National Credit Bill: deliberations

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Trade and Industry

12 September 2005
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Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
13 September 2005
NATIONAL CREDIT BILL: DELIBERATIONS

Chairperson:

Mr B Martins (ANC)

Documents handed out:

National Credit Bill [B18-2005]
Responses to comments on Credit Bill, 2005
Department of Trade and Industry Possible Amendments to Bill as of 13 September
Department response to submissions [please email
info@pmg.org.za]

Relevant document
Department of Trade and Industry Possible Amendments to Bill released on of Friday 16 September

SUMMARY
The Department of Trade and Industry presented its proposed amendments to the National Credit Bill. The Department had reviewed the Bill and come up with a 26-page document of possible amendments. A number of issues had arisen out of the public hearings such as the role of the courts and the Tribunal, the question of an amnesty, and incidental credit. They went through the document clause by clause highlighting the possible amendments.

Members requested that some clauses be shortened and simplified. They asked if there was anything in the Bill that prevented companies from relocating offshore to escape the application of the Bill while they continued operating in South Africa. The number of consumer representatives on the National Credit Regulator (NCR) Board was discussed. They also asked if once a challenge had been made about certain information, if it could still be used by the provider or bureau, and why the credit providers did not incur some of the costs of the access to information.

MINUTES
Ms Astrid Ludin (DTI Deputy Director-General: Corporate Consumer Regulation Division) presented its proposed amendments to the National Credit Bill.

Clause 1 Definitions
Ms Ludin said that these amendments were mainly of a technical nature. The word ‘civil’ was deleted as the definition of ‘court’ covered all courts. The definition of a ‘credit union’ was changed to ‘co-operative’ as it did not fully capture the use of these functions in South Africa. The next change concerned 'emergency loan'. The Department was concerned about deleting all the provisions concerning these loans and decided that it was better to tighten up the provision by limiting its application in sub-clauses (a) to (c) and deleting sub-clause (d). A clause about ‘leases’ was included in the definition of ‘instalment agreement’, as it did not provide for the payment of interest, fees or charges.

Mr J Strydom, the Department Law Advisor, said that an addition had been made to the definition of a ‘juristic person’ to exclude stokvels and co-operatives from the application of some provisions of the Bill. There were also changes to the definition of a ‘mortgage.’ There had been a lot of input during the hearings about ‘non-returnable goods’ and the ‘five-day cooling off period’ as a result of a misunderstanding of the provision in Clause 127. The Department’s intention was for the provision to apply only to hire purchase agreements. The provision was to be deleted until it was reviewed. The definition of a ‘private dwelling’ had been changed as it implied that a business could be run from such a place but there was a need to stop door-to-door selling.

Discussion
Professor B Turok (ANC) said that the proposed amendments to the definition of a ‘mortgage’ were confusing as a result of obscure language. They had to be made easier to read and understand. He asked if the Department was comfortable that the motor industry was covered fully by Clause 127 and said that the clause that referred to co-operatives was ambiguous in its proposed form. It was better to call them ‘financial co-operatives’ to make the provision clearer.

Ms Ludin said that they would review Clause 127 again while Mr T Hercules, the State Law Advisor, said that the language that related to mortgages was consistent with that of other pieces of legislation.

Mr S Rasmeni (ANC) asked if the definition of co-operatives did not preclude them from providing services to non-members of their organisations.

Mr G Davel, the Micro-finance Regulatory Council Chief Executive Officer, replied that co-operatives could apply as developmental credit providers and therefore it was important for its services to be available to its members only to close any possible loopholes. The definition also included other co-operatives because it was important that they did not register as credit providers as sometimes loans had to be given to members of the association, and this was the rationale behind not including stokvels in the Bill.

Clause 2
Ms Ludin said that there had been comment that these provisions were not clear and it was questionable whether they facilitated electronic signatures. The Department had reorganised the clause to make it clear that there were two types of signatures which were provided for in the Electronic Communications Act, which had different rules applicable to each: an advanced electronic signature and an electronic signature. Mr Strydom added that as the Bill stood at the moment, it did not provide for electronic signatures and therefore the change was necessary.

Clause 4
Ms Ludin said that the National Treasury had requested the Department to consider exempting ad hoc loans made foreign institutions to South African citizens from this provision. The Department had considered this and deleted the words "or having an effect within" from Clause 4(1). There had been queries during the hearings whether the definition of asset value/turnover figures would affect company subsidiaries. Clause 4(1)(b) was changed to specifically include subsidiaries. The Department was concerned that Clause 4(6) was too long and complex and it had thus been rephrased.

Discussion
Professor Turok said that the proposed Clause 4(6) was still too long and had to be broken up into about three parts to simplify it.

Mr M Stephen (DA) asked if there was anything in the Bill that prevented companies from relocating offshore to escape the application of the Bill while they continued operating in South Africa.

Ms Ludin replied that while the word "within" meant that all credit agreements were covered by the Bill, if a company relocated they would not necessarily be covered by all of the provisions of the Bill and so this would needed to be reviewed.

Ms D Ramodibe (ANC) said that Clause 3 of the Bill had to be simplified.

Clause 5
Ms Ludin said that this clause had been confusing and unclear. There had been concern about the extensive application of provisions to incidental credit and the registration of agreements on the National Credit Register (NCR). She accepted that the whole issue of incidental credit needed to be reviewed. The clause had been rephrased to make clear which clauses of the Bill applied to incidental credit. The Department had excluded the requirement to register on the NCR and also provided that incidental agreements may only include interest and were subject to the maximum.

Discussion
Professor Turok said that there had to be a better phrase for an ‘incidental credit agreement’ as the term was not normally used in society.

Mr Stephen said that there was ordinarily no entitlement to charge interest but sub-clause (2) seemed to be a deeming provision that allowed the charging of interest and therefore had to be changed.

Mr Strydom replied that the deeming provision pertained to the date on which the agreement in respect of which parts (a) and (b) applied and did not automatically allow the charging of interest. Mr Davel added that they had tried to prevent people from claiming that all they were doing was providing a service and yet charged interest on late accounts.

Clause 8
Ms Ludin said that the insurance industry wanted confirmation that policy loans granted by insurers in insurance policies, were contained within the exclusion in Clause 8(2), and that long-term insurers were not required in respect of policy loans to comply with the provisions of the Bill. Loans against insurance policies should be included but loans extended to maintain the premium payments could be exempted. Sub-clause (i) was also deleted as a result of concerns of the cellular providers who did not see their two-year contracts as credit agreements.

Clause 11
Ms Ludin said that the Department had been asked if this clause was to be applied retrospectively and if there was really a need for it. It had nothing to do with retrospectivity. It merely allowed the Minister to afford special treatment to credit in times or areas of national or regional emergency. The insertion of "after the effective date" after "period" removed any potential for retrospectivity.

Clause 13
This was only a technical change.

Clause 15
This was only a technical change.

Clause 19
The change to this clause's heading was only a technical one but the changes to sub-clause (1)(f) were more substantive. There had been a call during the hearings to have at least three consumer representatives in the body of six on the National Credit Regulator (NCR) Board. The Department found that this would be limiting given that these people may have to have expertise and experience. It was unnecessary to have this number especially as there was no industry representation on the Board. The Department proposal was to add "at least one of which must be a representative of consumer interests" in the clause.

Discussion
Ms Ramodibe and Mr Rasmeni agreed that one consumer representative was too few.

Ms Ludin replied that the Board was a regulator and therefore there could not be too many industry representatives influencing its decisions. The Board looked at issues of corporate governance and did not really have much input in how the NCR made its decisions. It had membership from various government departments such as Housing, Social Development and Finance. Ultimately it was for the Committee to decide the final number.

The Chairperson suggested a compromise number of two.

Ms M Mpahlele, Department Deputy Director-General, suggested that the one consumer representative would have to have expertise in some area of consumer rights.

Clause 41
Ms Ludin said that there had been concern that only credit providers had to register with the South African Revenue Service (SARS). This requirement should be extended to all other persons mentioned in the Bill except credit receivers. The Department had agreed and expanded the requirement.

Clause 43
Ms Ludin said that some commentators had said it was inappropriate that credit bureaux should have equivalent qualifications to debt counsellors. Clause 43(3)(b) currently created the ability to set standards for the staff of credit bureaux. The Department proposal was to delete sub-clause (3)(a).

Clause 46
This clause had prohibited civil servants from being debt counsellors. The Department agreed that this was an unnecessary prohibition and so proposed the deletion of sub-clause (3)(b).

Clause 47
The proposal here was to expand the prohibition of credit providers from being debt counsellors to their employees and/or agents. A new sub-clause was inserted as Clause 47(1)(a) to exclude a wider class of persons from being debt counsellors.

Clause 48
The change here was the same as with Clause 41.

Clause 51
There had been comment that the cross-reference between Clause 51(2) and Clause 40(2)(c) was confusing. Commentators suggested putting what was in Clause 40(2)(c) in Clause 51. However, this proposition did not fully capture what was intended in Clause 40(2)(c). Inserting "in their own names at or from more than one location or premises, as contemplated in section 40(2)(c)" was a better construction.

Clause 54
This was only a technical change as it was impossible to ‘contravene a notice.’

Clause 55
A new clause was inserted as Clause 55(6) to allow the NCR to refer a matter to the Tribunal for an appropriate order.

Clause 57
The changes to this clause removed the power of the NCR or the Tribunal to be able to cancel the registration of a bank as this could jeopardise the bank’s clients.

Clause 61
The words "of persons" had been added to mirror the phrase in Clause 60. Clause 61(6)(b) had been amended to allow the Equality Court to be the only forum for hearing and adjudicating such complaints, even though the NCR could receive the complaint and investigate it.

Clause 68
Ms Ludin said that the credit bureaux had said that offences regarding the treatment of confidential information should be dealt with administratively by the Tribunal. The Department had agreed and amended the clause accordingly.

Discussion
Mr Stephen said that the Bill did not require the bureaux to give credit providers information and therefore, this made the passing of that information an offence.

Mr Strydom accepted his argument and said that the rule needed to be reviewed.

Clause 69
Ms Ludin said that developmental credit providers had requested that these provisions be made less prescriptive on them. Clause 69(2)(e) was added to allow the Minister to "prescribe alternative requirements that would apply to developmental credit providers." The transitional provisions that affected this clause were still to be added. Sub-clause (6) that restricted the liability of the NCR and the Register had been deleted.

Clause 70
Clause 70(2)(g) was modified in response to a request from the credit bureaux. Reports could be issued "after payment of the credit bureau’s fees except where the Act explicitly provides that no fee be charged."

Discussion
Professor Turok said that it would be better if the bureaux fee was limited to a ‘reasonable’ amount. The main burden on the passing on of information had to lie with the credit providers and not the bureaux.

Mr Stephen said that there had to be explicit provisions that set out what was expected of the bureaux.

Mr Hercules replied that the Minister had the power to set the minimum standards about the reporting and retention of information held by the bureaux.

Mr Rasmeni asked what remedies did consumers in possession of a complying notice have.

Ms Ludin replied that the whole system of credit provision including the bureaux had to work. There had to be some obligations on the bureaux, especially those that traded in the information. The remedy that consumers had was that the bureaux had to rectify the situation. This did not necessarily imply that the consumer could be compensated, but the credit provider could have some liability under Clause 72(1)(d).

Clause 72
Ms Ludin said that bureaux were concerned that they would be inundated with requests for free credit reports in the first effective year of the Act. The Department’s proposal was to insert a transitional measure for the Minister to prescribe the method and time frame according to which free credit reports could be requested in the first effective year of the Act. There was also concern about the access to and challenge of records. The Department proposed as an addition to Clause 72(1)(b)(i)(cc) that a consumer could only get another free report in that year, if a change of the information was necessary after the information had been challenged. Clause 72(1)(d) was also amended to allow compensation for incorrect information by a person who negligently or knowingly filed the information.

Discussion
Ms Ramodibe asked if consumers had to pay for access to the information.

Ms Ludin said that the consumer could receive one free report per year and was only entitled to another free one if the information on it was incorrect.

Professor Turok complained that Clause 72(1)(b)(i)(cc) was too long.

Mr Stephen asked if once a challenge was made to certain information, whether it could it still be used by the provider or bureau?

Ms Ludin replied they were in the process of reviewing the embargo.

Mr Rasmeni asked why the credit providers did not incur some of the costs of the access to information.

Ms Ludin said that the bureaux had 30 days to establish the accuracy of the challenged information from the providers and then the bureaux had the responsibility to correct it.

Clause 74
Developmental credit providers wanted to be exempt from these provisions that dealt with door-to-door sales. The Department had obliged and inserted the exemption.

Clause 75
This clause dealt with how the costs of advertising were regulated.

Discussion
Professor Turok asked if other methods of lobbying were included.

Ms Ludin replied that the definition of ‘adverts’ in Clause 1 seemed broad enough to cover them.

Clause 76
More words had been added to this clause to broaden its application.

Clause 77
The Department had been asked if it would not be better to include these provisions under Clause 75. It had agreed and moved Clauses 77(2) and (3) to Clause 75 and deleted Clause 77.

Clause 78
Ms Ludin said that there had been a real need to tighten up these ‘reckless credit’ provisions which had necessitated these amendments.

Clause 80
There had been concern from banks that an access bond was a combined instrument which had led to the amendment.

Discussion
Professor Turok said that it would be better if the definition of ‘over-indebtedness’ was included in Clause 1 of the Bill to make it easier to negotiate through the Bill.

Ms Ludin said that the Department would consider this suggestion.

The meeting was adjourned.

 

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