Hon Chairperson, the National Credit Amendment Bill follows intensive assessments of the effectiveness of the National Credit Act, which was passed in 2005 and which was also involved in extensive consultations with stakeholders, both within and outside government.
All the reviews agreed on one thing - the National Credit Act was a groundbreaking and quality piece of legislation whose key principles remain valid and important today.
The fundamental principle of this Act was that it required credit providers not to engage in reckless lending and, if they did, to provide for the transaction to be declared null and void. To this end, the Act required credit providers to engage in affordability assessments before granting credit and also provided a number of ways in which overindebted consumers could have access to facilities such as debt counselling to end their overindebtedness.
This farsighted piece of legislation was regarded by many observers as a key factor that cushioned our economy from the worst aspects of the global financial crisis of 2008, which, of course, had its origin precisely in reckless lending transactions embarked on in other jurisdictions.
However, the reviews highlighted the need to amend certain provisions of the Act; strengthen regulations; and develop industry codes in order to improve its effectiveness and to fully achieve the intended outcomes of a fair, transparent and accessible credit market in South Africa. All of this takes place against the background of a significant increase in unsecured lending. Within this broad category of unsecured lending, we found that there have also been a number of predatory transaction practices targeting low-income people and the poor, and creating further conditions of difficulty for poor people in our country.
Gaps in the implementation of debt-counselling and debt-review procedures were also identified, which led to the amendments of other clauses in the main Act.
It is of concern that more than half of the 21 million credit-active consumers in this country have impaired credit records. Adverse listings at credit bureaus are difficult and costly to remove, even if the debt is repaid. This can have an adverse effect on the individual, both in terms of accessing other credit transactions and even employment opportunities.
It is against this background that the National Credit Amendment Bill is introduced. It covers the following areas - some of which I will speak on.
First of all, it seeks to improve the effectiveness of debt counselling and debt reviewing by removing an anomaly that resulted from a court interpretation of section 129 of the main Act. This section was intended to allow consumers, who were in credit difficulty, to approach creditors with the intention of seeking debt counselling.
The information that was provided was also allowing other creditors to act against these consumers even while they were undergoing debt counselling, often to the extent where these creditors would take action to repossess their homes.
The amendment that is sought here will allow a consumer to be issued with the clearance certificate if he or she has paid up all his or her debt, except the outstanding debt which is being serviced in terms of a mortgage agreement, provided that there are no arrears on that mortgage agreement.
The second area that the amending Bill addresses is the affordability assessment regulations. Research undertaken by the National Credit Regulator revealed that there were in fact serious gaps in the way in which affordability assessments were being conducted.
In terms of the principal Act, credit providers are allowed to develop their own models. Our research revealed that there was a wide variety of practices and that in several cases no real assessments were being conducted at all. This means that a lot of credit was actually extended recklessly, even going against the spirit and objectives of the Act. In fact, a simple rule of thumb was generally applied: If someone's name was on the adverse listing of a credit bureau, they would not receive credit even if they were credit-worthy. At the same time, if your name was not there, you were considered fair game and anybody could be preyed on in very predatory ways.
The amending Bill will empower the Minister to provide affordability assessment regulations to achieve uniformity and consistency in this area. In fact, we will be requiring more robust and significant affordability assessments.
Linked to this, the amending Bill amends sections dealing with adverse consumer credit information. It will essentially allow for the immediate removal of adverse credit information after payment on an ongoing basis. This means that a consumer with an adverse listing at a credit bureau need not approach a court anymore to rescind the information that is on their records.
What we found is that it is a costly and difficult process to have your name removed from an adverse listing at a credit bureau even if you paid back the debt that you had incurred. In fact, in my estimation, this has been a disincentive to pay back the debt. If you pay back the debt, you don't automatically get all the adverse current information removed, so you might as well not bother to pay back the debt. What we are saying now is that once you have cleared the debt, your name will be removed through a simple and straightforward administrative process.
In this regard, let me salute the initiative of this Council and, in particular, the select committee under the chairpersonship of the hon Gamede. It spearheaded a series of hearings, which led to the introduction of Regulation 37386 in the Government Gazette. This regulation will require a once-off removal of adverse credit information from the records of credit bureaus.
From 1 April 2014, credit bureaus will not be able to pass on that information in respect of any transaction that involves credit transactions. [Applause.] They have two months thereafter to remove all that information from the records.
I want to salute the Council for the pioneering work it did, together with our department and the National Credit Regulator, to put that important benefit in place. Given what I said earlier on - that half of all our people have adverse credit records - that is a measure that will benefit no less than 10 million people in this country.
Thirdly, the Act deals with improved standards of service and procedures for debt counsellors. In fact, the debt counsellors are now subject to stricter regulations. We saw the emergence of alternative dispute resolution agents, and they will now also be subject to regulation under the Bill, as will payment distribution agents, who emerged in the course of the practice of implementing the original Act, with the aim of assisting people involved in credit transactions who were having difficulties with repaying their debt.
The powers of the National Consumer Tribunal are being enhanced. The National Consumer Tribunal, which is a much more cost-effective and easier- to-access facility, will now have enhanced powers to deal with issues arising from the National Credit Act. The Bill will also provide for improved co-operation between the regulators, particularly those in the financial sector.
An important provision, which was inserted at the committee stage in the National Assembly, was that the Minister will be required, within six months of the passing of the National Credit Amendment Bill, to issue new regulations on the maximum charges that may be levied in terms of the cost of the credit.
It has been noticed as a matter of concern that the cost of credit continues to increase disproportionately, especially in relation to poor and working-class people in this country. The amending Bill introduces a cap on credit insurance, and I think it is going to make a difference in terms of the cost of credit.
Predatory and deceptive advertising to consumers will be regulated.
All in all, I think that we will tighten up on illegal credit providers by removing one very important loophole. Up to now, in order to be a registered credit provider, you had to be involved in a minimum of 100 credit transactions. If you have done less than that, you don't have to register because you would not have been subject to the regulatory framework. What we found is that that was a massive loophole and it enabled a lot of people to slip through under the threshold. They then didn't find themselves obliged to avoid practices such as holding people's identity cards and bank cards, preying on people at SA Social Security Agency points and all those kinds of things.
What we will be doing now is to remove that threshold, but there will be an easier space for small people to register. It will be easier to register, but you will now have to register even if you are engaged in less than 100 transactions.
There is a prohibition on the selling and collection of prescribed or extinguished debt. We are reviewing the governing structures of the National Credit Regulator. This is part of the bigger exercise in the Department of Trade and Industry and also in government as a whole.
We are reviewing why some agencies continue to have boards and if these boards are necessary, particularly if we consider the fact that regulatory agencies are being brought back into the department without the necessity of them any longer having to have boards. We did this with the National Regulator for Compulsory Specifications; and through this Bill, we will be doing the same with the National Credit Regulator.
I want to thank the hon Gamede and the select committee for all the work they have done. I have already acknowledged the work they have done on the removal of adverse credit information. I want to thank them also for the way in which they have processed this particular piece of legislation.
It was passed unanimously in the National Assembly and I trust that the NCOP will provide the necessary endorsement for us to be able to move ahead and implement this important amending Bill. Thank you. [Applause.]