National Credit Bill: Trade and Industry Department and Western Cape briefings

Meeting report

ECONOMIC AFFAIRS SELECT COMMITTEE
19 October 2005
NATIONAL CREDIT BILL: TRADE AND INDUSTRY DEPARTMENT AND WESTERN CAPE BRIEFINGS

Chairperson: Ms N Ntwanambi (ANC)

Documents handed out:
Department of Trade and Industry briefing
Western Cape Department of Economic Development and Tourism briefing

SUMMARY
The national Department of Trade and Industry (DTI) presented the Committee with an overview of the National Credit Bill. The existing legislative framework was outdated and fragmented and did not deal with challenges such as over-indebtedness and discriminatory market practices. The Bill applied to all individuals who transacted at ‘arms length.’ The Bill imposed registration requirements and criteria on credit bureaux and regulated how consumers could get access to information.

Then the Western Cape Department of Economic Development and Tourism gave its reaction to the Bill. They said that that the Bill was a major step towards the more effective regulation of credit extension and credit information. However, the Bill did not address certain concerns. For example, layby’s were still not included in the definition of credit agreements and there still was no time period stated within which a credit provider had to provide a copy of the credit agreement to the customer.

The Committee was particularly interested how the Bill applied to ‘stokvels’ and ‘loan sharks’, and how the interest rate would be set.

MINUTES

DTI briefing
Ms A Ludin, DTI Deputy Director-General, began by giving the policy context of the Bill and outlined the process that led to the introduction of the Bill and the changes that had been made to it through its progress in the Portfolio Committee. The problem was that the existing legislative framework was outdated and fragmented and did not deal with challenges such as over-indebtedness and discriminatory market practices. There was a lack of access to credit for the majority of the public, and yet there was excessive credit for some income groups that resulted in unsustainable debt burdens. There was inadequate protection for consumers, especially those in low-income groups.

The Bill applied to all individuals who transacted at ‘arms length.’ The Bill imposed certain disclosure requirements such as the need for quotes, and outlawed certain provisions in contracts. In sales and marketing, certain practices had been prohibited such as ‘negative option marketing.’ The income on loans was limited to interest, application fees and service fees. The Bill also codified the in duplum rule. The Bill imposed registration requirements and criteria on credit bureaux, and regulated how consumers could get access to information.

The Bill further introduced a process of debt review, run by debt counsellors who were registered and overseen by a Regulator. The Regulator would ensure compliance with the Bill, monitor the credit market and investigate complaints, among other functions. A Tribunal had been introduced to prosecute credit providers for prohibited conduct.

Discussion
The Chairperson asked if the Bill applied to ‘stokvels’ and how the interest rate would be set.

Ms Ludin replied that stokvels had been excluded from the Bill because they involved the members setting rules for themselves and how they collected their money. They were difficult to regulate and it was unrealistic for the Regulator to try and get involved in this. The Bill did not require the Minister to set limits, but it was clear that the Minister would set these limits through the Regulations. Flexibility was needed as interest rates changed.

Ms M Themba (ANC, Mpumalanga) asked if the Bill dealt with the issue of ‘loan sharks’. Ms Ludin replied that the issue of ‘loan sharks’ was similar to that of ‘stokvels.’ The Bill did not refer to them expressly, but it did deal with all individuals that provided credit. If a credit provider had less than 100 clients, they did not have to register, but the Bill still applied to them. Consumers could still report them to the Regulator, and the providers still had to comply with the law.

Ms S Cheng (Gauteng) asked what would happen where someone was not able to repay a debt even though a number of payments had been made.

Ms Ludin said that this referred to ‘voluntary surrender.’ This was possible where the individual did not want the goods repossessed.

Western Cape Department of Economic Development and Tourism briefing
Mr R Windvogel, Manager in the Office of the Consumer Protector, said that the primary view was that the Bill was a major step towards the more effective regulation of credit extension and credit information. However, the Bill did not address the concerns raised by the Department or accommodate any of the amendments proposed. The Bill concentrated its authority to register credit providers, credit bureaux and some debt counsellors with the National Credit Regulator (NCR). This compromised the provinces with regard to jurisdiction and did not lend itself to effective enforcement across the country.

He suggested the amendment of section 12 to provide for Provincial Credit Regulators (PCRs). He called for all PCRs to register all branches of credit providers operating within a province, and that they be given authority to appoint inspectors. Lay-by’s were still not included in the definition of credit agreements and there still was no set time period within which a credit provider had to provide a copy of the credit agreement to the customer. Mr Windvogel questioned whether a costing analysis had been done for the implementation of the Bill.

DTI response
Ms Ludin said that there had been engagement with the provinces. The provinces were asking for the Bill to create powers for them, and this was unconstitutional. The Department could not create Regulators for a different sphere of government.

Mr T Hercules, State Law Advisor, agreed, but said there was a major role for provinces to play. The Minister could devolve her/his powers to the provinces, so they could have their own inspectors to monitor the industry. Lay-by’s were not included as they were not credit transactions because no interest was attached to them, but there was a huge potential for customer exposure. She agreed that time periods should be set within which a credit provider had to provide a copy of the credit agreement to the customer. She would look over this with her team.

The meeting was adjourned.