National Credit Regulator on its 2015/16 Annual Performance & Strategic Plans

Meeting report

National Credit Regulator on its 2015/16 Annual Performance & Strategic Plans
Ms Nomsa Motshegare, NCR: CEO, presented, with assistance from her colleagues, Ms Ayanda Matuleka (NCR: CFO) and Mr Obed Tongoanne (NCR: COO).

The mandate of the NCR was established in terms of section 12 of the National Credit Act (NCA) to regulate the consumer credit market in South Africa and monitor compliance with the NCA. Its five programmes are geared to this. The outcomes, outputs, performance indicators, baseline, and targets for the next three years plus the quarterly targets for 2015/16 were provided for each programme:

Programme 1: promote responsible credit granting
- The outcome is to reduce levels of over-indebtedness, (in the country, 48% of credit consumers are over stretched, that is, impaired).

- The output is to improve compliance with affordability assessment regulations. NCR will conduct nine workshops this year on affordability assessment regulations. For the next three years, it will be concentrating on visiting provinces to monitor credit provider compliance and appropriate enforcement action taken on non-compliant credit providers where  necessary

- During the course of this year, NCR will be conducting investigations to monitor whether credit providers are complying with the regulations and necessary enforcement action will be taken. It anticipates conducting 10 investigations this year, 15 next year, and 18 in the third year.

Programme 2: protect consumers from abuse and unfair practices in the consumer credit market and address over-indebtedness
- The goal is to decease the levels of reckless lending practices; appropriate enforcement action will be taken were necessary. 15 investigations were conducted in 2014/15, this will be increased to 20 in 2015/16, 25 in 2016/17 and 30 in 2017/8.

Programme 3: enhance the quality and accuracy of credit bureau information
- Increase compliance  by credit bureaus in respect of consumer credit information.

- It intends to do that in two ways: firstly by conducting investigations into two credit providers each year (14 registered credit bureaus in total). In addition it will be reviewing the audit reports of all 14 each year.

Programme 4: improve NCR’s operational effectiveness
- It aims to improve operational efficiency through automated processes.
- There are more than 4 200 registered credit providers, 14 credit bureaus, more than 2 000 debt councillors; automated processes are required to monitor these.
- NCR currently has an ICT system for registration purposes and compliance, and is in the process of developing a new system.

Programme 5: ensure effective implementation of the National Credit Amendment Act
- For us to have improved compliance with regulations, it need to improve awareness/compliance with these amendments.
- There is a lot of work that still needs to be done in educating consumers and engaging with credit providers/bureaus.
- 40 workshops will be conducted in 2015/16, 45 in 2016/17 and 50 in 2017/8 as well as increased multimedia awareness such as newspapers, radio, exhibitions in shopping malls, roadshows / imbizos.
- In terms of improving compliance/consumer protection, what it also needs to do is to conduct investigations and engage those concerned.
- It intends to conduct raids in three provinces this year, in the sense that it would enter with the police. A number of raids have been conducted before.  It would focus on unregistered credit providers.
- When talking about conducting raids, this might mean covering more than five townships in these provinces; it may cover three towns and five townships.

Challenges
- Possible reckless lending leading to over-indebtedness (we have identified through investigation that there are credit providers who continue to extend credit loans to consumers).
- Low or non-response from registrants (even after engagement, you will find there are individuals who fail to cooperate)
- Inadequate reporting on the level of compliance from data sources in terms of accuracy, validity, and meeting submission deadlines.
- NCR presence in the rural and under-served communities (remains a challenge; it only has one office in Johannesburg)
- Lack of understanding of the National Credit Amendment Act
- Inefficient service delivery
- Funding.

NCR spoke about what it intends to do to meet these challenges by suggesting the following remedies:
- Compliance monitoring: affordability assessment
- Targeted consumer awareness and education initiatives. She mentioned going to the provinces, targeting civil servants; engaging with editors of newspapers to stop adverts enabling blacklisted clients to apply for loans - so far NCR had 18 newspapers on board)
- Coordination with other regulators such as the Reserve Bank.
- Regular compliance with monitoring of registrants and enforcement of the Act (in terms of the amendments the NCR is required to liaise with other regulators)
- On its funding challenge, NCR will find creative ways to perform some functions such as consumer education and research; fees from new registrants; penalties for late renewals; introduce new fee regulations (NCR is searching via universities to use gradates to conduct research; it has already started these engagements)
- Engagement with registrants and key stakeholders
- Improve operational efficiency through improved automated processes.

Budget for the 2015/16 – 2019/20
Ms Ayanda Matuleka, NCR CFO, went through the projected budget for the next three years (see document)

Discussion
Mr M Khawula (IFP; Kwa-Zulu Natal) asked the NCR to discuss the budget in full for a clearer indication of what programmes will be represented? He asked what is the role of the NCR in regard to creditors who are not registered?  He stressed that there exists a lot of mischief in our society where vulnerable individuals will pay R800, for something that costs R300; how can NCR assist those individuals?

Mr E Makue (ANC: Gauteng) remarked in response to Mr Khawula that the NCR is competent to answer for vulnerable individuals, however on the first question raised by Mr Khawula, he was convinced that the presentation document clearly outlined this.

Dr Y Vawda (EFF; Mpumalanga) stated that the impression he got from the presentation is that there is a huge amount of work to be done. A number of controls are required to be implemented in this industry. He advocated that other departments should be involved in this as well. He asked what is the NCR doing in expanding their office base. He asked why we do not consider educating children at high school about proper financial management. Moreover, in respect of adverts offering loans to blacklisted individuals, are you intending to approach other newspapers? He remarked that ICT structures advance quickly, and queried what the NCR intend to do over the next five years in terms of its operational systems.

Mr Makue asked Dr Vawda for clarity in terms of blacklisting advertisements; are you talking about people promising they can remove you from being blacklisted by a credit bureau?

Dr Vawda confirmed this.

Mr S Mthimunye (ANC; Mpumalanga) stated that we are dealing with a world of very shrewd people, and so what is the role of the NCR when those individuals/companies take advantage of vulnerable citizens?

Mr J Londt (DA; Western Cape) commented that the most difficult areas to regulate are the small towns and rural areas. NCR monitoring reports reflect monitoring only in densely populated areas. What plans are in place to introduce a system where ordinary people from those small towns can report on such matters, so as to create a direct link with them?

Mr Makue asked what does the National Credit Amendment Act dictate about the interest rates charged by lenders? Is the NCR experiencing any difficulties in registering credit providers, or is there a willingness to register? In addition, are the Acts that we are promulgating assisting registration within the industry?

Mr Makue proposed that the NCR have discussions with community radio stations and community newspapers to help with advertising the work of the NCR. He asked if there is a lack of clarity about National Credit Amendment Act, are there any proposed measures to ensure that lenders understand their responsibilities? We need to find a way in which we do not give people the excuse to say "but I did not know".

Response
Ms Matuleka (CFO) responded to Mr Khawula, saying the budget information showing the split into the five programmes can be provided; the powerpoint presentation shows only a brief overview of the budget.

Ms Motshegare (CEO) responded about unregistered entities, saying the Committee will recall that the NCR spoke about amendments, and the regulations pertaining to those amendments which became effective in March 2015. Prior to that there were no thresholds, within which, if you were categorised, you were required to register. This means that credit providers who had at least 100 credit agreements, or the value of the loan given out extended to R500000 would be previously required to register. Therefore, small credit providers were not active on the radar screen; the NCR had no indication as to those entities. The way in which the NCR could report on said entities was through complaints of consumers, or through proactive investigations. The NCAA requires those individuals to register, enabling the NCR to act more efficiently, and when necessary. Further, in response to Mr Khawula’s point on those must vulnerable in society: that situation would fall out with the mandate of the NCR.

Ms Motshegare stated that the NCR is able to reach out to other areas in a number of ways: for any one provider to be registered they must provide at their own cost an auditor or an accounting officer (these are people who do audits and identify specific problem areas). On an annual basis the NCR will consider these audits. Secondly the NCR works very closely with provincial offices, conducting workshops and holding meetings with them. On the point made by Dr Vawda about educating young persons, she agreed saying that such education should not just be focused on at universities, but should start at primary school level; there can be ways of simplifying those messages.

The NCR would be approaching other newspapers about undesirable advertisements. Finally, in terms of ICT advancement, the NCR has proposed eight IT sub-systems to manage the work more efficiently; one system will be exclusive to registration.

Mr Tongoanne (COO) said that the NCR would review contraventions of the Amendment Act in a serious light. The big players in this particular space will be referred to the appropriate tribunal for necessary intervention and sanctions. He stated that the credit providers often mislead consumers through the requirement to sign documents in order to validate the agreement. However the NCR is dealing with this situation. Pronouncements will be made, and such documents will be made public knowledge.

Mr Tongoanne added about education that a more educated consumer is a better protected one – when you know your rights, no one can mislead you, therefore the NCR will seek to ensure this. On monitoring in rural areas, he said that this is alluded to in the NCR business plans, where there is mention of the continuation of many raids in the nine provinces with particular focus on areas where contraventions of the Act are known. The NCR is of the view that if they educate the police, then the police will better enforce the provisions of the Act as the police have the mandate to effect an arrest.

Further, he stated that the NCR’s education awareness campaign plans are consumer targeted, where consumers are educated in such a way to show that they should not be party to a particular scheme because it violates their rights. This comes with challenges, however, with more focus and educational awareness "we will win the battle".

Finally, he stressed the budget constraints of the NCR. As far as NCR staffing is concerned, we extend to just over 170 members. Our national mandate needs staffing. With sufficient funding, this will enable us to employ more employees and reach all areas in the country.

Ms Motshegare stated that registered entities would receive specialised training – spelled out in the amendments – in order to educate those entering into the credit provision business on what they are required to do. She added to the earlier point about talking to community radio stations and commended its positive gains. She stated that the NCR would need to identify more community radios stations as well as community newspapers; this will be discussed at the NCR office.

Finally, she stated that often credit providers do not know if they fall within the registration thresholds. She pleaded for those who provide credit to ensure that they are registered with the NCR.

Mr Londt asked the NCR if there was a reporting system in place so that individuals can report offenders?

In response Ms Motshegare stated that there is compliance with the NCR. Individuals can call the NCR call centres to identify whether a credit provider is registered.

Mr Sikhumbuzo Thomo (DTI Chief Director of Strategy & Entities) stated that over and above the workshops, Minister Rob Davies has a programme "Taking the DTI to the People". Remarkably, once or twice a month he visits throughout the country, where he engages with communities about, among other things, consumer education as well as credit legislation.

He added that credit has an impact on South Africa, and part of the end result in Marikana had to do with credit and indebtedness. When his NCR colleagues went there, you would find about twenty credit lenders operating there. He illustrated the scenario: person X borrows from lender A, when the time to pay comes they do not have the money, and so they require lender B to pay the debts with 300% interest from lender A. When the following month arrives the debt has careened, so they go to lender C to pay for the almost quadrupled debt.

Mr Thomo noted that indebtedness is serious. There are other players in the financial industry, including the entities who report to National Treasury so now there is a lot of stakeholder management. There was no transformation in the financial sector until the mid 2000s; there was serious reluctance to transform. This gives one a picture of the challenges faced, and what DTI, as well as the NCR, intends to do is make it easy for entities in terms of going ahead.

Mr Makue thanked the NCR for the thought-provoking presentation. He remarked that Members are worried about the exploitation of the most vulnerable in society. We know that you cannot inform us about your intended raids, however if you could alert us the morning of a possible raid so we can communicate with the provincial legislatures to encourage them to be there to witness the work of the NCR. On a final point, he asked that more information on the problems associated with staffing should be presented.

Committee Minutes
The minutes of the 3 June 2015 meeting were adopted.

The meeting was concluded.