National Credit Bill: hearings

Meeting report

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

Chairperson: Mr B Martins (ANC)

Relevant documents
National Credit Bill [B18-2005]
Financial Sector Campaign Coalition/South African Communist Party submission
Savings and Credit Co-operative League of South Africa Limited submission
Heath Forensic Investigators Consultants submission
South African Law Review Project submission
South African Law Review Project Powerpoint Presentation
Legal Opinion for the Law Review Project
South African Law Review Project: Good Law Checklist Part 1&2
Werksmans Attorneys Oral submission
Werksmans Attorneys Formal submission
Rhodes University Legal Aid Clinic PowerPoint presentation
Rhodes University Legal Aid Clinic Formal submission
Rhodes University Legal Aid Clinic Oral submission
National Community Based Para-Legal Association of South Africa submission
You and Your Money submission
Submission by Ms S Booley
Micro-Finance Regulatory Council submission
COSATU submission

SUMMARY
The South African Communist Party/Financial Sector Campaign Coalition believed that the Bill should limit the sale of credit information only for the purposes of assessing credit worthiness and that sale or use of credit information for other purposes should be an offence. Clause 78(2) should be removed, and representative consumers must be appointed to the tribunal.

The Savings and Credit Co-operative League of South Africa Limited wanted the Bill to treat Savings and Credit Co-operatives in the same way as stokvels and credit unions. The Bill did not make adequate allowance for developmental lenders. The alternative dispute resolution procedure in Chapter 7 undermined the procedures followed by the cooperatives.

Heath Forensic Investigations Consultants expressed concern that the Bill granted excessive rights to the consumer. Clause 69 constituted an invasion of the right to privacy. Clause 70(5) impacted negatively on the right of persons to enter freely into trade agreements; and the envisaged information held by the National Credit Register would result in credit being refused to consumers who needed it most.

South African Law Review Project proposed that the Committee refer the Bill back to the Department for a full cost-benefit analysis via a Regulatory Impact Assessment (RIA) before it proceeded any further.

Werkmans Attorneys requested that the implications of Sections 8(e) and (g) of the Insolvency Act be considered. These sections meant that a notice in writing by a debtor to any of his creditors that he was unable to pay his debts would result in the debtor's sequestration.

The Rhodes University Legal Aid Clinic called on government to cap interest rates in the interests of justice, fairness, poverty alleviation and the protection of the basic human rights of the most vulnerable.

The National Community Based Para-Legal Association recommended that the Bill ensure the active role of civil society in providing debt counselling and eradicating indebtedness, and it should be allowed representation on the Board of the National Credit Regulator.

You & Your Money proposed that counsellors be properly qualified in debt counselling, and Clause 68 should be extended to prohibit the use of negative credit reports in preventing indebted people from obtaining employment.

In her submission Ms S Booley proposed that the Bill introduce a once-off amnesty for those on the black list, as well as a once-off forgiveness of the debt of those people on the black list.

The Micro-Finance Regulatory Council stated that the current regulatory framework was fragmented and needed the creation of sufficient regulatory capacity to ensure effective enforcement. Without an effective rehabilitation mechanism, over-indebted consumers would remain permanently excluded from the credit market with the only source of credit being informal operators. There was a need for better disclosure, more effective competition and lower Interest rates.

The Department responded to each of the submissions and the Members were also allowed to ask questions. The Democratic Alliance argued that the powers granted to the regulator established by the Bill were far too great. It was also noted that the Bill imposed a penalty on credit bureaus for holding inaccurate credit information but unfairly exempted the National Credit Register from any such penalties.

MINUTES
Introduction by Chairperson
The Chair encouraged presenters and Members to be concise as the Committee was pressed for time that day.

South African Communist Party/Financial Sector Campaign Coalition submission
Ms Collette Caine, Financial Sector Campaign Coalition coordinator, raised the outstanding issues from the Financial Sector Campaign Coalition/South African Communist Party (SACP) submission presented on Wednesday 17 August.

Use of credit information
These included the purposes for which credit information could be received, compiled and reported, and the SACP hoped that the regulations would indeed limit the purposes for which that kind of information could be used. The Bill should limit the sale of credit information only for the purposes of assessing credit worthiness and that sale or use of credit information for other purposes should be an offence.

Over-indebtedness and reckless lending
The SACP proposed that the Bill's provisions in Clause 78(2) for exclusion of emergency, education loans and public interest loans should be removed. The SACP believed that this provision was misguided and created a loophole through which unscrupulous lenders could continue to lend to poor people already trapped in debt, and allowed such lenders to prey on poor people when they were at their most vulnerable and desperate. For the estimated 6 million South Africans living in informal settlements, the reality of homes being raised by fires that swept through entire communities in minutes was hardly unanticipated and was a daily expectation. Unscrupulous lenders would be eager to take advantage of the destitute who suffered loss to fire, theft or natural disaster or any other unanticipated life event. The State social security system was and should remain obliged to provide relief for people faced with such crises. The SACP proposed that all transactions be submitted for a reckless credit assessment and that the Clause 78(2) be deleted.

Consumer representation
The SACP believed that efforts must be made for a consumer perspective on consumer representation in decision-making forums to be heard effectively in the Bill, and this included not the appointment of representative consumers but rather of consumer representatives. The difference was that the latter could be appointed only on the basis that they were mandated by and accountable to credible organisations.

Response by Department
Use of credit information
Ms Astrid Ludin, Deputy-Director General: Corporate Consumer Regulation Division, stated that this point had been raised in several submissions and the Department believed it had addressed the matter in Clause 68(1), but the Department clearly needed to return to that provision and ensure that it adequately addressed the concerns raised.

Clause 78
These were fair points, but the issue of the student loan needed to be evaluated further. She suggested that, by its very definition, a student loan was a reckless loan because a student had no income. She stated that the Department had similar concerns with those definitions and it was for that reason that it drafted the definitions of "student loan" very tightly. But this could be considered in greater detail at a later date.

Consumer representation
She stated that the Department accepted the points made and would re-look at the provisions in the Bill. The Department had removed references to consumer representation from the Bill because no particular representation was specified for the board of the national credit regulator. The Department did not want to be required to have consumer representation on that body.

Savings and Credit Co-operative League of South Africa Limited submission
Mr David de Jong, Savings and Credit Co-operative League of South Africa Limited (SACCOL) General Manager, provided a brief outlined of the history and operations of SACCOL and the structure of the Savings and Credit Co-operative (SACCO) movement in South Africa. He expressed concern with the current definitions of "stokvels" and "Credit Union", as the current legislative framework continued to specifically exempt SACCOs, Credit Unions and Stokvels from being defined as not falling within the business of a bank. He stated that SACCOs needed to be treated in the same way as stokvels in the Bill, and they were accorded the same treatment in the Banks Act. SACCOL thus proposed that a SACCO also be defined as a "Credit Union" in the Bill.

Furthermore the Bill did not make adequate allowance for developmental lenders, and made no consideration for the primary co-operative tier structure. Chapter 4 did not take into account that most SACCOs were small and were not computerised and would thus not be able to access the single national register of credit agreements in Clause 41. He also expressed concern with the alternative dispute resolution procedure provided for in Chapter 7, as it undermined the democratically decided upon procedures entrenched by the members of the SACCO themselves.

Response by Department
Ms Astrid Ludin stated that the SACCOL submission was welcomed, but some of the issues raised could have been discussed at an earlier point in the process. She accepted the point that SACCOL was not consulted in the drafting of the Bill, but said it was very difficult to engage with some of the developmental institutions. The Department had hosted workshops with developmental institutions and, if she recalled correctly, SACCOL was invited to attend. She admitted that there were times when an invitation was not sufficient and that there were occasions when the Department needed to proactively consult.

Use of the term "credit union"
She stated that, in the Department's defence, the current formulation was inserted with a longer-term view of what the sector would emerge into as a third tier banking sector. Many of the points raised by SACCOL would have to be taken into consideration. She stated that she was not sure whether the granting of an exemption to SACCOL would necessarily provide a solution in this case because the Department believed that the poorest South Africans should have access to consumer protection, whether or not they interacted with each other.

Mr Gabriel Davel, MFRC: CEO, added that the Bill was a law of general applicability, and the granting of an exemption to SACCOL would really exclude the poorest of the poor from this "consumer protection" Bill. He stated that the Department had no problems with the definition of a SACCOL member but there were credit co-operatives that had hundreds of millions of Rands on their loan books for the provision of housing loans and vehicle finance loans, and he questioned whether these would then also have to be excluded from the Bill. The Department had recognised this problem and had tried to strike a balance between ensuring proper protection of consumers and the creation of a special dispensation for developmental lenders.

Discussion
Ms D Ramodibe (ANC) sought clarity on the SACCOL statement that its members granted loans on the basis of the character and repayment capacity of the borrower.

Mr de Jong responded that when most SACCOs formed they would elect a credit committee amongst themselves, and their decisions to grant a loan would be based on their knowledge of the person, their social conditions within the community or workplace, standing in the community, the person's track record of savings and repayment within the co-operative itself etc.

Ms Ramodibe asked SACCOL to explain whether it had to go through the credit bureau when granting loans.

Mr de Jong answered in the negative, as the decision to grant the loan was based on the character of the person requesting the loan.

Dr E Nkem-Abonta (DA) agreed with SACCOL that credit information must only be used for the purposes of determining credit worthiness. He was aware that the South African Law Reform Commission (SALRC) was preparing legislation that would govern all private information protection, and asked whether this Bill would not conflict with that overriding law. He requested that the SALRC address the Committee on that Bill before any further progress was made on this Bill.
The Chair pointed out that the State Law Advisors were presen and the Committee also remained in constant discussion with other departments on such matters. There were mechanisms in place to address those instances where two laws were in conflict. The Committee would receive a briefing on the matter at a later date, as the primary focus of this meeting was to gain input on the Bill from stakeholders.

Dr Nkem-Abonta suggested that the powers granted to the regulator established by the Bill were far too great. He questioned whether it was wise, in a liberal democracy, to allow the regulator to overturn decisions entered into by the members of the credit unions themselves.

The Chair reminded Dr Nkem-Abonta of the time restrictions facing the Committee, and said Members would have ample opportunity at a later date to debate the policy matters in detail.

Prof B Turok (ANC) asked SACCOL to indicate the obstacles that SACCOs faced in their struggle for survival.

Mr de Jong responded that the SACCOs were based on a 'savings first' model, which meant that it relied on ratio-based lending based on the person's savings. The model would not grow unless there were savings, and one of the problems was that it was a savings-led movement. The SACCOs also did not grant the loans almost instantaneously, as was the current conventional practice. Instead the person first had to become a member of the SACCO, invest and save with the SACCO for a period of time until he proved his ability to repay timeously. This would not happen overnight.

Secondly, SACCO institutions were built from scratch and capacity and training was provided over time, as the co-operative grew and was able to take on more staff..

Furthermore, there were two SACCOs that had failed: the Financial Services Association and FINISOL. These were second tier organisations that were largely donor-supported, and once the donor withdrew funding those second-tier organisations had collapsed. The primary-tier organisation, in this case a village bank, did however survive and had been functioning over the past three years without any donor funding. These were however very slowly eroding their members' savings. National Treasury was currently involved in discussions to recapacitate the members.

Thirdly, there was inherent conflict within SACCOs as its Board of Directors consisted both of borrowers and savers. The savers wanted the highest return on their savings, whereas the borrowers wanted the cheapest interest rates on loans.

Fourthly, lack of requisite skills was a major problem. SACCOs operated largely in communities that possessed no banking skills whatsoever.

Prof Turok drew the meeting's attention to media reports which indicated that, according to the Micro-Finance Regulatory Council (MFRC), lending had increased to a record R22 billion with the banks providing most of the loans. Yet submissions in these public hearings maintained that in fact the micro-lending industry provided most of these loans. He asked SACCOL to clarify this.

Ms Caine responded that the MFRC would be well placed to provide information on the banks being the favourite lenders in the micro-finance sector. It was true that banks were the major providers of loans. This had not always been the case but, as matters developed over the last few years, the banks had become very active in the micro-lending space. The largest bank micro-lender indicated that their loans were largely for education and home improvement. This would have implications for housing finance policy as well as education policy. The level of activity and the rate at which people were prepared to pay back loans in these two categories indicated the vast need and also the interest that South African citizens had in these two areas.

Prof Turok stated that he was of the opinion that the loans granted for educational reasons cannot be regarded as reckless lending but was instead a vital investment in education, which was very important.

Mr de Jong replied that SACCOL's experience had indicated that 40% of loans were granted for housing improvements, and the second largest loans were educational loans.

Prof Turok sought clarity on the Blue Bean MasterCard credit facility that had recently entered the market, which appeared to be the provision of credit to pre-selected clients.

Ms Caine replied that Standard Bank would be able to provide clarity on this facility. She stated that it was industry practice, not only by financial institutions but also by the consumer credit association members, to provide people with unsolicited offers. She presumed that the Blue Bean facility was a similar offer by a very large bank.

Prof Turok noted the increase in Standard Bank's interim dividend by 142%. He requested that this matter be raised with them when they address the Committee in the future, as this was a huge profit in the lending industry.

Mr S Rasmeni (ANC) asked the SACP to explain its proposal that amnesty be granted from the credit bureau listing, as the State had already granted amnesty to the wealthy under the recent tax amnesty legislation. He proposed that even if the poor were to be removed from that list, it would not change the fact that they owed money, and thus their material debt would not be extinguished.

Ms Caine responded that the SACP did limit its proposal to the amnesty around the blacklisting, but Mr Rasmeni was correct in asserting that people ran up huge costs with debt collectors. This would require further examination.

Dr Nkem-Abonta stated that, although he agreed with the SACP that the poorest of the poor needed to be granted access to finances he however disagreed strongly with the SACP proposal that the State shoulder the responsibility for providing such finances, because it would be an abuse of the function of State to expect it to provide adequately for every one of its citizens. Such an approach would encourage dependence on the State and the proposal was utterly unworkable and irresponsible.

Mr Rasmeni requested the SACP to explain how exactly it proposed the State provided adequately for all its poor citizens in times of distress and emergency.

Ms Caine replied to these two questions by stating that the SACP felt very strongly about this proposal. There were some measures in place at the moment that assisted people in a number of such catastrophic events. People were currently using state payments to help them get through times of distress and what the Bill called "unanticipated life events". The SACP did believe that it was the role of a democratic state to assist such citizens as much as it is able to do so, and also to support people's own initiatives through member-based co-operatives and stokvels etc.

Heath Forensic Investigations Consultant submission
Adv Willem Heath stated that he fully supported the Bill's objectives to achieve accountability of credit providers as well as its efforts to protect the consumer, but he did need to point out certain issues in the Bill which detrimentally affected the interests both of credit providers and consumers. These were:
- repealing the Usury Act retrospectively
- the invasion of the constitutional right to privacy by Clause 69 that required the credit provider to disclose full details of customer information
- the inconsistency in the quality of information provided in Clause 70(5), in the absence of input by the consumer, impacted negatively on the constitutional right of persons to enter freely into trade agreements
- the lack of a definition in the bill for "reckless" credit agreements
- the complete personal details on credit and defaulting information provided in the National Register would create the situation where credit would be taken away from the consumer who needed it most
- the Bill provided no specific details regarding interest rates and time periods for repayment.

Response by Department
Ms Ludin requested that the Department be granted time to thoroughly consider the detailed and technical-legal proposals made by the submission. She did however encourage Adv Heath to obtain the latest version of the Bill, as many issues raised by the submission were outdated and had in fact been addressed in the published version.

Mr T Hercules, State Law Advisor, requested that he be allowed time to consider the constitutional issues raised in the submission, as he was seeing it for the first time.

Information in National Credit Register
Mr Davel stated that Clause 72(1)(b) was very clear in providing the consumer also with the right to the information held in the National Credit Register. Furthermore the same mechanisms available to the credit bureaus for correcting inaccuracies also applied to the National Credit Register. There were thus no ground to Adv Heath's argument.

Research to be conducted by credit provider before extending credit
He stated that the Bill did not stipulate that the credit provider must perform specified research or ascertain certain information, as "reckless lending" was defined in terms of the information that was provided to the credit provider at the time of granting credit.

Inaccurate credit information on consumer
Mr Davel stated that Clause 72(1)(a) stipulated clearly that where negative or adverse information was provided by the credit provider to the credit bureau, the consumer would have to be informed of the reasons for the denial of access to credit. There were thus very specific mechanisms in place here for the consumer to challenge the record and compel the bureau to correct the information.

Discussion
Mr Rasmeni asked Adv Heath to explain his concern that the Bill granted excessive rights to the consumer.

Ms Ramodibe asked Adv Heath to explain his concern that the consumer would be prejudiced erroneously or unlawfully by the Bill, as well as the consequences of not being able to access credit.

Adv Heath replied that many of the provisions indirectly impacted negatively on the consumer as well, because they imposed penalties on the credit provider. It was thus within this context that the statement was made. The consequences were the common law principles that such borrowers could be taken to court. This would however lead to expensive litigation, whereas the Bill provided for the tribunal when dealing with a reckless provider. This thus needed to be dealt with extensively in the Bill.

Dr Nkem-Abonta shared the concern raised by Adv Heath about information held by the National Credit Register, but proposed that the consumer should be allowed access to that information free of charge to check that the records were accurate.

He noted a double standard in the Bill as it imposed a penalty on credit bureaus for holding inaccurate credit information on an individual, yet the Bill stated specifically that the National Credit Register was exempt from any such penalties. This was unfair and approved of and encouraged "bureaucratic bungling".

Adv Heath replied that Clause 72 made provision for the right to the consumer to react to incorrect information, and Clause 72(1)(a) limited the ambit of the provision to instances in which the credit provider reported to the National Credit Register via the credit bureau. The Bill did not require the consumer to be informed of adverse credit information in the situation where the credit provider reported directly to the National Credit Register.

Ms Ludin stated that the Bill stipulated that the credit provider must inform the consumer when adverse information regarding his credit record was being listed with the credit bureau. Information that was registered with the National Credit Register was not adverse information, as the only kind of information that must be registered with the National Credit Register was that a consumer had entered into an agreement together with the value of that agreement. The National Credit Register would thus not duplicate or maintain the information held by credit bureaus. In that sense they were two separate issues.

However Clause 72(1)(b) stipulated that a consumer could correct any record of theirs held by the National Credit Register. She thus failed to understand the point raised by Adv Heath.

The second issue was whether the National Credit Register was distinct from the credit bureau. She stated that these were different "animals". The National Credit Register was a publicly held register of debt obligations and did not contain information on the behaviour of the consumer. The National Credit Register would also not be selling information on the consumer to private companies for the purposes of obtaining profit. This did not mean that no sanctions should be applied or that the consumer should not have certain rights regarding the accuracy of the information held, as it would constitute an invasion of privacy. It was however important to remember that the two bodies were different, as were the purposes for which they were established.

Adv Heath responded that Clause 69 made provision for both scenarios, whereas Clause 72 only accommodated the one scenario. This remained a deficiency. Any reference to Clause 72(1)(b) would amount to an empty gesture because that provision presupposed that the ignorant borrower was aware of the provision and it presupposed that there were honest credit providers who would inform the borrower of his rights. It was thus not sufficient for the Department to merely state that there was a provision in the Bill which granted consumers access to that information, as it must be coupled with a commitment that it would reach all the borrowers of money.

Dr Nkem-Abonta agreed with Adv Heath that the Bill did not provide specific details about interest rates, as this determination was reserved for the Minister. He argued that no one person, no matter how highly placed, should have the right to decide interest rates in an economy. The Bill must compel the Minister, in consultation with industry representatives, to determine the interest rate cap.

Secondly, he expressed concern with the failure by the Bill to mention reckless borrowing at all.

Adv Heath responded that reckless borrowing was not covered by the legislation. Thus, in the cases in which the borrower was in fact reckless, the credit provider would be at the mercy of the information supplied by the borrower. The Bill placed no punitive sanctions on a reckless borrower.

South African Law Review Project submission
Mr Leon Louw, Executive Director: Law Review Project (LPR), stated that their submission indicated how and why there should be a comprehensive Regulatory Impact Assessment (RIA) before proceeding any further with the Bill. RIAs were a new concept in South Africa. However, a comprehensive RIA could not be conducted on the Bill because critical aspects of the Bill were not included. The following were the principal findings of the concept of RIA conducted by the LRA on the Bill:

(i) almost every institution consulted was able to provide quantitative estimates of costs created by this Bill, whereas the Department provided no quantified reasons for the benefits of the Bill;
(ii) the Credit Law Review documentation contained virtually no quantification of the kind needed for an RIA, and problems and benefits of the Bill were expressed in very broad and vague terms;
(iii) on the available evidence, it was almost impossible to predict to what extent the objectives of the Bill would materialise.

An itemised budget thus needed to be provided for the National Credit Regulator and the National Credit Register, which in turn necessitated a quantification of the profile and number of credit agreements that were currently in existence. The benefits of a National Credit Register might have been exaggerated as most experts did not expect anything more than a 50% improvement in the accuracy of records held. The LRP was unable to find any conclusive evidence or information on the extent to which consumers would benefit from increased access to information held by the National Credit Register. No evidence was found to support the Credit Law Review assertion that levels of over-indebtedness and reckless credit lending was increasing.

The evidence suggested that the costs of the legislation could exceed its benefits by a considerable margin, that there may be significant secondary impacts and that there might be aspects of the Bill that were unconstitutional. The LRC proposed that the Committee refer the Bill back to the Department for a full cost-benefit analysis before it proceeded any further.

Response by Department
Ms Ludin stated that the presentation was interesting because there were calls, especially in terms of this Bill, for a RIA. The Department's position was that although it was generally in favour of RIAs, it believed that much discussion and clarification was needed before they were actually implemented. She stated that the value of an RIA was that it would assist the Department in clarifying some of the methodology that would be used.

She stated that the pertinent issue was the source of the information relied on by the LRP as well as the quality of that information. The Department's commissioned assessments of the costs involved and arrived at figures significantly different to those proposed by the LRC. The Department needed to consider those costs because it could not include anything in a law that the State would be unable to fund. The Department had conducted its own cost-assessments that differed substantially from the LRCs.

Mr Louw replied that he did not understand the assertion that the LRP figures were contradictory, as they were simply the facts gathered by the LRP during its research.

Consumer tribunal
Ms Ludin noted that the Legal Opinion commissioned by the LRP raised concern with the fact that the Bill allowed the President to re-appoint members to the tribunal after five years. It was a valuable opinion that the Department would have to study in greater detail.

Plain language
It had been raised by in the media and at the public hearings that the Bill was not drafted in plain language. The Bill had been drafted by a plain language drafter, the same person who was responsible for the plain language issues in the Constitution. The Department had made every attempt to ensure that the Bill was drafted in plain language as far as possible. However dealing with technical issues such as those in the Bill inevitably necessitated the use of complex technical terms, and it was not always possible to reduce everything to its utmost simplicity.

Mr Davel noted that British and Australian legislation was vastly more extensive than the Bill. At the time of drafting the Bill a decision had to be made on whether the Bill deal comprehensively with all issues, or whether it simply take the form of a framework and require the Minister to provide the substance in the regulations. The drafters were of the view that in the old South Africa laws had been thin and the Ministers had basically legislated through regulations, whereas in the new South Africa laws were more substantial. This meant that the law would have to be very specific on all matters.

The Chair stated that the Committee and the Department bore the responsibility of making the law as easy to read and understandable as possible by avoiding as much legalese as possible.

Quantifiability of the Bill
Mr Davel pointed out that the Bill was the result of three years of research, which was all available for distribution on the Department's website. He found it discomforting that comments were constantly being made that the Department had not conducted a cost-benefit analysis, yet no-one had yet challenged a single figure produced by the Department. The information on the website was very detailed, and could be scrutinised by all.

Mr Louw replied that the LRP had not consulted credit bureaus on the costs of establishing the National Credit Register, instead it had consulted with accounting firms. He emphasised that the LRP was not claiming that its findings were "an RIA that in and of itself was very useable". Instead the LRP was saying that it provided illustrative or ballpark figures for information that was absent but needed. The LRP thus provided a framework of how and what needed to be done for the information needed.

He stated that the LRP had gone through the Department's information thoroughly, and none of it was wrong. Although the information was exceedingly useful, very thoroughly researched over a long period of time and was very good, it was not the kind of information that was needed to conduct an RIA.

Referrals to credit bureaus
Much focus had been placed on the complaints leveled at credit bureaus by consumers, the credit bureau then declaring it an invalid complaint and referring them to the adjudicator. The point was that 50% of the complaints that the credit bureau declared invalid were found to be in fact valid by the adjudicator. He advised caution in interpreting the statistics provided as they were actually extremely contradictory in terms.

Discussion
Mr Rasmeni asked Mr Louw if he believed that the current Bill would not achieve its stated objects, or whether he was arguing that the benefits currently provided by the legislation would be outweighed by the costs.

Mr Louw responded that the LRP believed that the Bill would achieve its objectives, probably quite substantially in some senses. It appeared that there would be a substantial reduction in over-indebtedness and defaults. The LRP believed that this benefit would be achieved by making credit less available, and it thus appeared that the Bill's objective of providing credit to the poorest of the poor would thus not be achieved. Thus some objectives would be achieved and others not, and thus the crucial issue was the trade-off that would be struck.

Mr Rasmeni sought clarity on the quality and the reliability of the LRP assessments.

Mr Louw replied that the LRP research was very reliable in those instances in which actual figures were provided. In those instances where it simply provided illustrative numbers the LRP clearly stipulated that these were representative figures.

Mr Rasmeni asked Mr Louw to indicate which other companies, external to the Department, could be relied on to provide objective facts regarding the assessments and cost-benefit analysis.

Mr Louw replied that unfortunately there was no one in South Africa who had conducted a RIA, and there were no South African consultants who were equipped to do it. The method to follow however would be to secure the services of an accounting firm, an non-government organisation (NGO) or even a panel of NGOs or experts, and present them with the list of questions that need workable answers. They would then provide an accurate, honest opinion as to the consequences of enacting a certain law and whether government would succeed in reaching its objectives.

Werkmans Attorneys submission
Ms D Bouwmeester explained that her colleague, Mr E Levenstein, and herself were not addressing the Committee on behalf of a client but in their own right. They had been reviewing the Bill and had noticed certain issues that they wanted to bring to the attention of the Committee. She referred the Committee to the written submission which contain the substantive and formal amendments proposed and was in more detail than their oral submission.

Clause 4(1)
This provision needed to be clarified because it was currently not clear whether a credit provider would have to consider the gross asset value or the net asset value of the consumer.

Clause 8
The concept of deferment as well as "cost of goods or services" in Clause 8(3) must be defined, as well as "credit provider" in Clause 8(5).

Clause 10
The term "principal debt" must be clarified as it was not certain whether it applied to the amount paid by the credit provider to the tertiary institution, or the amount whose payment had been deferred in terms of the credit agreement.

Clause 40(1)
It was not certain whether a credit provider would have to register with the National Credit Register if it only extended credit agreements which were not governed by the Bill.

Clause 84(1)(b)
Mr Levenstein stated that it was not clear what government's intention was with regard to the revival of the interest that had been suspended during the operation of that provision.

Clause 86
Clarity was needed on the time period that applied from the date that the consumer submitted himself and his credit agreement to review under this provision.

Schedule 3
Clarity was sought as to whether this schedule required credit providers to give all their relevant customers a quotation which outlined the principal debt and other finance charges to the remainder of the credit agreement.

Insolvency implications
The provisions of Sections 8(e) and (g) of the Insolvency Act meant that a notice in writing by a debtor to any of his creditors that he was unable to pay his debts would result in the debtors sequestration. The implications of those sections on the Bill must be considered.

Response by Department
Insolvency implications
Ms Ludin stated that these would have to be considered in detail by the Department. However it was her understanding, from a policy perspective, that the people that would be targeted through those measures would in any event probably not be able to access the insolvency measures.

Discussion
Dr Nkem-Abonta sought clarity from the Department on the following scenario created by the Bill: consumers must agree on information on them passed to a credit bureau and, if that was the case, would a credit provider still lend to a consumer who had refused to grant such consent? This was important because if the credit provider nonetheless extended credit to that consumer he would be open to a charge of reckless lending. This was because, without the consent from the consumer, the credit provider would have no way of correctly assessing the consumer, as required by the Bill.

Ms Ludin replied that a credit provider would not necessarily be adjudged to be reckless for not checking a consumer's creditworthiness with the credit bureau.

Mr Davel added that the credit provider would have to decide whether he really wanted to extend credit to a person who refused access to his credit information. To him that meant that there was no provision in the Bill which stated that such a refusal would be illegal.

Ms Ludin was of the view that a credit provider would want to conduct at least some kind of a credit check on the person requesting the loan, in terms of that credit provider's risk management perspective. If that check could not be conducted through the credit bureau then it could at least be conducted through the National Credit Register to assess the person's debt obligations. The consumer could not decline their credit information being registered with the National Credit Register, but they could decline its registration with the credit bureau.

Dr Nkem-Abonta questioned whether the consumer would have the right to receive credit when he purposefully withheld his credit information.

Ms Ludin responded that it was conceivable that a responsible credit provider would not want to extend credit to a person who refused to disclose his credit information. This did not however mean that the consumer should not be allowed to request credit on that basis, as there might be credit providers who had other means of assessing the creditworthiness of the consumer.

The Chair drew the discussions on this matter to a close and stated that the Committee would have ample time to engage in detailed discussions on this matter in future.

Rhodes University Legal Aid Clinic submission
Mr J Campbell, Director of Rhodes University Legal Aid Clinic (RULAC), stated that one of the core functions of RULAC was the provision of free legal services to indigent communities, and one of the most common types of cases it dealt with concerned micro-lenders. On a daily basis RULAC saw clients who were deeply in debt to micro-lenders, both registered and unregistered, who were charging exorbitant interest rates of very typically 30% per month, but sometimes as much as 50% and even 100% per month, and whose practices are unlawful. The primary purpose of the submission was to highlight the socio-economic hardship suffered by recipients of micro-loans occasioned by the exorbitantly high interest rates that were currently charged by both registered and unregistered micro-lenders that preyed upon desperate consumers who were usually poor, ignorant, uneducated and functionally innumerate.

The negative impact of high interest rates on poor communities in general demonstrated that those rates were a violation of public policy, and offend against their right to dignity and socio-economic rights entrenched in the Constitution. He submitted that gvt should see the strict control of the industry, in particular the capping of interest rates at a level much closer to the current interest rate limits of the Usury Act (17 and 20%), as an opportunity to both improve the benefits of social grants for their recipients by ensuring that so much of their proceeds do not end up in the hands of micro-lending enterprises, and to contribute towards poverty alleviation.

It was incumbent upon the legislature to pro-actively ensure that interest rates were capped by the Minister, in the interests of justice, fairness, poverty alleviation and the protection of the basic human rights of the most vulnerable South African citizens.

Response by Department
Ms Ludin indicated that the Bill currently contained provisions which allowed the Minister to cap interest rates. It had been the stated intention of the Department to regulate interest in the entire credit market. Furthermore, it appeared that the type of consumers which the RULAC dealt with were over-indebted and thus the over-indebtedness provisions of the Bill would probably be of primary concern rather than the interest.

Discussion
Dr Nkem-Abonta stated that the RUALC submission was very vociferous on moral principles and legal provisions, but it was very thin on economics. It might have seemed alarming that people borrowed from 30% to as much as 500%, but that was approximately the international norm of the annual rate for those who borrowed in that category. It was argued during the public hearings that lending at that rate could even be beneficial for the borrower, it all depended on what the borrower did with the money and whether it was used to create wealth or simply to extinguish existing debt.

Mr L Labuschagne (DA) asked Mr Campbell to explain whether the problem would be resolved if no interest rates were charged. He argued that people would continue to spiral into indebtedness even in the absence of interest rates, because they were poor.

Mr Campbell responded that this was a difficult matter to address. He stated that no interest rate was equally untenable a proposition as a very high interest rate, because a market would not be able to function. He stated that he was merely arguing for reasonable interest rates. The longer the current situation was allowed to persist without a limit on the maximum interest rate, the more entrenched the interest rates would become, and the 30% per month would become an accepted norm for society in general and the micro-lending industry in particular, and the more difficult it would become for government to intervene and cap it. Nothing, with respect, had been done in the five and a half years since the Lurama Vyftien (Pty) Ld and 49 Others v. The Minister of Trade and Industry and Another and The Association of Micro Lenders and The Minister of Trade and Industry, of 1999 which excised the ten times prime limit set out in the exemption notice.

The Chair ruled that the remainder of the submissions would be heard one after the other, after which questions could be posed on them all.

National Community Based Para-Legal Association submission
Ms H Davids, from Heideveld's National Community Based Para-Legal Association (NCBPA) Advice Office, stated that the NCBPA proposed that a process be put in place quickly and broad participation be secured for the consumer policy formulating process. Secondly, with regard to consumer rights, education and awareness, it was proposed that the Bill must emphasise and resource the role of civil society with regard to debt and indebtedness and should be allowed representation on the Board of the National Credit Regulator. Thirdly, the periodic audits of credit providers, investigations of socio-economic trends and detection of malpractices must be expressly stipulated in the Bill as a decentralised function of provinces. Finally, the Bill provided no guarantee that only good-willed and well-intentioned debt collectors be employed.

Ms S Mankapan, Ceres NCBPSA Advice Office, provided case studies dealt with by the NCBPA in which perpetual over-indebtedness and exorbitant interest rates affected the poorest of the poor.

You & Your Money submission
Ms Louise Alston, Debt Advice Centre Director, informed Members that "You & Your Money" has been conducting debt counselling for three years. The goal of the centre was to promote responsible personal financial management, and to assist clients to repay their debts in a dignified manner which was not harmful to their well-being or that of the members of their households.

Debt counsellors
It proposed that debt counsellors should have the qualifications listed in Clause 46(3) of the Act, as well as knowledge of personal financial management, the law relating to credit, debt collection procedure, the current credit industry and points of referral, for those clients who cannot be appropriately helped by the debt counsellor. There was a need for co-operation between the Department and the Department of Justice, to enable the consolidation of all legislation impacting on the credit industry, such as the Debt Collectors Act, Magistrates' Court Act and Banks Act. It was imperative that fees to be charged by debt counsellors be tightly regulated so as to avoid the current occurrence of charging of exorbitant administrative fees.
The current obvious absence of debt counsellors in South Africa may prevent the successful operation of Clause 129 (1) (a) and (b)(i), and "You & Your Money" would like to make itself available to assist, however possible, in the nation-wide roll out of this function.

National Credit Regulator
It recommended that the list of persons excluded from Board membership of the National Credit Regulator include those persons who were under administration in terms of Section 74 of the Magistrates' Court Act.

Right to information in official language
"You & Your Money" urged that all consumers be able to obtain documents in the official language of their choice, and not merely in one of two official languages

Confidentiality
Clause 68 could be extended to prohibit the use of negative credit reports which could prevent indebted people from obtaining employment, and which exacerbated their inability to repay debt.
Secondly, Clause 70 should be amended as it allowed credit bureaux to register information extending beyond an individual's credit, as this could constitute an unreasonable limitation of an individual's right to privacy.

Interest Rates and codification of the "In Duplum" Rule:
The capping of the interest rates and codification of the "in duplum" rule in Clause 103(5) was welcomed.

Reckless lending
This term needed greater clarification.

Submission by Ms S Booley
Ms S Booley proposed that the Bill introduce a once-off amnesty for those on the black list, as well as a once-off forgiveness of the debt of those people on the black list. This was important to put an end to the unethical and unconscionable methods deployed by debt collectors in the relentless pursuit of debt recovery even after people's names have fallen off the blacklist. The unregulated behaviour of credit bureaus and debt collectors have thus far undermined the President's goal of eradicating the gap between the affluent and flourishing first economy and the dismal and depressed second economy. When banks repossessed a home which was the only shelter a person had, that violated the constitutional right to shelter, as a basic human right as well as the right to dignity. Finally, the very business of the credit bureaus was to make a business of the sale of citizen's personal information, and this violated the constitutional right to privacy.

Micro-Finance Regulatory Council (MFRC) submission
Mr Mutle Mogase, Chairperson: MFRC, and Mr Paxton Ramothata, MFRC: Complaints and Enforcement, provided an overview of the work of the MFRC and discussed the importance of key interventions contained in the Bill in addressing fundamental weaknesses in the credit and micro-lending market.

Background
The total value of micro-loans was R18 billion, with 50% being loans advanced by banks. Micro-loans comprised approximately 4% of South Africa's R362 billion consumer credit market. Access to credit was highly skewed, with 72% of consumer credit being allocated to barely 15% of the population. The MFRC had made significant progress in improving conduct in micro-lending industry, and in ensuring that redress was provided where consumers' rights had been compromised. The replacement of the current Exemption Notice regulating the business of micro-finance by primary legislation would make the sector more stable and current negative perceptions by potential investors about the future of the business would be put to rest.
General problems with current market practices
There was skewed access to finance, with availability of high cost consumer credit. Secondly, whilst some people could not access finance at all others were becoming over-indebted as result of reckless behaviour of credit providers, 'desperation borrowing' and a range of other factors. There was a very high cost of finance with indications of weak competition and misleading disclosure.

Fragmented legislative framework
Experience in the micro-lending industry has shown that the fragmentation of the regulatory framework, monitoring and enforcement result in a range of undesirable practices, and that it was the low income consumers that suffered the consequences. It was thus absolutely necessary to create sufficient regulatory capacity to ensure effective enforcement.

Reckless lending and over-indebtedness
The MFRC believed that it was important that if lenders were found to be reckless, their rights with respect to those transactions should be suspended.

Debt counselling
Without an effective rehabilitation mechanisms over-indebted consumers would remain permanently excluded from the credit market with the only source of credit being informal operators.

Improved Credit Bureau Information and reputation
In the absence of such comprehensive information there would always be the likelihood that the lender would be unaware of all the borrower's obligations, and may unwittingly cause the borrower to become over-indebted.

Better disclosure, more effective competition and lower Interest rates
Sustainable lower interest rates and efficient client service were only possible in a competitive market, and effective competition was only possible if it consumers could compare the prices between different products.

Response by Department
Ms Ludin stated the inputs made were welcomed, and the Department would have to review them all in greater detail.

Discussion
Dr Nkem-Abonta stated that he agreed with Ms Booley's call for the introduction of amnesty, but contended that "amnesty can never mean amnesia". The credit provider would thus never lend money to someone whose credit record was blank or unknown. Nor would a credit provider extend credit to a person if that person would then simply be granted amnesty without repaying a cent of the loan back to the credit provider.

Ms Booley responded that people are not born with a credit record as it was only at the point at which the individual began to access credit that the credit bureau opened up a credit record. She therefore failed to see the problem raised by Dr Nkem-Abonta. If she were approached for a loan by someone who had a blank credit record, she would ask to see the person's salary slips to ascertain a regular income, reliable address etc.

Furthermore, as raised during the public hearings, amnesty was granted for murderers, rapists and other criminals or they would serve their prison sentence and then become rehabilitated and reintegrated into society. Yet the debt collection measures employed by the micro-lenders were so punitive that they hounded the borrower for up to 30 years after the debt had been extinguished. This behaviour should not be tolerated.

Dr Nkem-Abonta stated that he found it very strange that the MFRC raised no objections to a single provision in the Bill, nor did it make recommendations for improvements. He asked whether the MFRC would be expanded to become the credit regulator, as he suspected this to be the case. He questioned whether Mr Mogase would become the Chairperson of the regulator.

Mr Mogase replied that he was a businessman by profession and his chairmanship was a non-executive position, and thus he was not remunerated at all for holding that office. He said that without seeming belligerent, he was "not interested in power" as he was not a politician. This matter was really a question for the Department to answer.
Ms Ludin responded that she could not speak on behalf of the Minister, as the processes with regard to the appointment of the Chairperson of the new regulator had not yet been initiated. The job descriptions had not yet been written. She believed that neither the CEO nor Chairperson of the MFRC assumed they would be appointed. In her opinion the Department would be honoured to have someone of the calibre of Mr Mogase to be the new Chairperson, as the MFRC Board was very well run and had reported successes.

Dr Nkem-Abonta maintained that there was a conflict of interest at play as Mr Davel, the MFRC CEO, was crucially involved in the drafting of the Bill. This amounted to Mr Davel "writing his job description", unless he could indicate to the Committee that he would decline a request that he become CEO of the new regulator. He proposed that Mr Davel should properly have recused himself from any involvement in the drafting of the Bill.

Mr Mogase responded that the Department would be best placed to answer this question.

Ms Ludin replied that, with the greatest of respect, she could not imagine anyone who was better placed to outline the problems in the credit market than the current regulator, and to make recommendations on how they could be addressed. The Department had conducted its own assessment and there were several issues on which she and Mr Davel disagreed, but the Department did not need to apologise in any way for the involvement of Mr Davel. She failed to see any problem.

Mr Rasmeni asked the NCBPA, "You & Your Money" and Ms Booley to indicate whether they maintained strong links with the credit bureaux.

Ms Booley replied that she was unable to answer the question directly but stated that, in terms of the Code of Conduct of the Credit Bureau Association, the submission made during these public hearings by the Debt Collectors Association indicated that they only represented their registered members. They also indicated that there were thousands of unregistered members who did not abide by the Code of Conduct and behaved illegally.

Ms Alston of "You & Your Money" answered in the negative. She stated that they enjoyed a reasonable relationship with the ITC Credit Bureau.

Mr Rasmeni asked the MFRC to explain whether the 30% interest rate currently being charged by micro-lenders was reasonable and, if it was not, what the ideal lowered interest rate would be.

Mr Mogase responded that the rate would be set by the Department, and he could not speculate as to which figure would be correct.

Mr Labuschagne stated that the introduction of the Bill suggested that the MFRC had failed and for that reason a new organisation needed to be established. He asked the MFRC to indicate when it realised that it was "not doing justice to the consumer" and that a new Bill was now needed.

Mr Mogase replied that the fact that this Bill was being deliberated upon pointed to the success of the MFRC, because it had been a deliberate process to understand what could be done to ensure better consumer protection. The role played by the MFRC in initiating the Bill was outlined in the submission.

Ms Ludin responded that while the Committee did not provide the Department with the opportunity to present an assessment on the success or failure of the MFRC, she did not believe that the presentation of a new regulatory framework in any way made comment on the effectiveness of a regulator in terms of another framework. The new Bill sought to address a failure in the existing regulatory framework, rather than in the effectiveness of the institution. The two issues needed to be distinguished

Mr Labuschagne asked the MFRC to indicate its annual budget, and how expensive the "failed exercise" of having the MFRC proved to be.

Mr Mogase responded that the MFRC was funded primarily by member fees. Funds were also received from the Department, but that amount was allocated on an annual basis based on very specific annual objectives.

Ms Ludin replied that the Bill provided for the transfer of the assets and the liabilities of the MFRC to the new regulator which, as far as she was concerned, included the staff as they were also an asset. She stated that she failed to see the difficulty with that, because both the assets of the MFRC and Department would be transferred. Sufficient regulatory capacity would only be achieved by building on the skills that were currently in place in the MFRC. There were several examples of that in government, and there was nothing sinister in the involvement of Mr Davel in the process.

Mr Labuschagne asked whether the new body would have a higher or lower salary structure than the current MFRC.

Ms Ludin responded that the Department was currently engaged in the design of the institution and the salary structure was currently being considered. The salary structure would however have to be approved by National Treasury.

Dr Nkem-Abonta sought an answer on the budget of the MFRC. He also reiterated his concern with the involvement of the MFRC CEO in the drafting process, which was unconscienable in a democracy..

The Chair stated that these matters would be discussed in greater detail during the Committee's deliberations on the Bill.

Mr Mogatse replied that the MFRC budget for the previous year was approximately R18 million.

The meeting was adjourned.