Madam Chairperson, I also want to agree that the hon McIntosh has played a very constructive role in the committee, and I think all of us want to wish him everything of the best for the future.
Having said that, I also quickly want to respond to the assertions of the hon McIntosh that the process was rushed. In fact, I believe that we, as a committee, exhausted the discussion; and our public participation was very generous, as the hon Selau has spelt out.
How can we tell a man or a woman who is being held hostage by adverse information or by loan sharks, many times unfairly, many times being exploited and maybe not being able to get a job because of that, that they must wait because we mustn't rush the process? No, we in the ANC want to move with this good story to tell. [Applause.]
Madam Chairperson and hon members, the sound regulation of South Africa's financial institutions has been credited with ensuring that our country was able to withstand the onslaught of the global financial crisis, which, as members of this House would know, was triggered in the US and Europe mainly through subprime lending or what we call "reckless credit".
Less credit is given to the National Credit Act of 2005, which the ANC government introduced to protect vulnerable consumers against reckless credit. Its role in shielding us from the worst of the crisis must also be acknowledged.
It should also be acknowledged that in many respects South Africa is considered a world leader in the field of consumer protection against reckless lending practices. We must commend Minister Davies and his department for the foresight that they have shown.
To protect the consumer is, however, one side of the coin. The other side of the coin is that we have to ensure that the debtors books of credit providers reflect recoverable debt, as opposed to being filled with growing bad debt, which, if unchecked, puts those institutions and our macroeconomic stability at risk.
The provision of credit in our economy is vital. It is the lifeblood that feeds the economy; that provides the equity for business to create wealth and jobs; and provides for ordinary consumers to pay for a roof over their head, for a car in which to get to work, school fees to give their children a good education or to cover any medical emergency.
All of this will come to nought if there is not a well-functioning credit market. At the same time, the economy will come crashing down if, as a country, we do not have a firm grip on reckless lending that ignores affordability, is simply too expensive to sustain and eats into disposable income to the point where one's wages simply fund previous debt, with nothing left over to properly sustain oneself or one's family.
Household debt has risen dramatically over the past couple of years, to the point where 75% of disposable income is spent on servicing debt. If not kept in check, this could be disastrous for the economy in the long term.
One needs only to look at last week's financial results from the major retailers to see that there has been a lot of inappropriate lending that has not only harmed consumers, but is putting their own performance and sustainability at risk.
This is what makes the debate on the National Credit Amendment Bill in the House today so important. We need to protect the consumer, and in doing so, we would also be protecting the credit industry.
We can point to many instances where plain greed, or the push to maximise profit without taking into account the long-term effect of irresponsible lending on our economy, is clearly evident.
Madam Chair, let us be clear about this: This Bill is not a threat to credible, ethical and responsible credit providers. In fact, those credit providers have, during the public participation process, supported the provisions of the Bill.
The credit providers that need to worry are the greedy, unscrupulous, irresponsible ones; the loan sharks that do not hesitate to feed on the poor and vulnerable to satisfy their own greed.
The creation of wealth is essential for a growing economy, but greed is its destruction. I want to focus for a moment on the high cost of credit. There have been provisions for capping interest rates and other related costs. But it has not gone far enough to deal with the cost creep.
Interest rates have been innovatively topped up with initiation fees, administration fees, credit life charges, and, and, and! Let me cite an example - the friendly characters on the well-known TV advertisement who brag about their "fast little loans".
Frans, one of the characters in the advertisement, looks so happy in his newly acquired leather jacket. What we didn't see, however, is the faces of Frans and the gogos [grandmas] when they have to pay back that loan.
We were presented with the costs on those loans. On a short-term borrowing of R1 655 over just 20 days, interest and fees charged by that institution amounted to R358,83 - annualised, that is a staggering 395%. That is unacceptable.
To the hon members of this House, it is most probably not a lot of money. But to the poor, battling pensioner who took out that loan out of desperation, maybe to help a sick relative, it's a sizeable chunk of his or her means of life and the beginning of a downward spiral into a debt trap.
The committee probed the cost of debt, and is insistent that the total cost of credit, not just the component parts, needs to be capped. It will now also be an offence to charge above these rates.
Some in the unsecured micro-lending space are less happy. They argue that the high cost also has to do with the extremely high default rate. What they do is they add to their charges provisions for bad debt.
When you take out a loan from a micro lender, in its back-room costing it adds a provision in the charges to you to recover the costs of bad debt on their books, regardless of whether you, as an individual, are a good or bad payer.
Part of the costs that you have to pay back is a provision for bad debt. This begs the question: Why do the good payers have to be penalised for nonpayment by bad payers?
Surely the people that need to carry the can for bad debt are the lenders themselves. Business is about risk. If you make bad business decisions, you must bear the consequences. But what some of these micro lenders are doing is that they are making their payers carry the burden for their own bad business practices, namely risk-free lending at the expense of the poor and vulnerable.
They argue that if they were not able to provide for such high costs, their businesses would go under. I argue that if they did proper affordability tests before recklessly dishing out the cash, they would not be incurring all that bad debt in the first place, and they would be able to lower the cost of credit.
We acknowledge that it is a necessary service to help people to pay for their child's school fees or clothes at the beginning of the year, to pay for the funeral after an unexpected death and to deal with a crisis. All of this is necessary, but exploitation of the vulnerable is not.
It is therefore welcomed that the Bill now makes provision for the NCR to make findings on reckless credit. Until now it has only been the courts that could do so, which we know is a long and expensive process. This has proven impractical for the poor. Now they can follow the far quicker, easier and less expensive channels of the NCR.
Hon Speaker, some people, including the hon Graham McIntosh, have voiced their concerns about the automatic removal of adverse credit information at the credit bureaus.
The impression is created that credit providers will no longer have the means to judge a bad payer from a good payer, and that if this information is removed, credit will dry up. This is not so, and I want to correct any false impressions.
Firstly, the payment profile remains. Credit providers can still do a proper risk analysis. The integrity of the credit market remains intact.
What this amendment does, however, is to make the provision that once the debt under review has been paid - it is important to note the debt has to have been paid off - then adverse designations such as "bad payer", "defaulter", "delinquent" or whatever, will be automatically removed from the credit records of the consumers.
Why is this important? Because in practice, when one does a credit check, you will find someone classified as a delinquent or whatever, and an immediate value judgment is made about that person. This could even put a job application at risk.
The designation does not say that Mr X was a bad payer because he lost his job or his wife fell seriously ill and thus he battled for months to do the honourable thing, which is to pay off his debt. No, it just says "bad payer".
Would it be fair to brand Mr X as a bad person, whilst in reality life dealt him an unforeseen and nasty blow, but he nevertheless hung in there to clear his debt? It is plainly wrong, Madam Chair.
A simple designation does not necessarily speak to the true nature of one's character. And what's more, if a person has a judgment against him or her and the debt is cleared, one can, under the current rules of the courts, apply for a rescinding order and that information will be wiped from the records of the credit bureaus.
So what is the problem with being consistent by removing the designation "bad payer", "delinquent" or whatever? And it should be done automatically, so that the poor and those who do not have an understanding of complex legal processes can benefit equally. It does not remove the credit provider's ability to do a proper risk analysis.
Credit providers worth their salt have nothing to fear, but those who feed on the vulnerable, operate illegally and are driven by greed, take note, your days are numbered.
HON MEMBERS: Yes!