National Credit Regulator and National Consumer Tribunal

Meeting report

Briefing by the National Credit Regulator (NCR)
Mr Gabriel Davel, Chief Executive Officer, NCR, gave a presentation to the Committee which covered the impact of the financial crisis on credit markets and the NCR’s responses to the crisis. He began by mentioning the National Credit Act (NCA) which had been introduced in 2005 and was having a large influence on credit markets.

Mr Davel began by giving a statistical overview of the consumer credit market in South Africa. The NCR’s statistics were supplied by credit bureaus and credit providers and were published quarterly. They were reconciled with figures from the Reserve Bank and were considered to be robust. There was R1.1 trillion of outstanding consumer debt in South Africa, spread across 17.8 million active credit consumers. There were 1 252 debt counsellors in the country. The amount of credit granted had more than halved from R102 billion in the fourth quarter of 2007 to R50.9 billion in the second quarter of 2009. By far the largest decline in lending was for mortgages. Despite this, outstanding balances had increased, this was normal; however, the growth of loan balances had slowed significantly.

The amount of credit granted had fallen for two reasons; firstly, cautious consumers were applying for fewer loans; secondly, the proportion of applications being rejected had increased. The levels of default and debt stress had also been rising. The number of consumers with impaired credit records was increasing by more than 50 000 per month. This definition covered credit agreements and all other forms of debt or financial obligations, such as cell phone bills, doctors’ and dentists’ bills and school fee payments.

Mr Davel went on to describe a study commissioned by the NCR from Feasibility Consulting. This which was a wide-ranging piece of work investigating the impact of the global economic crisis on the South African consumer credit market. The study looked at four categories of consumers and assessed the impact of the crisis in terms of job losses and debt stress. Group 2 (earning between R1 800 and R6 100 per month) were most heavily affected by job losses, but only had a “moderate to high” risk of debt stress. The most heavily affected category overall was Group 3 (earning between R6 100 and R17 000 per month). This middle-income group had a “moderate to high” risk of job losses and a “high” risk of debt stress. This group were more likely to have long-term debt on houses and cars, whereas the low-income groups had short-term debt that could be dealt with more rapidly (such as furniture finance).

Mr Davel recognised that the focus had been on job losses but what was crucial were reductions in people’s income. This could result from reduced bonuses, fewer overtime hours or reduced commission payments. He said that the interest rate cuts by the Reserve Bank had been helpful but had been unable to cover people’s falling incomes. He also pointed out that debt counselling had no impact if someone’s income had fallen to zero because there was no income to be restructured. Overall, it was complicated to resolve most debt stress positions.

He warned that it was important not to assume that the situation was improving and that the worst-case scenario should be considered. He urged government and consumers to be cautious. He outlined the NCR’s responses to deal with consumer debt stress. There was a national awareness campaign to provide consumers with information and advice, the provision of debt counselling services and measures were being developed to avoid repossession of consumers’ primary residences.

Mr Davel said that a major problem in South Africa was insufficient personal bankruptcy measures, especially when compared with the UK. As a result there was no mechanism, especially for people with low-income, to write-off debts and sell assets. Debt counselling services could not address this issue. The implication was that households whose income had fallen to zero would see their position deteriorating every month, resulting in significant negative social consequences. Consumers living “beyond their means”, hard selling by credit providers and the global financial crisis had all caused rising levels of debt stress. A greater engagement between debt counsellors and credit providers was needed to provide successful debt counselling services.

Mr Davel said that the backlog of debt counselling cases was approximately 70 000; this was increasing by 9 000 per month. However repayments were being made: in September 2009, R107 million was repaid by consumers to creditors. The main reason for the backlog was confusion around interpretation of the NCA. Banks had exploited every area of uncertainty to oppose hearings and cases could not get through the court system, although this had recently improved. The NCR received a Declaratory Order from the High Court on 21 August 2009 which attempted to resolve numerous problems arising from the vagueness of the National Credit Act, particularly relating to the process of debt counselling applications and debt relief. This order was being appealed by one debt counsellor and four banks. This Declaratory Order clarified a number of issues but left some significant problems unaddressed which could only be dealt with by amending the NCA. One of the most significant issues was that the issuing of an order for enforcement action stopped people from attending debt counselling; this went against the ideas of the NCA. Also, there were limitations in the ability of the magistrates’ court to reduce interest payments or the total amount owed. They could only change the payment term. This was rarely enough to deal with over-indebtedness.

In conclusion Mr Davel said that the NCA had been successful: it had curbed excessive lending. Debt counselling services were working and repossessions were being avoided. He said that the significant fall-out from the financial crisis was continuing and debt stress was still increasing.

Discussion
Mr B Turok (ANC) asked whether, since the banks had fought on the NCA, the Committee should call on them to explain their actions.

Mr Peter Setou, Senior Manager: Education and Strategy, NCR, said that it was the Committee’s prerogative to do this, although it would also be useful for the debt counsellors to address the Committee. This would ensure a balanced view.

Mr S Marais (DA) supported the idea of calling the banks to the Committee. He said that the black economic empowerment (BEE) charter called for banks to support BEE companies. Banks were not contributing to this and they claimed that the NCA was preventing them from doing so. Banks blamed the NCA for not granting credit to consumers. He asked whether this was justified.

Mr Davel replied that the NCR was outside the lending decision and that this was quite correct. They did not even issue guidelines to credit providers. He noted that some lending should not have been done. The NCA said that if a bank could not have realistically expected a consumer to repay a loan, yet still lent the money, then that bank would not get a court order for enforcement action against the consumer. Indeed, they would be prosecuted.

Mr Turok said that there was clearly excessive and conspicuous consumption in South Africa and felt that Parliament should comment on this.

Mr Davel agreed. He said that South Africa had become used to unrealistic economic growth levels and the economy was now struggling to cope with the correction.

Mr A Van Der Westhuizen (DA) said that the issue of credit was very important and asked what the Committee could do to clarify the issues in the NCA.

Mr Davel said that there were very real problems. The Department of Trade and Industry (dti) were working on amendments to the Act. These would go to Parliament early in 2010. Whilst progress was being made in interacting with banks it was important to resolve the legal issues.

Mr Marais asked about the role of credit bureaus. He had heard many complaints of a lack of cooperation from credit bureaus. They were holding information on people’s credit records for too long, even after debts had been written off.

Mr Setou replied that credit bureaus were regulated and could only hold information for a given amount of time. The length was dependent on the nature of the information but could not be held for longer than five years. If there was inaccurate information being held by a credit bureau then the Credit Information Ombud or NCR would deal with these matters.

Mr X Mabaso (ANC) asked if a credit bureau could wrongly list people and whether a bureau could be sued.

Mr Davel replied that sometimes the credit bureaus did make mistakes. However, 6 million people had benefitted by having data removed from lists in the first year of the NCA’s operation. Consumers could now get copies of their credit records for free. He said that bureaus could be sued and the NCR had sued one bureau in the past.

Mr Mabaso asked whether, for a person to be listed under a credit bureau, information from one party was sufficient or whether information from both parties was needed.

Mr Davel explained that the credit provider must inform the consumer in writing, giving them a period in which to pay the debt, before listing them with a credit bureau.

Mr Marais said that, because debt counselling immediately affected people’s credit record, they were often unwilling to take part.

Ms F Khumalo (ANC) asked how safe it was for an individual to declare themselves bankrupt and how their future credit records would be affected. She also asked if people were voluntarily attending debt counselling. She wanted to know how their future credit records would be affected.

Mr N Gcwabaza (ANC) asked how long it took for a consumer to be removed from the records of the NCR. He asked whether the consumer or the debt counsellor applied for removal from the records.

Mr Setou replied that if someone had applied for debt counselling then they could no longer get credit. Once that person had been rehabilitated they would get a certificate stating that they were no longer indebted.

Mr Davel added that there were, rightly, penalties for debt counselling and bankruptcy. Whilst a person was over-indebted they were unable to borrow. This was a reasonable system. This remained in place until the debts have been paid off and a clearance certificate had been issued. The credit bureau could then remove from the person’s record any mention of the counselling or over-indebtedness.

Mr S Njikelana (ANC) asked what the public’s understanding of debt counselling was.

Mr Setou said that the NCR was doing a lot to create awareness and that a significant number of people (more than 100 000) had approached debt counsellors. The NCR carried out a lot of awareness creation and impact assessment. There was a lot of work in rural areas with traditional authorities. There were dedicated officials whose role it was to conduct workshops in rural and outlying areas.

Mr Njikelana noted that the ratio of debt counsellors to consumers was very high. He asked if there were strategies to increase the number of debt counsellors.

Mr Setou replied that there were enough debt counsellors and that the challenges were around the NCA.

Mr Davel also said that the number of debt counsellors was sufficient. The backlog existed because cases could not be finalised due to the confusion over parts of the NCA. Once the court system began to work, and precedents were set, the backlogs would clear.

Mr Turok asked whether any work had been done to estimate the impact of consumer debt on Value Added Tax (VAT) revenue.

Mr Davel replied that there had been no work looking at VAT specifically. Work had been done looking at the extent to which people did not, or could not, make municipal service payments.

Mr Njikelana asked what the impact had been on micro-finance lending.

Mr Davel replied that the situation for micro-finance was the same as for the general credit sector. If a client was over-indebted then the micro-financier should not continue to lend to them.

Mr Mabaso asked how people could exit from a credit contract.

Mr Davel replied that there were usually termination clauses in a credit contract. However, the borrower would have to pay the outstanding amount to exit the agreement.

Mr Turok noted that the service sector was an important growth sector in South Africa but that it was the most vulnerable sector in a crisis.

Briefing by the National Consumer Tribunal (NCT)
Ms Diane Terblanche, Chairperson, NCT, gave a presentation describing the NCT and their actions during the economic slowdown and work on debt review. The NCT was established by the NCA in 2005 and had jurisdiction across the whole of South Africa. The scope of the NCT was to adjudicate on applications and allegations of prohibited conduct. The role of the NCT would also be expanded to deal with issues raised under the Consumer Protection Act, to be introduced in 2010. The powers of the NCT were significant since Tribunal orders had the same effect as High Court orders and they were binding on all parties before the Tribunal.

Ms Terblanche said that the NCT could issue a wide range of orders. Importantly, the NCT could declare that prohibited conduct had occurred. The NCT also had the power to issue an administration fine of 10% of turnover, or R1 million, whichever was greater. This acted as a significant deterrent to prohibited conduct. Non-adherence to NCT orders was a criminal offence punishable by fines and/or imprisonment. A number of parties may bring cases to the Tribunal, including the NCR and consumers. She said that there was a system of appeal and review for NCT decisions.

Ms Terblanche went on to describe the role of the NCT during the economic slowdown. Consumers in debt stress, because of job loss or income reduction, could have a debt review and the NCT could issue a debt rearrangement proposal. In 2008 the NCT had four consent order applications. In the first two quarters of 2009 there were 157 applications for consent orders. However, they still believed that there were fewer consent orders coming before the NCT than there should have been.

The major issue which limited the number of consent orders was confusion over when a debt counsellor should approach the NCT and when they should approach the magistrates’ court. The NCA definitions of over-indebtedness and the situation under which the NCT should be approached were very similar and caused confusion. Another issue around consent orders was a lack of knowledge of the procedures of the NCT. In order to address this the NCT had issued practice notes and guidance for debt counsellors. The NCT also held hearings in different locations in an attempt to become more accessible to people who might need access to the Tribunal.

There were also problems with the interpretation and application of the NCA, especially around the meaning of “respective credit providers”. Which credit providers should be included in decisions was not clear. This would only be clarified by precedents in the Tribunal. Ms Terblanche talked about Payments Distribution Agencies (PDAs) which were entities that carry out the payments from consumers to creditors. PDAs were not party to consent order proceedings before the NCT, yet the NCT order had to be carried out by the PDA. There was uncertainty from the consumer and creditor about the costs levied by the PDA and the timeliness of payments by the PDA. There was little protection for consumers in this respect.

Finally, Ms Terblanche talked about the voluntary surrender of goods. A consumer was able to terminate a credit agreement by paying off the outstanding amount or returning the goods. If a consumer wanted to return goods then the credit provider had to provide a valuation. The consumer may be unsatisfied with the valuation, or with the price received at auction. In this case the NCT had a large role to play in deciding on the fairness of this procedure. She said that it was important to inform people that they were entitled to a statement of account telling them exactly what they owe and showing a payment structure.

Discussion
Mr Marais asked who the adjudicators at the NCT were and what the requirements were to become an adjudicator.

Ms Terblanche outlined and named the members of the NCT and their backgrounds. There were a number of lawyers, along with economists, actuaries, a retired judge, etc. She said that there was a wide variety of backgrounds and experience. The dti advertised for members of the NCT and decided on the requirements for applicants. The members were appointed by the President.

Mr Marais said that very few consumers knew of the NCT, or how to approach them. He felt that access to the NCT had not been widely advertised.

Ms Terblanche agreed. The NCT was planning to raise awareness through joint projects with the NCR.

Mr Mabaso asked how the NCT was being availed to rural areas and informal settlements.

Ms Terblanche replied that there was a decision to be made whether to focus resources on people who had credit agreements, or people who may potentially get credit agreements. The way the NCT had tried to deal with this was by hearing cases in areas from where the applicants came.

The acting Chairperson raised the issue of farmers who were heavily indebted to the Land Bank. Often the Land Bank would take over the farms rather than sell the farm on the market. He asked whether the NCT dealt with this situation.

Ms Terblanche replied that this was covered in the NCA and farmers were not excluded from the NCA.

Mr Marais said that attorneys were often the worst transgressors in debt collecting. They would issue warrants even when people had arrangements to pay. He asked how consumers were being protected.

Mr David Scrooby, Case Manager, NCT, replied that the NCA had made a huge difference. Section 129 of the NCA specified what had to be done before any debt enforcement action or collection. A letter had to be sent to the consumer containing suggestions on how to deal with the indebtedness, such as attending debt counselling. This was a great improvement.

Mr Marais said that many consumers would not be able to afford legal representation and asked whether this put them at a disadvantage in the NCT process.

Ms Terblanche replied that the NCT was inquisitorial and not, like the court system, adversarial. The NCT did not expect people to know the NCA, just to be able to explain their case. Based on the case presented, the NCT would then make their decision. Around 70% of people came to the Tribunal unrepresented, but the NCT offered support before the hearing for what the parties should address. She felt that, because of this support, it was possible to be unrepresented and still get a fair deal.

Mr Mabaso said that “the law is as fair as your pocket is deep”. He said that there were huge disparities in the country and most people could not access the NCT. He asked whether the NCT helped to reduce imbalances for consumers.

Ms Terblanche agreed that this was an unfortunate fact in South Africa. This had been largely overcome by the creation of regulators, such as the NCR, the National Consumer Commission and the NCT. These entities all addressed consumer issues. Also, the upcoming Consumer Protection Act would be very important, especially the mandate to interpret this Act so as to advantage the disadvantaged party.

Mr Njikelana asked whether the case statistics captured the overall performance and work of the NCT. He wanted to know what had been happening in each area, over and above consent orders. He also wanted to know the outcomes of applications.

Ms Hazel Devraj, CEO/Registrar, NCT, replied that the NCT was established in September 2006 and began hearing cases in August 2007. In 2007/08 there were 11 cases, and in the last financial year there had been 26 cases brought to the Tribunal. Two of these cases had been brought by the NCR to deal with de-registration, two were applications to revisit NCR rulings, four were consent orders, one related to an application after resolution, 13 were for interim relief and four related to matters brought directly to the NCT. Of these 26 cases, six were adjudicated on, three were settled, seven were not pursued and 10 were unresolved at the end of the financial year. She said that the Tribunal also dealt with enquiries from consumers, directing them to the correct places to find help. The NCT had dealt with 204 enquiries with an average turnaround time of 11 days.

Mr Njikelana asked for elaboration on the cases that were “not pursued”.

Ms Terblanche said that if requirements for a full case filing were not met, even after being informed what to provide and offered support, then the case would not be pursued by the NCT.

The meeting was adjourned.