Home Loan & Mortgage Disclosure Bill: briefing

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Meeting report

HOUSING PORTFOLIO COMMITTEE
13 September 2000
HOME LOAN AND MORTGAGE DISCLOSURE BILL: BRIEFING

Documents handed out:
Home Loan and Mortgage Disclosure Bill No. 53, 2000

Chairperson: Ms. N Hangana

SUMMARY
The Home Loan and Mortgage Disclosure attempts to eliminate discrimination in lending practices in the housing market. Modelled on American legislation, banks will be required to disclose not only the number of bonds granted, but to report on the number and details of loan applications refused. Public hearings on the Bill are scheduled for 26 and 27 September and final discussion of the Bill for 3&4 October. The Bill will be debated in Parliament on 9 October.

MINUTES
Background to the Bill:
Mr Thatcher of the Housing Department said that this legislation goes back to 1994 and is an attempt to level the playing fields and eliminate discrimination in lending practices and the housing market in general. At the moment it is possible to obtain information from banks on the number of bonds granted, but they are not able to report the number of loans refused, and it is this gap in information that the Bill is intended to address. The Bill is modelled on American legislation and is in keeping with the South African Constitution, the Housing Act, the Promotion of Access to Information Act and the Promotion of Equality and Prevention of Unfair Discrimination Act.

The Bill was published for comment last year and this version incorporates the comments that were received and the results of discussions held with the Banking Council and other stakeholders. The number of written submissions received was fewer than had been hoped for, and originated from, inter alia, the Department of Justice, the South African Property Owners Association, internal comments form the Department of Housing, the Congress of South African Trade Unions, the Law Society of the Cape of Good Hope, ITALA Development Corporation, the South African Council of Churches and several attorneys.

The primary area being addressed by the Department is community reinvestment, and three Bills are being prepared in this respect:
Fair Lending Practices Bill (not yet tabled before Parliament);
Home Loan and Mortgage Disclosure Bill; and
Community Reinvestment Bill (currently being drafted).

Historically, loans have been refused to residents in 'red-line' areas, such as Soweto, because of the supposed security risk, despite residents having a long-term financial history with the relevant bank. After 1994 the Mortgage Indemnity Fund was created to act as a guarantor for banks when debtors defaulted in payments, but this fund had a limited lifespan and ended in June 1998. This has left a gap, which this Bill is intended to fill.

Overview of the Bill:
Preamble
The Preamble makes reference to the Bill of Rights of the South African Constitution, and specifically Section 9 dealing with Equality. It lists s26, the Constitutional provision on housing, s32(1) which is the constitutional right of access to information, which includes information as to why a loan application was refused, and certain provisions of the Housing Act.

Section 1 - Definitions
-
Section 1(i) provides a definition for 'auditors', an innovation which is not present in the American model. The inclusion of auditors is a back-up mechanism to prevent banks from attempting to conceal information. Discrepancies between the information released and the financial statements of the bank would be detected by the auditors and reported according to s2(4).

- Section 1(v) expands the definition of a 'financial institution' from that of the initial target of the formal mortgage market to include any financial institution.

- Section 1(vi) attempts to define 'home' as broadly as possible and excludes the Bill from applying to loans for, for example, motor vehicles.

- The 'office' defined in s1(ix) is a completely new office that is to be created.

Mr Lee (DP) pointed out the use of the terms 'financial period' in s 3(1) and 'financial year' in s3(2) and asked whether these should not also be defined in s1 of the Bill as they meant much the same to him. Ms. Hangana (ANC) stated that details of this kind should be noted and lodged during the final discussion of the Bill as the purpose of the current meeting was merely to have a general briefing on the Bill. Mr. Thatcher responded that the terms did mean the same thing, but 'financial period' had been included as, depending on when the Bill comes into effect, the first year might not amount to a full financial year.

Section 3 - Information to be disclosed by financial institutions
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Section 3(1)(a)(i) and s3(1)(a)(ii) are deliberately drafted in broad terms as it is envisaged that the Minister will provide for the specific categories of disclosure required in the regulations described in s12.
- The term 'closed' in s3(1)(c) means loans that have been finalised and registered.
- The purpose of s3(2) is for comparative analysis and it is hoped that improvements will be seen in the granting of loans from one year to the next.

Section 5 - Functions of Office
Section 5(2)(a) makes reference to Item 4 of the Schedule to the Promotion of Equality and Prevention of Unfair Discrimination Act. This schedule is an illustrative list of unfair practices in certain sectors and item 4 lists unfair practices in the housing sector which includes arbitrary eviction on a prohibited ground; 'red-lining' on the grounds of race or social status; unfair discrimination in the provision of loans, bonds or financial assistance on the grounds of race or gender; and failure to accommodate the needs of the elderly.

Section 8 - Period of office, vacation of office and filling of vacancies
Section 8(4) contains a typographical error and should read '…the Minister may, subject to section 6, appoint somebody…'

Section 11 - Secretariat
Provision has already been made within the Department's premises in Pretoria for the Secretariat, and all the necessary support in the form of computers and phones etc. have been made available.

Section 15 - Offences and penalties
The penalties are particularly severe and have been made so in the hope that banks will act quickly to comply with the provisions of the act. Non-compliance with the act will be indicated in the annual reports of the Office of Disclosure.

Memorandum on the objects of the Bill
The amount of R4,98 million indicated in item 5 of the memorandum has been provided for in the departmental budget.

Discussion on the Bill
A member expressed concern that the Bill contained too many 'mays' rather than 'musts' and felt that a firm line should be taken demanding disclosure from the banks. Combined with this she questioned whether banks should be allowed yet another year of exemption in terms of s14(2) as financial institutions could then continue to delay disclosure of information.

Mr. Thatcher agreed that the Bill should be emphatic and should contain 'must' as much as possible. He considered the majority of the Bill to be composed of 'musts' and felt that the use of 'may' in s14(2) was justified. He stated that Ministerial discretion should be extended to permit non-disclosure in certain circumstances, such as where a bank is new, for example. Mr. Thatcher agreed with the member that a year was probably sufficient time to comply with the terms of the act, but that the exact time frame was a policy question and was not for him to answer.

Ms. Phantsi (ANC) noted that the Memorandum to the Bill only contained an estimate of the costs of implementation for the first year. She asked what costs would be incurred in subsequent years. Mr. Thatcher replied that the cost to the state was hard to predict as the workload for the Office of Disclosure was still unknown. The department had budgeted for five to six people, and on projections had estimated a cost of over R5 million for the second year with more being spent in the third year. A member queried whether the R 4.9 million indicated in the Memorandum was only for the establishment of the office or whether it included running costs for the first year. Mr. Thatcher said that the R4.9 million was the entire cost of the office for the first year, including establishment and running costs.

Dr. Rhoda (NNP) asked for clarity on the use of the word 'person' in s15. Did this refer to a person in their personal capacity or to a bank?

Mr. Thatcher said that section 15 is an amendment from the original version by the State law advisors. An option of imprisonment had been included but was removed as the only relevant penalty for contravention of a financial bill is a fine. If the offender is a manager of a department at a bank, he personally would be fined but ultimately the cost would be borne by the bank. The word 'person' includes juristic persons but also refers to natural persons as the offender could be anyone, including someone within the department of housing.

Mr. Pheko (PAC) asked if there wouldn't be greater clarity if s15 were amended to include the term 'juristic person'. Mr. Thatcher said this amendment could be made.

Mr. Schneemann (ANC) expressed concern that s3 did not make provision for people who are turned away at the counter upon requesting a loan, without even having filled in application forms.

Mr. Thatcher said that s3(1)(b) has been broadly framed and details like Mr. Schneemann raises can be included in the regulations, although it is hard to have an accurate record of the number of such refusals. Mr. Thatcher said the point would be noted and dealt with in the regulations.

Mr. Schneemann (ANC) further asked whether s15(2) had any provision for a cut-off date for renewal of exemptions, or whether banks may continue to apply.

Mr. Thatcher shared Mr. Schneemann's concern but felt that cut-off dates were a policy matter best dealt with by the Director-General.

A member asked whether the act would also apply to persons with title deeds wanting to access loans. Mr. Thatcher confirmed that anyone with a title deed is covered by the act as it applies to all bonds applied for subsequent to the act coming into effect, including extensions of existing bonds.

Mr. Lee (DP) asked whether the act would also cover bond applications made without the use of application forms, such as internet applications, for example. Mr. Thatcher said that internet applications would definitely be included in the regulations and that every single application (including verbal and over-the-counter applications) must be included, even though some of these will be difficult to verify.

Mr. Lee (DP) requested that copies of the submissions made to the department be made available to members, and this was agreed to by Mr. Thatcher. Ms. Phantsi (ANC) asked what action the department was taking with regard to educating consumers about the Bill. Mr. Thatcher stated that education in the informal sector has been taking place and that they hope to establish information offices in many rural and major centres.

The meeting was adjourned.

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