National Credit Amendment Bill [B47-2013]: Committee proposed amendments

Meeting report

The Chairperson welcomed everyone to the meeting, especially ANC MP, Ms Sheila Shope-Sithole, and mentioned the long standing medical apology from Committee member, Mr Mario Oriani-Ambrosini (IFP) and the illness of Committee Whip, Mr Bhekizizwe Radebe (ANC). The agenda of the meeting was adopted. The Committee had received feedback from the independent consultant, University of Johannesburg Economics Professor, Fiona Tregenna, but she could not attend the meeting.

Clause 1
The Chairperson said Prof Tregenna referred to the definition of ‘regulated financial institutions’ and the proposal raised during the public hearings by the South African Reserve Bank (SARB) that the definition be amended to include non-deposit financial institutions. The Department of Trade and Industry did not agree with this proposal, but did not provide reasons.

DTI Deputy Director-General: Corporate and Consumer Regulation, Ms Zodwa Ntuli, explained that the issue was raised by the Deputy Governor of the SARB and the definition of ‘regulated financial institutions’ in the Act was specific because it allowed for consultation and coordination between regulators with regards to banks specifically. In section 55, before the National Credit Regulator (NCR) could issue a compliance notice, it would have to consult with the regulator that issued the licence to that financial institution. In section 57, if cancellation of registration related to a bank, the NCR should consult with the regulator that issued the licence to the bank and if non-deposit financial institutions were included in the definition, it would render the Act obsolete, because it would disempower the NCR.

Mr G McIntosh (COPE) said he could understand how the inclusion of non-deposit financial institutions in the definition would ‘disempower’ the NCR.

Ms Ntuli said the Act limited the definition to deposit taking entities because for any other regulated entity that provided credit, the NCR was empowered to take action anytime. The only reason an exception was made with banks was to allow for consultation based on systemic risk issues.

Mr D Swanepoel (ANC) asked if insurance companies like Sanlam was included in 'deposit taking institutions' and Ms Ntuli replied they were not included.

Clause 2
The Chairperson said the Committee had already discussed the issue of cooperative governance mentioned by Prof Tregenna and asked Parliamentary Legal Advisor to speak on this.

Adv Charmaine van der Merwe said section 17(2)(f) was amended to say that regulatory authorities ‘must’ enter into valid agreements with the NCR to ensure cooperation between the NCR and other regulatory authorities that in terms of public regulations, exercised jurisdiction over consumer credit matters.

Clauses 10 and 11
Clause 10 required registration as a credit provider if the total principal debt owed to that credit provider under all outstanding credit agreements, other than incidental credit agreements, exceeded the threshold prescribed in terms of section 42(1). Clause 11 stated the Minister should, by notice in the Gazette, determine a threshold for the purpose of determining if a credit provider should be registered in terms of section 40(1).

Ms Ntuli said these provisions ensured normal person-to-person loans were not included in the provisions, but would focus on people that were in the business of extending credit.

Clause 12 amending Section 44A
The Chairperson said Prof Tregenna had commented on debt counsellors applying for registration as payment distribution agents, and did not oppose the proposal but cautioned against conflict of interest.

Adv van der Merwe said section 44A(5) provided that no credit provider would have any direct or indirect interest which was inconsistent with the objects of this Act, in the management or control of the business operations of a payment distribution agent or debt counselling business. There was no conflict of interest issues that were foreseeable if a debt counsellor applied to be a payment distribution agent.

Ms Ntuli said there was no conflict of interest with regards to debt counsellors that want to be registered as payment distribution agents if the requirements were being met.

The Chairperson brought up the matter of debt counsellors and payment distribution agents being affiliated with entities which surely was conflict of interest.

Mr N Gcwabaza (ANC) asked what the cost to the consumer would be if a debt counsellor, who also acted as a payment distribution agent rendered services as both to the consumer.

Ms Ntuli said the outcome of debt counselling would be payment distribution and the cost of both debt counselling and payment distribution were capped and regulated by the NCR.

Mr McIntosh referred to subsection (2)(a) which read ‘A person must not offer or engage in the services of a payment distribution agent, or hold themselves out to the public as being authorised to offer any such service, unless that person is registered as such in terms of this Chapter’, and he asked if ‘Chapter’ should not be substituted with ‘Act’.

Adv van der Merwe said she checked, and ‘Chapter’ was the correct term because it referred specifically to the Chapter that dealt with registration and was aligned with the terminology in the principal Act.

Clause 22
The Chairperson said the insertion of section 71A dealt with the removal of adverse consumer credit information. This should be carefully monitored in the period it is effected - this should be included in the Committee’s legacy report and she emphasised the importance of monitoring.

Mr McIntosh noted Prof Tregenna also said this amendment would most likely have economic implications. He had retrieved his own credit record and it recorded everything, but the aim was that a few missed payments should not exclude consumers from access to credit or employment. South Africa had a world class credit bureau system. He asked if he should rather raise his concerns at the next meeting.

The Chairperson said he should raise his concerns now, because there were other concerns as well. She had been blacklisted without her knowledge for a medical debt incurred by her youngest daughter because of the address given. The point was that she was blacklisted, but not legally liable and did not know she was blacklisted until she applied for credit. Someone in her position had the means and the know-how to address such a challenge, but many consumers did not. The impact on the economy was a big concern and that was why DTI was asked to address the affordability assessment issues comprehensively.

Mr Selau said Prof Tregenna also stated the amendment was an appropriate balance and careful monitoring of the effects of the amendment was needed in the coming period to assess the extent of the intended positive effects and any unintended negative consequences. The question the Committee members should ask themselves was would this balance between positive-intended results and negative-unintended effects be achieved by this amendment, and if not, what should be changed.

Mr McIntosh said if a consumer lost his/her job and went to a reputable micro lender for a loan who had access to a credit bureau, the micro lender would look at the profile of the borrower and would be able to assess based on the payment profile if it was a risk worth taking. If the fact that a consumer did not pay was not recorded, micro lenders would not be able to assess risk and if the credit regime was not properly managed, the poor would also be denied credit.

Mr Swanepoel said removal of the adverse credit information once a debt had been paid would achieve the intention of access to credit and to employment and any worthy credit provider would be able to assess risk based on the remaining information, because after two years, the information under the current system would disappear anyway.

Clause 29
Section 100 dealt with prohibited charges and was amended by the addition of subsection (3) which stated that a person who contravenes this section is guilty of an offence. The Chairperson stated Prof Tregenna fully supported this amendment and she said it would strengthen this section of the Act.

Clause 30
This addition amended section 106 so the Minister could prescribe a limit on the cost of credit insurance. National Treasury did not oppose this amendment and credit insurance did not need to be compulsory.

Mr Swanepoel said he realised there were some concerns from the insurance industry, but it was specifically decided that the Minister would have the right to cap the cost of credit insurance. He would take into consideration the possible differing outcomes of the Consumer Credit Insurance Task Team, and would be done in consultation with the Minister of Finance.

The Chairperson said the Committee had learned about the task team a little late so the prescribed regulations should be done in consultation with the Minister of Finance and the word ‘may’ provided some flexibility in the process. There had been some concern about  the in duplum rule and this amendment.

Adv van der Merwe said the in duplum rule discussion had been two-fold. The Committee discussed the difference of having a principal debt of R50 doubled to R100 versus R1 million doubled to R2 million and the unfairness of the situation. The DTI pointed out that the in duplum rule was only one of many tools to protect the consumer.

The Chairperson said there had also been a question on why credit life insurance was compulsory.

Mr McIntosh said credit life insurance was in case the consumer died and this lowered the risk for the lender, which in turn also lowered the interest rate.

The Chairperson pointed out that in the case that a person did not die, those insurance premiums escalated and the company kept those payments.

Mr Swanepoel said the issue was balance because in the case of mortgage loans when a person died, the people left behind still needed a roof over their heads. Credit life insurance was not compulsory in the case of short term insurance. Capping the cost of life insurance should fall under the regulations.

Mr Selau said short term and long term loan conditions should be distinguished.

Mr McIntosh said the drafters should look at where the comma should be in the amendment.

Ms Ntuli said credit life insurance was not compulsory in every instance, but in practice it was not offered as "an option" to consumers, and it was largely designed to protect credit providers. Credit insurance that covered consumers in the case of job loss was not offered to consumers, which was a type of credit insurance that spoke more to consumer protection than credit life insurance and that was why these costs should be capped. Capping of the cost of credit insurance could be aligned to long or short term loans.

The Committee Secretary noted there were still some technical amendments that would be corrected and a clean Bill would be ready at the next meeting for the clause by clause voting.

Long title
Mr McIntosh said it should read either ‘to empower the Minister to issue a notice’ or ‘to empower the Minister to issue notices’.

Adv van der Merwe agreed and said it should read ‘a notice’.

The phrase read ‘to empower the Minister to issue a notice for the removal of adverse consumer information’ and the Chairperson asked should it not be ‘adverse consumer credit information’.

Ms Shope-Sithole said it should be ‘adverse consumer credit information’ and the DTI and Adv van der Merwe agreed.

The Chairperson said it should be consistent throughout the Bill.

Mr McIntosh said ‘Alternative Distribution Resolution Agents’ should not be in capital letters and the DTI agreed since it was not an established entity.

Mr Selau said the phrase ‘to empower the National Consumer Tribunal to suspend reckless credit agreements’ was not clear.

National Consumer Tribunal (NCT) Chairperson, Ms Diane Terblanche, said in the original legislation reference was made in section 83 that ‘a court may suspend reckless credit agreements’.

NCR Company Secretary, Mr Lesiba Mashapa, said it should read ‘to declare a credit agreement reckless’ to correspond with the amended section.

Mr Gcwabaza and Mr Swanepoel asked what the consequence of the declaration would be.

Mr McIntosh said the paragraph simply summed up what the Bill was about, because section 83 clearly stated what the consequences of the declaration were.

Mr Gcwabaza proposed that the phrase read ‘to empower the National Consumer Tribunal to declare a credit agreement reckless’.

Mr Selau and Mr Swanepoel proposed ‘to empower the National Consumer Tribunal to make rulings on reckless credit agreements’.

Ms Terblanche proposed the word ‘adjudicate’ and said section 84 of the principal Act dealt with the effects of the suspension of a reckless credit agreement.

Adv van der Merwe said suspension was only one of the orders that could be made once a credit agreement was found to be reckless. Based on the heading of the amended section, she proposed the phrase read: ‘to empower the National Consumer Tribunal to declare a credit agreement reckless’.

The Chairperson agreed and said the deliberations should stop because a quorum was needed to continue.

The meeting was adjourned.