemployed as it was in the previous version of the Bill, because as it was now, inclusion of all amounts in section 101(1)(b) to G resulted in a situation where the interest was diminished proportionally to the necessary expenses.

When making a determination in terms of over-indebtedness and reckless credit, the value of any credit facility should be the settlement value at the time of the granting of that facility. The definition of debt councellors needed to be expanded to include registered debt collectors and attorneys. The ADRA suggested the interest should not be suspended and that prescription should be interrupted as soon as the collection process was suspended.

Department response
Ms M Mpahlele (Department Deputy Director General) said that the debt counselling process was not only about getting the consumer to repay their debts. It was a holistic approach to educate them about financial issues and will manage their affairs properly in future. Mr Davel said that when a consumer gave his consent to other people, it was for certain purposes only, not to trace them. Interest was suspended by a court intervention where appropriate.

Discussion
Mr L Zita (ANC) asked who paid the collection costs. Mr Joseph replied that the debtor was statutorily compelled to pay for the costs.

Mr Rasmeni asked more on the identity of ADRA and if they had a relationship with consumers as well as credit providers. Could they explain their collection methods? Did they do more than just trace debtors?

Mr Joseph replied that debt collectors were governed by a strict code of conduct. This code of conduct was imposed and applied strictly. Any complaints about their members were handled punitively. They had changed their focus to rehabilitation of debtors, not strictly on collection.

Ms D Ramodibe (ANC) asked what the ADRA’s objectives were and where they received their money.

Mr Maseko replied that its policies were governed by the Act and its code of conduct. ADRA received its income from members who paid a once-off annual subscription fee.

Dr Nkem-Abonta asked the Department if they had thought of the unintended consequences of expunging negative credit information. Credit providers would be cautious and see the applicant as risky. This increased the cost of credit.

Mr Stephen wanted to know if the ADRA collected debts on behalf of someone else or on their own behalf after they took cession of the debt. Did they collect the debt once it was due, or when it was late?

Mr Joseph replied that ADRA did not list customers in the bureaux, credit providers did. Debt collectors usually did not have enough capital to buy accounts. According to the Act, a debt collector could not take cession of a debt before default.

National Student Financial Aid Scheme submission
Mr M Walton (NSFS Schemes Attorney) said that NSFAS was a special case and had to be treated as such. He requested that section 148(2) be amended to permit all decisions of the Tribunal to be appealed rather than just taken on review to the High Court. If the NFSAS had to comply with all of the provisions of the Bill, their ability to help disadvantaged people was affected. Its borrowers did not need section from it. The NSFAS sought to be excluded from the provisions of sections 62, 65, 69, 89(2), 90, 92 and 104.

Department response
Ms Mpahlele said that the Department had noted the importance of developmental credit providers and would consider their proposals.

Discussion
Mr Zita asked what measures the NSFAS had taken to ensure that people who were could not register with academic institutions that asked for upfront payments.

Mr A Taylor (NSFS Chief Executive Officer) said that for the first time, this year upfront payments were organised for needy students.

Mr Stephen asked if the NSFAS lent money to previously advantaged people and if they lent money to older people.

Mr Taylor replied that the scheme was set up to advantage previously disadvantaged persons but the way it was actually administered did not consider race, ethnicity or age.

Mr Rasmeni asked if the NFSAS had a relationship with credit bureaux.

Mr Taylor replied that the NSFAS had a relationship with the bureaux, but they never listed anyone who was unemployed, and listing people with credit bureaux was only to locate people. Once they were found, they were delisted within ten minutes.

Professor Kelly-Louw’s submission
Professor M Kelly-Louw said that the definitions of ‘juristic persons,’ ‘non-returnable goods’ and ‘debt counsellor’ needed to be redefined. The negative effect of section 84(2)(b) needed to be reviewed also. The costs of using alternative dispute resolution services had to considered.

Truworths submission
Mr E Christado, a Director at Truworths, said that Truworths supported the broad purposes of the National Credit Bill. However, there were some aspects of the Bill that could increase the cost of credit and take away their ability to accurately access risk. The Bill said that credit providers had to make documents available in at least two official languages. ‘Documents’ had not been defined, and there were huge cost implications if different languages were used in different areas. They recommended that if two languages were to be used, one of had to be English, and the second as selected by the credit provider or the National Credit Regulator had to be capable of application throughout the country. Another possibility was to allow a reasonable period to phase it in.

He said that retailers used scorecards and models to price credit risk. If all default information was removed the credit bureaux their ability to make accurate decisions was affected. Truworths recommendation was to keep the existing arrangement where default information was expunged only after three years and judgement information only after five years.

Currently, retailers assessed the risk of customers on an ongoing basis. This evaluation gave an indication of the ability of the consumers’ ability to pay back debt and this determined whether to increase or decrease a customer’s credit limit. The Bill wanted to take this facility away. Mr Christado recommended that credit providers be allowed to continue to automatically adjust credit limits as long as there was a formal process in place to evaluate affordability. He said that the clause that dealt with the prevention of reckless credit was too broad and could lead to misinterpretation. He urged the use of internal and external scorecards to help determine the level of understanding.

Department response
Mr Davel said that the Department largely disagreed with Truworths’ recommendations. The credit system in South Africa was too permissive. If this was maintained, consumption debt would increase even though in general salaries were rising. Thus the cycle of indebtedness would remain. The position must be that the customer must ask for the increase of their credit limit, and only then could the provider increase it.

Discussion
Mr Stephen asked how much weight Truworths attached to the scorecard provided by the ITC that they used which was based on demographics. The information from the bureaux was suspect because it included adverse information even though debts had been repaid or the debts had prescribed for example. He asked how adverse reports were handled.

Mr Christado replied that he had no idea how the ITC drew up their scorecard. The Truworths’ card was more predictive than ITC’s, and they only gave ITC’s card a 30% weighting. Incorrect credit information could ruin someone’s life. Anyone who was mistakenly listed by Truworths was immediately removed.

Ms Ramodibe disagreed with Truworths that the costs of conforming their forms to the requirements of the Bill were too high. How much time did they want to fix their documents?

Mr Christado replied that he could not accurately answer that question, but he estimated that it would take about six to twelve months.

Professor Turok asked about Truworths’ relationship was to the Consumer Credit Association (CCA), and if the debts they owned were tradeable.

Mr Christado said that Truworths complied with the requirements of the CCA, that is, they kept default information for three years, and judgement information for five years. They were a member of the CCA and complied with its code conduct. Truworths gave information to the bureaux through the CCA that stipulated how the information was to be arranged. He said that their debt book was tradable.

Professor E Chang (IFP) asked how much of Truworths’ inventory of goods was produced in South Africa. Mr Christado replied that about 75% of Truworths’ goods were locally produced. They preferred to use local suppliers because of the short delivery time, but there were some goods that were not available locally.

Law Society of Northern Provinces and Law Society of SA submission
Mr C Du Plessis, an attorney, said that the problems that related to debt and credit could be addressed by improving access to courts for both consumers and creditors. He said that the Bill did not help the consumer and harmed the economy, employment creation and the interests of consumers compared with Credit Agreements Act. The prohibition of Section 65 financial enquiries and orders in credit agreement matters was a big mistake.

Magistrates were situated in almost every town and physically accessible to consumers and credit providers. The infrastructure and skills for handling the huge volumes and cases contemplated by the Bill already existed. The National Credit Tribunal was not equipped to handle with the volumes. Its creation had to be stopped as it was also a springboard for further litigation to the High Court and the Constitutional Court.

He said that sections 79 to 85 of the Bill inhibited the granting of credit to consumers. They required the credit provider to make a judgement on the financial position of the applicant but they already made such judgements. The best solution to ‘reckless credit’ and ’over-indebtedness’ was in the financial hearings in terms of section of the Magistrate’s Court Act. It was better if assistance was given when the consumer had difficulty repaying their debts, that is, at court level.

Mr Du Plessis said that section 83 was inadequate as it did not benefit either consumers or credit providers. Some of the reasons were that courts were loath orders that had not been requested in the formal written applications or pleadings. Exacerbating the problem was that consumers were unable to draft such pleadings on their own and/or lacked the means to get an attorney to so for them. The wording of the section was also too wide. The Bill has failed to grant rights to employers to act on behalf of their workers. Also, the Bill has not addressed the issue of a surety.

Mr J Van Rensburg, also an attorney, said that many attorneys currently operated as debt counsellors. The LSNP and the LSSA strongly objected to the requirement that attorneys had to register as debt counsellors if this was the intention of the Bill. If a debt counsellor was placed at each Magistrate’s Court, it would provide access to justice to many who did not have access to attorneys. He said that section 86 had to be deleted. The debt counsellors envisaged by the Bill acted as attorneys without being admitted as such and without being subject to the requirements of the Attorneys’ Act and the various Law Societies. Section 8(3) has included attorneys, doctors and others within the ambit of a ‘credit facility’ as they supply their services and defer the obligation to pay for such services, or bill the consumer periodically for such services. As such, they had to register as credit providers and comply with the requirements of the Bill. The LSNP and the LSSA strongly objected to this requirement as there was no need for registration.

Information obtained from credit bureaux by an attorney acting for a creditor is important in deciding whether to take legal action against a debtor. It helped to save legal costs, time and expense for consumers and providers. If a debtor was unlisted after their records had been expunged, they were more likely to be summonsed than not. Mr Van Rensburg said that they did not support any measures that limited the information kept by the bureaux. They did however support the principle of restructuring or rearrangement of a consumer’s obligations proposed in sections 87 and 88, but they saw problems in how this was achieved. The South African Law Commission had made proposals regarding the changes to section 65 of the Magistrate’s Court Act to provide for a more efficient way in which payments to multiple creditors were dealt. The Law Commission proposed that the existing section 65 procedures should be amended and the court empowered to give orders for rearrangement rather than creating new court procedures.

Mr Van Rensburg said that sections 105 to 110 were unsatisfactory. They proposed that provision be made for debating accounts and determinations by an arbitrator appointed by the secretariat of the Tribunal. Sections 127 to 132 dealt with debt enforcement but they created the opportunity for varied interpretation that would be the subject of much litigation.

Department response

Ms Mpahlele said that the Department had piloted a debt counsellor project over the past two years using non-governmental organisations such as Black Sash, and it had worked well. Mr G Davel added that the law societies had misunderstood many of the issues. The Bill took nothing away from the courts, but created alternatives to going to court such as alternative dispute resolution by going to the Banking Adjudicator. Over-indebtedness was assessed at the time of the over-indebtedness while reckless lending was assessed at the time that the agreement was made.

Discussion
Mr Du Plessis said that there had been a lack of communication between the law profession and the Department. He said that being proactive would eliminate the opportunity for people to access credit. The solution was helping those who could not service their debts by going to court. He said the Bill did take many of the matter out of the courts. He proposed that the customer be given easy access to courts where the Magistrate had to decide the matter within 14 days.

Mr Stephen wanted to know the LSSA’s reaction to lawyers who tried to force debtors to pay prescribed debts after they had bought the debts from the credit provider.

Mr Du Plessis replied that prescribed debts were unenforceable but they were not extinguished. He had no experience of attorneys taking cession of debts.

Professor Turok wanted to know what the nature of a credit agreement was in terms of ownership. Mr Du Plessis replied that in the absence of an agreement to the contrary, ownership from a credit agreement passed on delivery of the goods.

Standard Bank submission
Mr S Tshabalala (Deputy Managing Director: Retail Banking) said that the Bill ensured that all credit transactions were treated in a transparent and consistent manner but some provisions created the opportunity for abuse by consumers who did not require protection. The ceilings on the cost of credit had to be set at a level that would enable banks to clear the majority of consumer applications. The provisions that governed reckless lending had to protect consumers in the informal/marginal market only. The application of the Bill had to be limited to the level of income, balance sheet size or size of the relevant loan and the conflicting sections that related to credit history had to be clarified.

The Bill could leave consumers exposed to risk in terms of short-term insurance cover on mortgage properties and credit life cover for credit facilities. Credit providers had to be allowed to insist on insurance to the full replacement value and credit life cover on credit facilities based on credit limit rather than settlement value.

Mr Tshabalala said that the bank was worried about its capacity and resourcing to practically implement and manage the Bill. The bank’s credit processes would be severely affected and an extensive effort was required to ensure compliance over 18 to 24 months at a cost of about R100 million. Many of the requirements remained unknown pending the finalisation of the regulations.

Discussion
Mr Stephen why Standard Bank did not want rich individuals to be treated the same as the poor by the Bill in terms of the information they received. Was the bank in favour of keeping information about judgement debts that had been paid even though doing so was wrong? Why did Standard Bank not grant its consent to recission of judgement orders?

Mr Tshabalala replied that Standard Bank did not consent to rescission of judgement orders but this policy was under review. Standard Bank was a risk manager but customers demanded respect and dignity. However, these rights had duties attached to them. People who did not repay their debts had to face the consequences.

Mr Rasmeni asked why Standard Bank made its own submission when its parent body, the Banking Association had made a submission already on behalf of all its members.

Mr Tshabalala replied that there was no break away from the position of the Banking Association. This separate presentation was important for emphasis.

Professor Turok asked why credit information was passed around in the Joint Bank Credit Council. He asked if the bank thought the Committee had to be reactive or proactive. He asked why Standard Bank bought debt books and if consumers had a right to negotiate interest rates with the bank.

Mr Tshabalala replied that there had been a Joint Bank Credit Council but it did not exist anymore. There was a market for debt but it was closely monitored.

Financial Sector Campaign Coalition submission
Mr B Nzimande asked the Committee to amend the Bill to include an amnesty to all South Africans who were blacklisted by credit bureaux. The Bill was a step in right direction but it did not go far enough. In the name of reconciliation and democracy, amnesty was given to murderers and assassins. Why was an amnesty not extended to the poor? Few people had escaped the spiral of debt when they got trapped. They often got trapped when they borrowed for essentials such as school fees or funerals. Micro-lenders charged poor people 500% and more in interest per year. An estimated 18 million of the poorest South Africans paid more the 360% a year in interest on unregistered micro-loans.

He said that the bureaux did not see it as a problem that over two million people were blacklisted. Their rules were made by middle-class managers or shareholders in New York and London with no real experience of the working class lives and poverty in South Africa. The FCSS saw the blacklisting issue as a national crisis that denied access to housing loans and jobs. The Minister of Housing said that access to R42 billion in housing finance made available in terms of the Financial Sector Charter had been undermined by credit blacklisting. A once-off amnesty was the only solution to leave the baggage of the past behind.

Department response
Mr Davel said that the key question that had to be asked was ‘what was a blacklist’ and who obtained the information, and what did they do with it? There is no provision of an amnesty per se in the Bill, but it did have some of the effect of an amnesty. For example, the Minister may state what information could be held, the Bill allowed for the expunging of debt records. The Department did not want all the information in the bureaux to be taken away, just the unfair, inaccurate information.

Discussion
Mr Stephen said he agreed with Mr Nzimande. The call for an amnesty however seemed like a ‘one size fits all’ solution. He said that if all the information in the bureaux was removed, it was more difficult for someone without a credit history to obtain credit.

Mr Nzimande replied that a ‘blacklisting’ was a negative credit rating, and that the main problem with the information in the bureaux was that it included what was held secretly and sold this for profit.

Dr Nkem-Abonta said that the FCSS had to think carefully about all the consequences of an amnesty, such as how credit providers reacted. They were likely to be conservative in how they granted credit.

Mr Nzimande disagreed with Dr Nkem-Abonta that the credit system had worked well. He said that it was punitive and was not developmental. The cost of credit had to be capped as a whole, not just the interest, and credit providers had ways of adding charges.

Mr Rasmeni welcomed the call for an amnesty and asked what the FCSS’s solution was to ‘loan sharks.’ He asked what should be done to banks that refused their consent to rescissions of judgement orders.

The meeting was adjourned.

 

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