'Debt Intervention' National Credit Amendment Bill: Subcommittee on flagged clauses

Meeting report

Deliberations on the National Credit Amendment Bill

The Chairperson said that it would be pertinent that Members refresh themselves on the Committee Bill.

Adv Charmaine Van Der Merwe, Senior Legal Advisor, Parliament, refreshed Members on the Bill and indicated that inputs from the Dti required adjustments to be made in the Bill – to amend the bill in accordance with the inputs received. The big concerns about implementation have been discussed at length, and the Committee had considered the policy decisions.

Mr A Williams (ANC) sought clarity whether the bill would be voted on clause by clause when Members came back from recess.

Adv Van Der Merwe said that the policy decisions brought up all came from the comments during the public hearing, which were discussed at length. When Members returned from recess the bill would have been redrafted to include the issues that have been agreed on thus far. Only then, will the Committee consider the bill clause by clause.

Mr D Macpherson (DA) suggested that the Committee should consider publishing the bill again for public comments once it has been redrafted and put together in the right format.

Adv Van Der Merwe advised that the Bill still had to go through the NCOP (National Council of Provinces) and it will be an extensive process. If the changes are made at the NCOP level, those changes need to be considered whether they came from the public hearings or internally (NCOP). It can be done but the objective is to try and limit it because the process may be an unending cycle. The Bill is a Section 76 Bill which requires extensive participation in the NCOP as well.

The Chairperson stated that the Committee will focus on the five critical issues where consensus has not yet been reached.

Mr Williams suggested that Advocate Van Der Merwe lead Members through the outstanding issues.

Deliberations on the National Credit Amendment Bill

Clause 14

Adv Van Der Merwe said Members raised whether the measure should only be available to citizens, or should it be available to all persons who can apply for debt review?

Members had already concurred that the measure should not be limited to only South African citizens.

She also indicated that with regards to rehabilitation, the idea of the moral hazard was raised by Members, and part of the intervention is to enable the consumer to be rehabilitated and get out of the trap, and there is a sense to allow for a period in which the right to apply for credit is limited. It was proposed that Members needed to reach consensus on the two year suspension period. Issues were raised that the sequestration had a much longer period for massive debt. Perhaps it could be a two year suspension period, but for extinguished debt, the consumer could be limited from the credit market for a minimum of three years. She suggested that the Committee should consider whether it should be mandatory or discretionary and determine the period thereof.

Mr S Mbuyane (ANC) stated that on the first question (suspension of debt), the minimum of 12 months would be fine and the National Credit Tribunal (NCT) would need to be strengthened to exercise its discretion, but suspension must be mandatory.

Mr Williams concurred with the proposal.

The Chairperson stated that initially 36 months mandatory period was suggested but 12 months is the position that Members concur on and the suspension must be mandatory but at the discretion of the NCT.

Mr Macpherson stated that he did not share the same sentiment because there is a need for higher minimum and maximum periods. The baseline should be 2 years at the discretion of the NCT, and the maximum should be 5 years. He suggested that the suspension period must be 24 months minimum, and 60 months maximum, at the discretion of the NCT.

The Chairperson stated that there is consensus on the mandatory rehabilitation process but Members could consider the minimum for a year and that the NCT should have discretion. She asked Mr Macpherson to consider the three years maximum, but there was consensus on the minimum period.

Adv Van Der Merwe stated that at this point there was sufficient information to redraft the clause.

Furthermore, on Clause 14, the concern was raised that Parliament is delegating its plenary powers. There are two paragraphs that could pass constitutional muster (exogenous shocks and disaster). She proposed that those two clauses remain, but the Minister can push legislation through parliament on a matter of urgency.

Mr Mbuyane pointed out that the argument was based on s88F(2)(a), (b) and (c), and the proposal was to remove s88F(2)(c) and keep (a) and (b).

Mr Macpherson said he was not concerned that (a) and (b) should not be there either, if needed the Bill could be brought to Parliament on the basis that it required such urgency. He proposed that all clauses be removed.

Mr Williams said if this was already in place ((a) and (b)), Members could almost immediately institute the process, but if the clauses were left out of the Bill, the Committee would have to wait for two weeks for Parliament to get things done. Parliament won’t move quick enough to address a national disaster, if (a) and (b) remained, the measure would kick in immediately.

Mr Macpherson said that by leaving the sub-sections in the Bill, Members automatically assumed that credit providers would not provide relief or credit and this was noted by senior counsels. He indicated that Members were treading on shaky ground by intervening and taking away the right of the credit provider under those circumstances. He wanted to know what was the limit of the intervention, and whether this was suggesting that the Minister would write off all mortgage debts in the event that there was a Tsunami.

The Chairperson asked how far the legislation period would be processed in the event of the occurrence of exogenous shocks or national disaster. Basically, if the sub-sections were to be struck off, as suggested by Mr Macpherson, how quickly would the parliamentary process be?

Mr Williams said the main objective of the Bill is to assist the poorest of the poor not people who already have resources and nice houses.

There was no consensus between the DA and the ANC on 88F(b) and it was flagged.

The Chairperson asked for clarity about whether the Bill is a once-off shot or it was meant to address other issues as well.

Mr Williams said debt extinguishing will be a once-off mechanism, but there are other clauses such as debt intervention (debt counselling), which would be continuous. With respect to subsection (c), there is already a nomination from the ANC to remove it.

Members agreed to struck off subsection (c).

Clause 11

Adv Van Der Merwe indicated that self-incrimination and anti-competitive issues were raised in relation to this clause. When credit providers conduct the assessments, they do not contact other credit providers for more information during the affordability tests assessments. Concerns were raised that the clause was stepping into the area of competition, which may lead to misuse by credit providers but for debt counsellors this was different. Dti proposed that credit providers could be issued with compliance orders to comply.

Adv Van der Merwe said that she had held discussions with Dti to defeat this issue of self-incrimination, and Dti proposed that instead of the credit provider doing the affordability assessment; we simply say that, when the credit provider does the assessment and it’s clear even without the current loan the consumer is applying for, the consumer is still over-indebted.

If the assessment showed that the consumer was given credit even though they are over-indebted, the requirement could refer that fact to the NCR without requesting the agreements from other credit providers and have the Regulator do the investigation.

If the credit provider sees that the consumer is over-indebted, that may be a deterrent to grant credit, but this way the self-incrimination, and anti-competitive behaviour is avoided.

Mr Mbuyane stated that the question was whether reckless lending should be reported by the credit provider or not, it would not be possible for a credit provider to report another credit provider. The NCR should be capacitated to be able to conduct its investigation on these matters.

Mr Williams concurred with the proposal that it should not be compulsory for other credit providers to report another credit provider on reckless lending.

Adv Van Der Merwe said with regards to reckless lending being reported by debt counsellors, previously the general view was that the point must be sustained, that debt counsellors ‘may’ report reckless lending.

Mr Macpherson maintained his position that the Act said that debt counsellors ‘may’ report reckless lending, but he suggested that debt counsellors ‘must’ report reckless lending. It must be an obligation.

Mr Mbuyane stated that it should be a ‘must’, because if it’s optional, debt counsellors may not do it.

Members agreed that debt counsellors ‘must’ report reckless lending.

Adv Van Der Merwe also raised the point whether suspension by the NCR be retained. In this instance the NCR is being put in a position to play police and judge. The compliance order could be utilised only when parties agreed but the problem is where they did not agree on the compliance order. The question still remains if it should be retained, but she advised that it should not be retained.

Mr Lionel October, Director-General, Dti, said the guiding principle is providing effective relief for the consumer. This is essentially the same as the Competition Commission.  The NCR must be strengthened, but those decisions could be reviewed at the NCT level – same as how the CCMA and how its decisions get referred to a court for review. He believed that it would unnecessary delays if suspension would be referred to the Tribunal.

Mr Macpherson said at some point during the process someone should consider the prima facie evidence that there is reasonable doubt that credit was granted recklessly, and thus, consumers should not continue paying for those loans.

The Chairperson stated that there was a lack of consensus due to the uncertainty about who should take the decision between the NCR and NCT.

Mr Williams said also the key point of this legislation is that Members want to try and get it done expeditiously. Therefore, Members should move for the quick implementation of the suspension of the loan to avoid having over-indebted consumers continue paying for credit that was granted recklessly. It appeared that Members agreed on the principle but the process is what seems problematic, but he suggested that the Regulator must retain suspension.

The Chairperson said if the person concerned did not agree with the decision of the NCR, that individual could appeal to the NCT. Thus, it maybe be possible but Adv Van Der Merwe was concerned about the compromising position this would place the NCR.

Adv Van Der Merwe said the Competition Commission does not make decisions; it only investigates and the Tribunal is the decision-making authority. The decision of the Regulator to suspend pre-empts a decision by the Tribunal to suspend, you can’t have a police officer make a decision and then say that decision could be appealed at the court – that’s not how the system works. She said her team will try to think about how to work with the decision made by the NCR.

Mr Williams said this needed to be looked at more carefully, consensus was reached and there is a mechanism in place but the only problem is the procedure that still needs to be determined. Members would like to ensure a quick implementation on the decision making process.

The Chairperson said the opinion received from Adv Van Der Merwe was cautionary, so Members needed to take that into cognisance.

Clause 17

Adv Van Der Merwe said with regards to credit life insurance, the question was whether a clause should be included to make it clear that this section could come into operation at a later date. If a person was retrenched; thus, unable to make payments and the policy lapsed – this required further discussion.

Mr Macpherson recalled that he had suggested that the Committee needed to engage with the FSB (Financial Services Board) and insurance providers and try to understand the product that could be offered to the targeted group. The problem is that Members were trying to make a decision without the facts about what the product would look like; it’s hard for the DA to put a position on the table due to the lack of information on this.

Mr Mbuyane said the Committee wanted to understand the ‘lapsing of the contract/insurance’

The Chairperson recalled it was suggested that this could come in at a later stage because it appears that there are no such products that could be provided in the market, the product is not available in the market at the moment. It needs to be indicated in the Bill that this would come into operation when the product is available, and insurers could be approached and encouraged to develop such a product.

Members agreed on the proposal to engage with the insurers and FSB at a later stage.

Mr Macpherson asked the Director-General and Deputy Director-General to refresh the Members on the Dti’s position on this issue.

Ms Evelyn Masotja, Deputy Director-General: Policy and Legislation, Dti, indicated that Dti supported the initial view of the consultation with the Ministers of Dti and Finance. Currently the NCA does provide for credit life insurance but it did not provide for the targeted group of the Bill.

Clause 14

Adv Van Der Merwe said with regards to rehabilitation, the question was whether all outstanding debt should be repaid. How will the debt be calculated – as from the date of application, or as if suspension/extinguishing never happened, or the date the order was granted? She asked Members about the best midway solution. The first option would prejudice the credit provider, the third option would prejudice the consumer. Perhaps the middle way would be the second option. The suggestion was perhaps there could be a prescribed interest rate determined by the Minister for the period the debt was suspended, but the question prevailed, what must be repaid?

Mr Mbuyane wanted to know what the current process entailed.

Adv Van Der Merwe said the Bill currently provides that the only limit was that the consumer may not enter into any more credit agreements during the period of suspension and the credit provider may not take the consumer to court for outstanding debt but the interest of the debt would continue running until an order was granted.

Mr Macpherson said perhaps the NCR could inform the credit bureau that an application has been received from an over-indebted consumer, to ensure that the consumer is refused further credit agreements.

Ms P Mantashe (ANC) asked whether it would be problematic if the interest was stopped at the date of application to suspend the credit agreement, because if the interest continued to run, that would prejudice the consumer.

Mr Macpherson rebutted to say that if we stopped the interest from accumulating from the date of application, people would rush in to apply to have their interest rates stopped from accumulating and that would definitely prejudice the credit provider.

Mr Williams said that consumers should pay interest up to the date the order was made, and proposed that the Committee goes with the prescribed interest rate that would be determined by the Minister, in terms of how much should be paid back in interest.

The Chairperson asked what about the capital amount.

Mr Williams said the consumer would pay the capital amount (R50 000) at the date the order was granted plus the prescribed interest rate set by the Minister.

Mr October said the continuation of giving these powers to the Minister is starting to over-reach into commercial decisions. All these decisions are micro-decisions to areas of interest rate determination. He advised that the Minister currently has the power to decide on the maximum interest rate the banks should charge, even that is now still in court. These decisions should be given either to the Regulator or the Tribunal because they must hear the circumstances of a particular case on its individual merit and then determine the appropriate rate. Decisions must be made at a level that is appropriate, both opinions in terms of the constitutionality indicated that if it’s a blanket provision for people whether they are indebted or not, and the measure is made available automatically, that would constitute expropriation. To remedy this, Dti proposed that the consumer must also be over-indebted; because once a person is over-indebted it means that the credit provider granted credit recklessly. In terms of the Act, if you are over-indebted you should not have gotten a loan in the first place, so if the debt is written off in a blanket way even the credit provider that conducted a bona fide and exercised proper practise, even though the consumer may not necessarily be over-indebted at the time of the application, if the credit provider knows that that debt will be written off, there is no incentive on the credit provider to refrain from granting credit recklessly. So if you put in the issue that it only applies to consumers that are over-indebted, then you do not have to punish them that they cannot get credit for two years, we can just remove the clause completely. Then people would not have to be punished because over-indebtedness is a clear sign of reckless lending, we make this sustainable and cater for the vulnerable group and people can immediately apply for a loan again.

Adv Van Der Merwe said that it appears that there was a bit of confusion with regards to the issues, we might end up with answers that did not make sense. The issue of interest running before the order was granted, the reason why the Bill provides for that is because the order might be rejected. You might have someone that does not qualify who was not supposed to be part of the process and slips through the NCR. If we stopped interest at application, you will get people to apply just to have their interest stopped. That was the rationale and it’s a separate issue. Now we are looking at someone who has already gone through the process, we are not talking about debt extinguishing – we are passed engaging on that.  The Committee has already agreed that there must be a mandatory period before a consumer can apply for credit, otherwise people will end up falling into the same trap and it becomes a vicious cycle. If the debt is extinguished, the person is no longer over-indebted. For the consumer, when they apply they need to realise that there is something that will come with the measure, which would be mandatory for the consumer to be limited from accessing credit.

We are looking at a statutory rehabilitation when people are sequestrated, so that people can enter into the credit market again. We cannot leave it for the Tribunal to decide whether the person can pay up to the date of application, or granting of the order or up to the date of repayment – this should be similar for everyone that wants to rehabilitate, because that will give certainty to the credit provider and to the consumer as to what would happen.

Mr October said that the whole point of rehabilitation means that you must have done something wrong, our starting point is that the facility must only be extended to consumers who are over-indebted – if a person is over-indebted, means that they got a loan from someone predatory. There must be no punishment for the consumer and if there is no punishment that means there will be no rehabilitation. Consumers can immediately apply for credit again once the debt has been extinguished, and by then the bank would have learnt its lesson to ensure that it will grant credit legitimately. This facility is not a gift but it’s on the case that the banks have acted in predatory nature in granting credit and consumers are then offered extinguishment.

The Chairperson asked, what if the credit provider complied with the law and the credit was granted lawfully, but the tragedy befalls the consumer and now they cannot pay the credit back – in this case, it’s not the credit provider’s fault. Much of the huge percentage of credit is provided in a wrong manner but there is credit provided lawfully and this is something that needs to be kept in mind by Members in as much as the objective is to protect and assist the consumer. She asked Members to agree that the payment should be at the date the order was granted.

Mr Williams said the date the order was granted was more ideal and reasonable. He concurred.

Mr Macpherson said he did not oppose the idea but he was concerned about how the NCT would make the determination in terms of capital and interest, and whether it would not be made arbitrary, he suggested that there must be a baseline of some sort that can be established.

The Chairperson said the Tribunal should look into this.

Mr Williams agreed with Mr October’s sentiments, and said that people should not be penalised, but the credit providers because they would have had learnt their lessons. It’s a very good mechanism to deal with reckless lending across the country, and perhaps the Committee could look into how it can slot that in, and if so, the clause could be taken out and the repayment would not be an issue.

Mr October said that there would be two circumstances in which the relief could be granted: one would be over-indebtedness and a change of economic circumstances of the person at no fault of their own. It is the only thing that is going to make it constitutional in terms of the legal opinions received. Case in point, the financial crisis in the United States where consumers were granted home loans without any affordability assessments conducted. We have the same thing, for example with Capitec and African Bank granting people credit recklessly – it’s endemic.

In the case where both the credit provider and the consumer are not at fault, this provision can be made that the consumer could pay the money back when their circumstances change and guidelines could be provided in terms of how the interest could be paid.

The Chairperson said given what has been said today, particularly on the last area, is there a risk of that arising that this was just a blanket approach.

Adv Van Der Merwe stated that perhaps she was not understood correctly, the issue of reckless lending is dealt with separately in the Bill, what we are dealing with in the debt intervention is credit granted lawfully. If it was unlawful, that is dealt with during the initial stages of the process of the NCR, those agreements would have been already dealt with through the process the Act already provides for. Even for reckless lending that would have been dealt with properly as prescribed in the Act, and we are strengthening those provisions in the Act separately. She said that it seems we are repeating the same issues.

The Chairperson said the way she understood the DG is that he was saying the bill was intended to deal with over-indebtedness of the vulnerable group. If we deal with that, reckless lending would be dealt on the other side of the coin through the measure.

Mr October said if the bank behaves properly and provided that bone fide guidelines, and granted a legitimate loan then there would be no business for the legislature to get involved in that business, otherwise there is potential to create a moral hazard. When we can only intervene when over-indebtedness is an indication of reckless lending. The banks have been given guidelines to not lend monies to people that cannot repay, case in point African Bank, so it is in the State’s interest to punish that behaviour. The State would lighten your burden should the circumstances of the consumer change without their fault and they are now in the position to default. When those circumstances change again, provisions could be provided on how the consumer could start repaying the loan.

The Chairperson said that if there is a further problem, the DG could engage with the Subcommittee.

Mr Williams indicated that all the things on which consensus has been reached have been noted and further deliberations could be conducted on the other issues. He asked if it was possible for the DG to write down his suggestion so that the Subcommittee can consider it. If the Subcommittee had received this information at an earlier stage that would have been helpful because the DG explained his view so well that he supported it.

Clause 14 should come out, if we say over-indebtedness is a criteria, then there won’t be a rehabilitation period, because rehabilitation would come from the banks by not granting consumers loans or rather by being careful on granting loans recklessly.

The Chairperson said, as Mr Williams understood it to be DG’s views, that the entire clause 14 should be struck off, but the matter would be flagged for further deliberations. She indicated that the date the order was granted was the operative date in which Members agreed on.

Members agreed on the date of order.

Adv Van Der Merwe said that all the clauses that have been discussed so far can be drafted, there was enough at this stage to draft.

Mr Williams agreed that Adv Van Der Merwe can move forward and draft.

The Chairperson emphasised that that did not mean adoption, but only drafting.

Adv Van Der Merwe said she agreed with Dti that it would assist and in the next two weeks they will be looking at the documents she worked on, but she would like an opportunity to look at the document that Dti had drafted to ensure that all the comments have been taken into account and it reflects what the Committee wants on the Bill. She would like some time to discuss with the Credit Bureau Association on the reporting issues so that the Bill could have those things aligned. She proposed 2 May as the most appropriate date to report back to the Committee.

The Chairperson asked Members to support the position and ask the Advocate to incorporate what has been discussed and the Committee will come back to it at a later stage.

Ms Mantashe concurred with the proposal.

Adv Van Der Merwe suggested that when Members come back, it would be better to do a presentation on the Bill, specifically on what the Bill does and then take the Committee through the Bill clause by clause. She would ensure that Members had a clear understanding of the entire Bill, and then proceed with it clause by clause.

Members all agreed to the proposal.

Committee business

The Chairperson indicated that there are two other bills before the Committee (Copyright Amendment Bill and the Performers Bill). The Liquor Bill is still before Cabinet, but as soon as it was finalised it would be referred to the Committee. She indicated that the bills were all complex and would require more time, she suggested that perhaps the Committee could start meeting on Thursdays from 16:00 until 10pm, she asked Members to comment on whether they would prefer to meet on different days.

Mr Macpherson expressed his frustration about the bills the Committee had to attend to in a single year, he attributed that as poor planning and it made it impossible for Members to apply their minds effectively.

Mr Williams concurred with Mr Macpherson.

Mr Macpherson suggested that the Dti and the Minister should indicate which Bills were a priority so that the Committee could work out a schedule for those bills.

The Chairperson said that the Committee would deal with three bills, the Copyright Amendment Bill, Liquor Bill and Performers Bills.

Mr October informed Members that the Gambling bill would also be tabled as well the Companies Act to effect amendments.

The Chairperson indicated that Members would deliberate on this at a later stage.

The meeting was adjourned.