National Credit Amendment Bill [B47-2013]: public hearings & briefing by Department of Trade & Industry

Meeting report

Department of Trade and Industry (DTI) briefing
DTI Deputy Director-General: Corporate and Consumer Regulation, Ms Zodwa Ntuli said the input would be an overview of a previous presentation to the Committee. The effect, in absence of the National Credit Act and in light of the financial crisis, would have been severe for the country. The University of Pretoria had been doing an ongoing assessment of the legislation and in collaboration with credit providers and consumer groups, implementation challenges were identified that spoke to the gaps identified in the way the legislation had been drafted. The aim was not to overhaul, but to enhance the effectiveness of the National Credit Act. Credit providers were encouraged to resolve issues with consumers aligned with the structures in the National Credit Act and the industry wanted to advise the fastest redress that would benefit both consumers and credit providers.

The banking industry, credit providers and civil society were consulted and this process had been very encouraging. National Treasury was consulted because the majority of the stakeholders were financial institutions and the regulation of the financial sector should be sustainable and encourage growth and economic development. The general and sector regulation should be coordinated to promote the mandate of the country through the amendment of provisions that would make cooperation obligatory. National Treasury was again consulted on the proposed removal of adverse credit information and it was agreed that the process would be a public process. Deregistration of credit providers was proposed to be processed by the National Consumer Tribunal through the National Credit Provider (NCR). National Treasury was again consulted on the recognition of alternative dispute resolution agents (ADRAs) that was proposed to be overseen by the NCR and deliberated whether the ombud structure should be managed by the NCR. The Banking Association of South Africa (BASA) approached the Department to afford them the opportunity to come up with an industry solution to the challenges around voluntary debt mediation and debt counselling. This was encouraged because it would be ideal if there were clear recourse for the consumer to resolve credit issues with the credit provider through voluntary debt mediation.

DTI Director: Consumer, Competition Law and Policy, Mr Andisa Potwana said the policy objectives included enhancing the power of the NCR and the National Consumer Tribunal to ensure more efficient regulations. This enhancements would entail the NCR to register and deregister certain entities like the payment distribution agencies (PDAs) and debt counsellors. The NCR should be able to introduce new conditions of registration and impose certain penalties for late registration. The National Consumer Tribunal should be able to deal with matters concerning reckless lending. The scope of ADRAs structures needed to be clarified in the Act and voluntary debt mediation was still open to debate. Some wording ambiguities in the Bill would be clarified and the ‘fit and proper’ classifications for debt counsellors would be explained. The affordability guidelines would be defined and other issues like garnishee orders was also discussed.

Banking Association of South Africa (BASA) submission
BASA Managing Director, Mr Cassim Coovodia, said the Association was gratified by the DTI’s encouragement for input in the voluntary debt mediation arena. There were many any amendments that the Association agreed with but the presentation would mainly focus on those amendments the Association did not agree with.

Section 48 of Act 34 of 2005: Conditions of Registration, Clause 8
The Bill intended to amend the criteria necessary to be registered as a credit provider by requiring compliance with a prescribed Code of Conduct or a guideline including, but not limited to, an affordability assessment guideline prescribed by the Minister after consultation with the NCR. The intended substitution was in addition to the criteria of compliance with the provisions of the Broad-based Black Economic Empowerment (BBBEE) Act, 2003 and commitments made by the applicant in connection with combating over-indebtedness. The preference continued to be that a Code of Conduct should be a credit providers’ Code of Conduct emanating from credit providers approved by a regulator. The concern was that a prescribed code created opportunities for inclusion in such code issues that should be addressed through Amendments in the Act and that the prescriptions by the Minister would bypass the parliamentary process, including consideration by the Committee of changes that could have a detrimental impact on borrowers, lenders and the credit industry. In the event that the legislature intended to give the Minister the power to prescribe a code of conduct after consultation with the NCR, the slide numbered 5 gave an overview of the proposed limitations that should be imposed on those powers.

The proposed amendment would negate the rights of the credit provider as contained in section 82 of the National Credit Act and would be in direct conflict of section 82. This would empower the NCR to legislate by way of issuing guidelines and incorporating such guidelines into a credit provider’s registration conditions and such guidelines would not be binding on a credit provider. The proposed role of the National Consumer Tribunal was outlined on the slide numbered 7 and BASA stated that the contravention of the affordability guidelines could have the dire consequence of deregistration with concomitant unintended consequences.

Section 71A of Act 34 of 2005: Automatic Removal of Credit information, Clause 13
This insertion made provision for the automatic removal of consumer credit information and currently the Act only made provision for the removal of credit information in instances where a customer is under debt counselling and had fully satisfied all the obligations under every credit agreement that was subject to the debt rearrangement or order of agreement. This proposal disadvantaged regular payers and an incomplete credit history would pose a challenge for credit providers in respect of building credit scoring systems. If the information was not available, the credit provider would have to apply a generic approach and determined the cost of credit based on a higher risk, which would be to the detriment of the consumer, specifically impacting the consumer’s accessibility to credit.

Section 73 of Act 34 of 2005: Verification, review and removal of consumer credit information, Clause 14
The proposed amendment intended to give the Minister the power, at any time, to prescribe the nature of, time frame, form and manner in which consumer credit information held by credit bureaus should be reviewed, verified, corrected or removed. Continued removal of credit information could affect the sovereign rating and made a mockery of an effective credit bureau system and reduced credit providers’ confidence in such a system.

Section 86 of Act 34 of 2005: Application for Debt Review, Clause 16
A consumer could apply to a debt counsellor in the prescribed manner and form to have the consumer declared over-indebted, however may not be made in respect of and did not apply to, a particular credit agreement if the credit provider under that credit agreement had proceeded to take steps contemplated in section 129, i.e. gave notice of the default to the consumer in writing and informed of its rights as contained in the section. The proposed substitution in subsection (2) would allow a consumer to apply for debt counselling in respect of any credit agreement and would have the effect of denying the credit provider the right which it previously had of terminating a debt review application. The slide numbered 14 detailed considerations and proposals for these challenges.

Section 129 of Act 34 of 2005: Required Procedures before Debt Enforcement, Clause 20
Currently section 129 made provision for certain procedures to be followed by a credit provider before debt enforcement in instances where a consumer was in default. The proposed amendment to subsection (a) broadened the scope and purpose of the section 129 letter by allowing issues of fact related to a dispute of the terms of the credit agreement to be referred to the NCR or a court, thus created a red herring not related to the default and forced parties to resolve disputes in instances which may not be resolved. The substitution in subsection (3) allowed for condonation of a default and revival of a credit agreement after it had been terminated by a credit provider and the slide numbered 19 listed some considerations and proposals.

Insertion of section 134A and 134B had the effect of broadening the scope and role of ADRAs by categorising ombuds as an ADRA contrary to the definitions set out in section 1 of the National Credit Act. An ADRA’s role should be limited to dispute resolution related to a consumer and credit agreement to which the National Credit Act applied. The NCR should only be entrusted with the powers to accredit, register or deregister ADRAs as defined in section 1, and not an ombudsman.

FNB Chief Risk Officer, Christoph Nieuwoudt said low income consumers spent approximately 40% of their disposable income on debt and publishing of the affordability guidelines would go a long way in protecting consumers and would facilitate regulated certainty for lenders. Excessive pricing could be addressed in the Act, with a consumer protection angle to avoid redress implications, as it happened in the United Kingdom. The debt relief process needed to be efficient and inclusive, because emolument attachment orders could be abusive that locked consumers in for extended periods and needed to be addressed from a consumer and credit provider prospective and measures should be taken to strengthen the credit bureaus.

Discussion
Mr G McIntosh (COPE) asked clarification on how the section 129 ‘created a red herring not related to the default and forced parties to resolve disputes in instances which may not be resolved’.

BASA Company Secretary, Mr Nicky Lala-Mohan, said currently when a consumer defaulted, the Act made provision for the issuing of a section 129 letter, a letter of demand that also set out the rights of the consumer with specific timelines. These rights included debt counselling or referral to an ombud with jurisdiction. The letter dealt with a default in payment and what could be done to cure the default. The amendment now proposed that consumers could now in fact raise issues of dispute, i.e. query the terms of the contract that could be referred to the NCR or court that could be used as a delaying tactic, disputing issues of fact, not payment.

Mr N Gcwababa (ANC) asked what the differences in consultation with the DTI was concerning BASA’s proposal that the guidelines should be created in consultation outside of the legislation and asked how the Association proposed the consumer would be granted new credit if the record was not removed from the credit bureau after the debt had been settled. On the slide numbered 15 with regards to the delaying tactics that consumers could employ, Mr Gcwabaza asked how a consumer that was not able to pay the service provider would be able to afford court costs.

African Bank Executive: Sales, Distribution, Marketing and Product, Mr Charles Chemel said access to credit was essential to prosperity and a balance was needed between more people accessing credit and over-indebtedness. A uniformed approach to accessing credit was not ideal, because inevitably it would lead to sectors of the population not gaining access to credit. Affordability guidelines was a positive initiative and should be guidelines that afforded flexibility to businesses or people with additional skills to operate, and only the guidelines that were not successful should be made mandatory through a code of registration as a last resort.

Mr Nieuwoudt said in the current National Credit Act there were regulations that specified drop off dates for certain sets of information. The bureau would remove both positive and negative payment history information of consumers after two years. Classifications of how a consumer paid were also removed after two years, but judgments that was removed after five years were a matter of public record and that information could be found outside of the credit bureaus. Banks developed policies and scorecards based on these processes and changing the system would create significant costs for banks to redress and would disturb the efficiencies of the market. If a consumer had paid up a judgement, especially low income consumers who did not have money to go to court to have the judgement rescinded, it made perfect sense for the credit providers to show this information on the consumer profile. Deleting information would not add value to the economy and to the ability to assess credit and created uncertainty. The checks and balances in the current system were adequate with the judgement issues that could be addressed. The current debt review process required the consumer and the debt counsellor to refer the consumer’s application for debt review to a court so that the court could rearrange the consumer’s payment obligations. Some consumers, mostly middle and higher income consumers would file such an application without proceeding and the credit provider would not be able to terminate the debt review process and could be stuck in this process with the consumer’s debt increasing.

Mr Coovadia said currently the NCR had the authority to issue guidelines to certain issues as it related to the Act and it worked and it was not necessary to prescribe certain issues in legislation that could be dealt with through guidelines.

Mr D Swanepoel (ANC) said some of the issues raised should be considered on a macro level. The removal of data could assist disadvantaged consumers, but could also negatively impact the macro finances of the country and asked if National Treasury could not be asked to address issues such as writing off debt as well as the affordability guidelines. The industry and the NCR should increase consumer education regarding reckless lending because if banks were to be taken to task for reckless lending, consumers should be obligated to be honest when giving information.

Nedbank Head: Credit Risk Monitoring, Mr Pragnesh Desai said the industry should lead consumer education voluntarily and responsible lending and borrowing went hand in hand. In line with a joint statement with National Treasury a forum was created, funding secured and common minimum educational content was created that should be provided by all credit providers when consumers borrowed money. Since the inception of the National Credit Act banks had spent in excess of R50 million on consumer education, but based on the impaired records it may not have been effective and crisper and timed education was necessary.

The Chairperson said the mode or methods when educating consumers could also be a factor.

Mr Coovadia said the removal of data and incomplete data put credit providers in the position where they did not have a full profile of the consumer, and therefore riskier lending practices took place. Ongoing removal of information, sent a message to the international community and rating agencies of eroding an effective and efficient credit bureau system and in the light of the over-indebtedness problem, could get banks into trouble.

The Chairperson said Mr Coovadia’s comments created the impression that the credit bureaus were incredibly efficient, but that was not exactly the case.

Mr G Hill-Lewis (DA) said there were strong arguments made on the importance of a house as an asset and asked for more detail on the comments around separate dealing with mortgages in the debt review process to prioritise mortgage loans.

Standard Bank Head: Personal Unsecured Lending Credit, Ms Alet Griesel said factors such as the customer’s risk profile as well as funding costs which should be matched to the term of the agreement were considered when assessing a mortgage loan. In the debt review process the already long term mortgage loan would be extended even beyond the 20 or 30 years and is then viewed as a less essential expense then rental. The proposal was that a mortgage loan should be viewed exactly the same as a rental agreement

Mr G Selau (ANC) said since 1994 a lot had been done to achieve non-racial and non-sexist societies, but there were significant challenges to achieve prosperous societies. The banks spoke for their own money and the Committee represented the societies and BASA’s presentation rejected the efforts for a prosperous society clause-by-clause. With regards to the ADRAs, BASA proposed the scope to be applied only within the National Credit Act without regard for the issue of cooperation that had been raised. The presentation basically proposed to leave the Act as it stood, but the changes in laws and legislation was needed for growth.

Mr Coovadia said it was in the interest of banks to have a prospering nation, because it meant more business for banks. During the economic crisis, the economy contracted by 6.7% and so did the banking business because there was no demand. Some of the amendments did not contribute to a prospering society, because the removal of credit information did not contribute to responsible lending practices. The written submission showed that BASA agreed with a vast majority of amendments.

Mr Hill-Lewis said it was in the banks’ interest to have an up to date credit bureau system, but why was these systems not updated daily.

Mr Chemel said historically the unsecured space or old micro lending space had a national loans register that had to be updated within 24 hours. It was indicated by the Credit Providers Association (CPA) that a lot of work was being done towards a more frequently updated system and it would be in banks’ interests.

Mr Hill-Lewis said the national loans register requirements were on signed up loans but not new applications that had not been granted.

The Chairperson interjected and said anything that had not been covered should be forwarded to the Committee in writing.

Mr B Radebe (ANC) said the prescribed Code of Conduct did not give the Minister arbitrary power, because there was due process and asked if the code, under general laws would not fall under secondary legislation. Other concerns were that the prescription of the code should not be a precondition of registration of credit providers who could afford resources like lawyers and the Minister’s power could be a balancing factor that empowered consumers as well as the fact that adverse information stayed on the system and was not updated. He said an elderly woman from Soweto approached one of the biggest banks for a loan of R60 000 to pay for her son’s surgery. The bank, without her consent or knowledge have her R100 000 and attached her house as security, without an explanation that her house would be in jeopardy if she defaulted on payment and surely banks who did such things could not be allowed to voluntarily subscribe to a code, but should be regulated as the amendments tried to do.

Mr Chemel said the industry as a whole should have a measure of self-regulation and where it was found that people were not doing their jobs, it should be mandated through the Act. The over-extension of credit, as illustrated in the example provided by Mr Radebe, could be included in the code.

The Chairperson said the impairment of debt significantly impacted the majority population group of South Africa and the delegation from BASA did not represent that population group. It was a constitutional requirement that an equitable employment profile should be reflected. There was no one with a clear understanding of the extremely poor represented and this could be part of the communication breakdown in the education and empowerment system. She referred to the constant adverts that offered loans and said people had to be very strong to turn down such invitations constantly. All the big banks were involved in these types of advertising but had always denied it. Together with payday lending it constituted irresponsible and reckless lending and the Committee looked to BASA to consult with the banks on these issues. Although the banks’ participation were appreciated, the Chairperson warned that the biggest challenges were not outright lies, but misdirection through omission and asked the delegation to really look at the Act to determine responsibility within prudential practices, not only to shareholders, but also to society.

Debt Counselling Industry (DCI) submission
Mr Ken Bredenkamp, an attorney representing DCI, said there were over 800 registered debt counsellors and the DCI provided an online forum for debt counsellors and the 450 000 consumer database to discuss the debt review process, concerns and experiences via an online forum.

Statistics showed that 13.6 million people were employed, but there were 20 million credit active people of which 9.5 million had impaired credit records. It was a concern that 7.2 million credit active people were not employed and this could be because there was a lack of enforcement by the NCR and that many South Africans were financially illiterate.

Objective 1 was to address and correct the inefficient and ineffective aspects of the National Credit Act. This would be achieved by correction of patent errors, removal of nonsensical and contradictory results, ensuring that amendments resulted in increased efficiency and ensuring an effective NCR and National Consumer Tribunal. The definitions of mortgage, ADRAs, interest, in duplum, suretyship, developmental credit and consolidated loans needed to be honed to achieve this objective. It was proposed that ADRAs should be either removed and the functions be incorporated into debt counsellor functions or were properly defined with regards to registration processes. A proper definition of interest rates would make provision for the proper definition of fixed, variable and maximum allowed interest rate in each scenario and a proper definition of consolidated loans would prevent enticement of consumers out from debt review. The NCR challenges included the ineffective Form 29 procedure, no proper investigations, no reporting back to stakeholders and no certainty regarding matters. Solutions included the employment and training of skilled staff, an effective claims and resolutions code with defined timelines, time periods provided for in the Act pending litigation and transparency in all processes.

Objective 2 was to regulate and improve the PDAs and natural or juristic persons versus already accredited parties as operational PDAs were evaluated. The current PDAs were not registered, were ineffective and led to the breakdown in the debt review process with increased termination, stress and litigations costs for all involved. For natural or juristic persons the cost would continue causing systemic risk, the payment systems utilised may be ineffective, new regulations would have to be created and additional costs to NCR. Accredited agencies were tried and tested with regulation provided for by the South African Reserve Bank (SARB). The legislation was already in place with no additional cost to NCR. The average cost per month for a financially stressed consumer with ten credit agreements using current PDA totalled R174 while an accredited agency would cost the consumer R84 per month, electronically with prove of payments attached.

Objective 3 was to improve the debt review process for stakeholders, i.e. consumers, credit providers, debt counsellors and the NCR. Slides 17-18 showed common features between consumers and credit providers and root causes (uncertainty, delays, and costs) why stakeholders lost faith in the debt review process. Slide 20 showed an example of messages sent by First National Bank (FNB) and Old Mutual where they urge customers in default to contact specific debt counselling agencies whom they had partnered with which showed clear conflict of interest and DCI proposed the NCR should address these credit providers. Slide 22 showed an example of a message sent by NCR to a consumer after a bank had terminated the account which stated that there was no recourse for the client, other than a revised proposal by a debt counsellor, since the PDA failed to make the payments to the credit provider. A quick and effective resolution process with feedback would cause number of referrals to decrease and a properly monitored PDA system would prevent terminations.

Mr Bredenkamp referred to section 86 and the claim by BASA that the amendments would prevent credit providers to terminate an agreement from debt review and it could allow consumers to use this to basically never pay. This was not true, because the application in terms of the debt review was managed by a Magistrate’s court rules and if the parties were not actively addressing the litigation, an application can be made by the bank to have it struck off. Credit information was important, but credit providers should create information packs on consumers that contained relevant information that spoke directly to the risk profile of consumers.

The Chairperson thanked Mr Bredenkamp, and asked for any additional input to be e-mailed to the Committee by the following day.

Credit Bureau Association (CBA) submission
CBA Executive Manager, Ms Natasha Horwitz said the South African credit bureau system was considered one of the most advanced systems with full data sharing, i.e. credit bureaus held both positive and negative data on consumers and was regulated in terms of the National Credit Act.

The once off removal of adverse data would affect approximately 4 million consumers and would potentially result in a contraction of consumer lending as credit providers would be unable to distinguish bad borrowers from good borrowers. It would remove the ability of registered credit providers that did not have access to full payment profile information to perform accurate affordability assessments.

The mandatory submission of paid-up defaults and judgements by the various credit providers would allow for a streamlined process, assisting credit bureaus, credit providers and consumers alike in automated standardised layouts and timeous data updates. The operational impact of the removal of adverse credit information on the credit bureau would require an 11 month system development in terms of layout of data submission, agreement of data load rules and processes, obligations, retention rules, verification and validation of consumer queries and scorecard re-development.

The proposed amendment to section 71A(2) proposed that “The credit bureau must remove such adverse listing contemplated in subsection 4 below within 7 days after receipt of such information from the credit provider.” Subsection 4 defined adverse classification of consumer behaviour and adverse classification of enforcement action which was the intention of the Removal of Adverse Information Project. The seven days referred to in the section could only be met in respect of information submitted to credit bureaus in an automated and standardised format. Compliance to the draft Codes of Conduct by credit providers to become a condition of registration issued by the NCR should be mandatory only to full data sharing credit bureaus that were adequately equipped to accept the filing.

CBA Legal Consultant, Ms Lisa Maino highlighted gaps in the industry and listed additional proposed amendments to address those gaps. Consumers were negatively affected by the actions of debt collectors who were not regulated in terms of the Act. It was recommended that debt collectors should be prevented from listing negative data on the credit bureau, unless under a specific mandate from the credit provider and payments made by the consumer to be communicated to the credit bureau for purposes of updating the record. Credit providers needed to be fully responsible for the actions taken by debt collectors. Amendment to Regulation 17 of the National Credit Act would greatly benefit consumers if all administration orders if paid in full were to be removed, business rescue proceedings that had been formally terminated to be removed and high court abandoned judgements should follow the same process as Magistrate court rescission orders.

National Debt Mediation Association (NDMA) submission
NMDA Chief Executive Officer, Ms Magauta Mphahlele said the Association was an independent non-profit organisation that aimed to contribute to combating over-indebtedness through proactive and reactive measures, impactful partnerships and advocacy. Since January 2011 to December 2013 the NDMA handled over 46 000 calls to its helpline, 6 914 enquiries and 7 213 cases.

Over-indebtedness resulted due to having taken on or been granted debt in excess of affordability capacity or lack of money and changed family or personal circumstances that resulted in unforeseen expenditure shocks such as illness or death of a family member, loss of employment, rising costs of living expenses and educational costs. Over-indebted consumers were often left to deal with rogue debt collectors and administrators. Slides 10-12 showed case studies collected from real NMDA cases explaining alternative methods to debt counselling, which was an expensive and often unsatisfactory solution to over-indebtedness.

The first case study was of a female in her sixties that was placed under administration in 2009. Administrators had since then deducted R500 per month from her salary, amounting to R18 102. The consumer took home R1 547 and her living costs were R1 700. She supplemented her income with microloans from a mashonisa (loan shark) to survive. The challenge for this consumer was that she had been paying the administrator through a salary deduction for four years, but she recently found out the administrator had not been paying the money over to some of the creditors and this increased her debt. She was then handed over for legal action. She could not afford to go under debt review so she needed another method of debt relief.

The second case study was of a 52 year old domestic worker with two children living in a RDP house. Her husband lost his job that used to bring in R4 000 per month. She earned R1 700 per month and the two children were studying with the aid of bursaries, but she still needed to provide basic essentials like food, transport and clothing. Living expenses were R1 488 and outstanding debt totalled R36 932 with monthly instalments totalling R2 677. She had two personal loans and one furniture agreement and the NDMA attempted to negotiate with creditors to accept 7% of the instalment, but they were not willing. The consumer could not go under debt review but was referred to ProBono through the Administration process.

Other case studies showed how debt mediation helped a self-employed web developer keep his car which he needed for his business and assisted another consumer query the balance of his consolidation loan, because he did not understand the conditions, and he was paying for benefits that he did not agree to.

Voluntary debt mediation and voluntary debt counselling should be properly structured processes that should exclude processes. Administration was highly abused and needed a complete review and while consumers could approach credit providers, they faced huge obstacles which included low bargaining power due to lack of knowledge. Access to redress was very limited for low income consumers due to the cost, especially as most remedies were court based.

NDMA agreed with the amendment of section 86, but was of the view that the section did not go far enough to address the unintended discrimination against consumers who did not qualify for debt review. It was recommended that the National Consumer Tribunal should be capacitated to handle these applications and its procedures should be simple, cost effective and quick. Proposed amendment of section 29 was also agreed with, but was of the view that the section did not far enough to address the problems experienced by consumers who had more than one credit agreement in arrears and had to deal with the competing demands of multiple credit providers. Just addressing the default status did not provide a solution in some instances and the Minister should be empowered to publish regulations related to the section 129 process that regulated arrears negotiations and settlement processes.

Discussion
Mr McIntosh thanked the NMDA for the presentation and said the whole theme of the presentation centred on consumer education which was seriously lacking.

Mr Swanepoel referred to the case studies and asked what the initial debt amount in the first case was and said the second case study was clearly a case of reckless lending or reckless borrowing. He referred to the statistics that stated out of the 20 000 disputes lodged at the credit bureaus, 75% of cases were overturned in favour of the consumer and asked where the problem was.

Ms Mphahlele said she would sent the information requested in writing. There was an anomaly in the Act that stated that only debt counsellors could report and deal with reckless lending but in the amendments ADRAs would now be able to deal with reckless lending and this was a good initiative.

Ms Maino said there were many reasons for incorrect information on the credit bureau system like genuine errors, lack of credible received from credit providers or lack of responses on the request for credible information and those records were 20 000 out of 70 million listed records.

Mr Swanepoel said it was 20 000 who checked and the fear was what would happen if the rest checked their records if 75% of out of a 20 000 sample proved to be wrong information.

Ms Horwitz said the obligation was with the credit provider to provide credible information and not with the consumer, and often the information was not provided by credit providers.

Mr Z Wayile (ANC) thanked Ms Mphahlele for the presentation and asked what could be done with the ‘rogue’ and often criminal debt collectors and administrators and could the Association not collaborate with trade unions or churches on the issue of consumer education. For CBA, he asked what could be done with the issue that some consumers had, often young students that could not enter the job market because of study debt, now had adverse credit profiles and with regards to the disputed information on the profile, what happened or recourse was available to the aggrieved or wronged consumers. For DCI, he asked what could be done to curb the abuses that happened in the loans consolidation process, because most consumers were vulnerable at the point of making that decision.

Ms Mphahlele replied that the consumer needed redress in cases of abuse from debt collectors because there was really nowhere to report fraudulent behaviour from debt collectors and they needed their money back. The regulatory structures needed to be in place to enforce the correct procedures and to give consumers the opportunity to get back what was taken.

Mr Bredenkamp said to offer a consolidation loan to a person who had applied for debt review was a crime and if there was no proper regulation, mediation could also be difficult. Regulated ADRAs, a fully structured mediation process incorporated into the Act with the same for debt collectors, all regulated by the NCR with penalties and the consequence of deregistration if there were a number of transgressions should contribute to a functional system.

Mr Selau asked the DCI if there were crime in the system and if there were, what kind of crimes were committed. He asked what the ratio of legal credit providers to illegal credit providers and what could be done to eradicate illegal credit providing activities. For CBA, he asked for a detailed the status of credit in South Africa, because the numbers offered by the different institutions differed slightly. On the issue of the removal of adverse credit information, he asked what information would be left available to view by credit providers once a person had settled all his debt. He fully agreed with the proposed regulation of debt collectors, to be accountable to an authority to curb transgressions. For NDMA, he stated that the issues in the presentation like an effective regulator, the National Consumer Tribunal in favour of the court system and the role of NGOs were all issues that needed to be revisited, because they were pertinent to this discussion. He indicated to the Chairperson that he would prefer if CBA responded with the numbers in writing.

Mr Bredenkamp said the Act provided the regulations to be adhered to all role players in the system and there seemed to be substantial criminal activity that flowed through the whole system.

Ms Mphahlele agreed and said the regulator should oversee enforcement and let the ADRAs deal with consumer complaints.

Ms Horwitz said the default would be removed but the payment history remained on the credit profile and CBA would provide statistics on the status of credit in South Africa in writing.

The Chairperson asked DCI to comment, in writing on the issues of consolidation of loans, on the PDAs and the judicial issues concerned with this process. NDMA should comment in writing on the cost effectiveness of debt counselling versus voluntary debt mediation. There was consensus, even from the financial sector that the data on the credit bureau system lacked integrity and according to the presentation South Africa had a top ranked system. This was hard to believe because based on the feedback it should be bottom ranked and it feels like the Committee should get an enquiry commission because no one could pin point who was responsible for the incorrect information on the system.

Ms Mphahlele said voluntary debt mediation was an alternative to debt counselling, but there was little support from the regulatory environment.

The Chairperson asked all three organisations to respond to those issues not covered in writing, to make concrete suggestions on how to regulate PDAs, to submit a proposal that summarised how administrative costs to the consumer could be reduced when repaying debt and what steps could be taken to employ measures alternative to court appearances in the debt relief process. CBA should come back with concrete answers on the responsible entity for the incorrect data on the systems and Mr Bredenkamp should make a clear statement regarding the banks that were involved in teaming up with debt counselling agencies and also provide the Committee with the reason why role players in the debt review process lost faith in the system, which he could not fully unpack due to time constraints.

HomeChoice submission on the National Credit Amendment Bill
HomeChoice Group Risk Director, Mr Michael Roux said HomeChoice was a direct retailer of mainly bedding and home ware. Over 90% of products were credit agreement sales through scientific affordability guidelines and in addition to home ware, customers could also borrow money thorough a subsidiary called FinChoice.

The principal concern, because there was no face to face interaction with customers, was the mechanisms for publishing and enforcing the affordability assessment guidelines. In terms of the National Credit Act, a credit provider should use fair and objective measures to assess and determine whether a potential consumer could afford to enter into the loan agreement. The legislators clearly accepted the principle that different credit providers needed to apply different assessment models and procedures. Section 82(1) stated that a “credit provider may determine for itself the evaluative mechanisms or models and procedures to be used in meeting its assessment obligations under section 81, provided that such mechanism, model or procedure resulted in a fair and objective assessment.” The same single process would not be appropriate across all business models and markets. If a credit provider failed to utilise fair and objective measures for the consumer, the National consumer Tribunal could then impose such guidelines on a credit provider. The balance was provided to create a market for service providers incorporating the needs of customers. If the proposed amendments to section 82(2) were accepted, it was proposed that 82(3) and 82(4) were also amended to incorporate the powers afforded to the Minister. The NCR was currently in discussions with industries on the modification of the affordability guidelines and the engagement credit providers was welcomed.

Direct marketers needed to make the customer experience as simple and comfortable as possible and the comfort of internet shopping was the main reason for the growth in the online market. The paperwork that would be required to prove ability to afford goods would make the online experience tedious and any means of informal income would now have to be proved by possibly going to the bank for statements. For a woman who lived with her mother, this would mean affidavits that needed to be faxed to prove that there was no accommodation expenses, and the exercise could turn into a forensic investigation to prove affordability capacity.

It was difficult to prove affordability, especially for lower income customers and it would deprive those customers if the same measure were to be used as higher income customers. Supplementary income, or even the main source of income for most customers were difficult to prove. The proposed amendment as it stood was not relevant to customers and not relevant to a true assessment of their ability to afford. The recognition of the right of credit providers to use their own models was a good one and the proposed amendments of sections 48 and 82 would in an unreasonable manner deprive credit providers from doing business using tried and tested measures as well as deprive consumers from access to credit.

Discussion
The Chairperson said there was a problem with the issue of accommodation because it came down to the fact that you could not submit written proof that you took two taxis every day, because there were no receipts.

Mr Roux said the proposed amendments demanded that there was proof needed to show no expense and essentially consumers would have to rely on a third party to provide proof. The default rate would be provided to the Committee in writing.

The Chairperson said she would study the amendments with the ‘proof’ issue in mind and would reserve comment until then.

Mr Selau asked how these amendments would infringe on businesses to make their own internal regulations and what the status quo of the informal income consumers were before these amendments and what it would be after the amendments came into effect.

Mr Roux said in terms of the current proposed amendments, those proposed guidelines infringed on the rights of the business and customers and could not be easily applied to a direct marketer. Currently, if a customer with informal additional income would be assessed, the company would accept their word because they seemed believable, but in future may not be able to because there was no possible way to present evidence of that income and the customer was treated unfair because they had the income, but it could not be considered in the proposed affordability assessment guidelines.

Mr Swanepoel said he would also like to see the default rate to compare how an automated system fared against normal businesses and how did the business educate the consumers on what they were taking on.

Mr Roux said most big businesses had some level of an automated system through scorecards, and it would be similar to that of HomeChoice. Online or telephone interaction with customer service agents was used to provide customers with the education they needed to understand the terms of the credit agreement.

Mr Gcwabaza said he failed to understand how the company could be doing affordability assessments without any proof required and the gist of the presentation suggested that these amendments would have dire consequences for the business whereas the majority of businesses that presented their submissions disagreed.

Affordability assessments were done over the phone or online and in most cases customers were not required to present with physical proof but there were internal flags that the company used to assess customers’ affordability. In cases where it was needed customers were asked to send through corroborating results.

Mr McIntosh asked for clarification on the business model because he understood it to be something like a ‘smous’ who provided duvet sets to the lower income households and once a loyal database had been built, those customers could now also borrow money.

Mr Roux said the products were delivered before customers paid and was based on a large loyal database, because over 70% of sales were to existing customers.

The Chairperson asked what the cap was on the loans that HomeChoice extended to the customers, as well as the interest rate and this should be forwarded to the Committee in writing together with the default rate.

The Chairperson thanked everyone for their input and the meeting was adjourned.