National Credit Regulator 2021/22 Annual Performance Plan; Status of Report on Remitted Bills

Meeting report

Opening remarks

The Chairperson welcomed Members and everyone on the platform. The start was delayed for few minutes as the National Credit Regulator (NCR) secured its connection to the virtual meeting.

The Secretary confirmed the attendance of all Members, with two Members to be joining late.

The Chairperson read through the agenda which was adopted unchanged. The first item on the agenda was a briefing on the status of the Remitted Bills, to be followed by a presentation by the NCR.

Status of the Report on the Remitted Bills

The Chairperson informed the Committee that he had received a request from the Table staff in Parliament that the Committee Report on the Remitted Bills had to be split into two separate reports (see here and here), one per Bill. The Committee had been advised that there was no need for a change in content, but the Committee was, in terms of procedure, required to present two separate reports, one on each of the Bills. He, as the Chairperson, had split the Report as requested and submitted to the Table staff.  As required by the Parliamentary Rules, he was formally informing the Committee that he had done so. He explained that the detail had not changed – it had been an administrative amendment.

The two reports had been presented to the National Assembly in the Announcements, Tablings and Committee Reports (ATC) on 19 May 2021.

Process going forward

The Secretary informed the Committee that the Report on the Remitted Bills had been ACT’d as two separate reports and had yet to be scheduled for discussion in the House. Materially nothing had changed.

Presentation by the National Credit Regulator (NCR)

Dr Evelyn Masotja, DDG: Consumer and Corporate Regulation Division, Department of Trade, Industry and Competition (dtic), introduced the National Credit Regulator and handed over to the CEO.

Ms Nomsa Motshegare, Chief Executive Officer, was accompanied by Ms Josephine Meyer, Chief Financial Officer, Mr Lesiba Mashapa, Company Secretary and Mr Obed Tongoane, Deputy Chief Executive Officer.

Ms Motshegare made a presentation on the NCR’s 5 Year Strategic and Annual Performance Plans. The presentation also referred to the NCR’s budget; credit trends and Debt Relief Measures during the COVID-19 pandemic. The Annual Performance Plan incorporates the dtic’s joint key performance indicators which the NCR is required to contribute to. The NCR will be reporting on a quarterly basis to the Executive Authority on its performance.

Ms Meyer presented the revenue streams which included the dtic grant, the fees from registrants and other income which comprised a recovery of costs incurred for investigations and consumer education activities conducted, resulting in a total budget of R169.4m for 2021/22. Expenditure would increase from the previous year to include the increase in compensation of employees as a result of the filling of posts, including internships. The increase in operating expenditure was due to additional research topics identified, such as research on unsecured loans, impact study of limitations on fees, interest rates and credit life regulations, research report with recommendations on regulatory impediments (development credit), as well as the increase in cell phone/data costs due to remote working by staff.

Ms Motshegare stated that debt relief measures had been offered to consumers who were experiencing financial difficulties. These included payment breaks/holidays; claims from Credit life insurance; restructuring of debt and reduction of instalments; emergency loans; and debt review consumers who had been adversely impacted were given an opportunity to apply for a change in circumstances.

She concluded that the Covid-19 pandemic exacerbated the financial position of consumers already overburdened by temporary or permanent loss of income. This saw an increase in debt repayment defaults and terminations. The noted decrease on the number of consumers applying for debt counselling could be as a result of lack of income which is a requirement for acceptance under debt review to enable a debt counsellor to negotiate for reduced instalment as consumers.

Discussion

Mr W Thring (ACDP) appreciated the presentation. He referred to slides 15 and 17 which spoke to the enforcement issue with regards to the National Credit Act (NCA). The target for enforcement action was 80% on slide 15 and 70% on slide 17. That meant a shortfall of 20% and 30% where investigation had taken place but those transgressors would be getting away with illegal activity. Why was that? Was it a lack of resources? There should be 100% enforcement of the law.

Mr Thring raised the question of non-compliance by foreigners in the country illegally but who were giving loans to citizens. Were there any figures in that regard? He had also seen in the news that there were allegations that banks treated certain sectors of the population unfairly. He understood that it was not necessarily a matter for the NCR but maybe a matter for the Ombudsman for Banking Services. Would the Ombudsman be interrogating reports, with or without the NCR, and finding out if there was any truth in the statements?

Ms Y Yako (EFF) was concerned that the Performance Plan was a tick box exercise on some of the issues. For example, slide 23 on actions to promote transformation stated that 40% of NCR procurement would be spent on majority women-owned companies. It did not make sense for the figure to be 40%.  Four training sessions would be conducted for women-owned law firms but there were so many women-owned law firms trying to succeed in business, so it did not make sense why there were only four training sessions for women.

She noted that the NCR’s response to promoting the green economy was a certificate that would be produced on recycled paper. That did not seem to be a significant issue. It seemed like someone just threw that out and did not think about the people that they would be engaging, or the green economy for that matter. It was disappointing to see a presentation that did not touch on the actual issue. What had informed those decisions?

Mr D Macpherson (DA) apologised for joining late. What had the pro-active stance of the NCR been during the pandemic and not just the reactive stance? In particular, there were two instances where the NCR had fallen short. The Covid-19 loan guarantee scheme of R500 billion which was administered by the banks. BASA had released a report showing that about 56% of total applicants had been unsuccessful because they had not met eligibility criteria. The loan scheme had been poorly taken up, partially because businesses were unwilling to take on more credit but one of the main drivers of the failure of the scheme was the inability of banks to grant loans because they had to adhere to the NCR affordability criteria for loans. What stance had the NCR taken in trying to look at affordability and risk criteria that the NCR had set to enable more businesses to meet the criteria.

Secondly, he stated that in April 2020, the DA had presented the Minister with some suggestions regarding the use of section 3 of the NCA to make credit more accessible; section 3 was the public interest credit provision. The DA had set out some very credible points including criteria for loans, repayment terms, interest rates etc. Proof of financial distress, loss of income, etc. could be considered. The intention was to put money in the hands of those who really needed it. Section 3 had never been invoked before. It was regrettable that the Minister had chosen not to even engage the DA and had dismissed the suggestions. That had been harmful to SA.

Mr Macpherson pointed out that those suggestions had come from him as a Member of Parliament. So, what had the NCR proposed to the Minister to assist people? Had the NCR merely taken a reactive position and been a spectator? Did the NCR attempt to help people or had the NCR failed the people of the country? Surely, in addition to ensure access to credit for consumers, the NCR should also be taking a pro-active role to assist people who needed credit? What did the NCR think of invoking section 3 to stop the loan sharks that had expanded significantly during the pandemic?

He had warned, when the Committee had passed the Credit Amendment Bill, that the people who would benefit the most as a result of a ham-fisted credit policy were the loan sharks. The loan sharks were making billions of Rand but the NCR had no ability to stop them.

Mr S Mbuyane (ANC) suggested that the NCR should get out of its offices and go to constituency offices in rural areas to share the information that they had just advanced.  The fly-by-night institutions took advantage of people. What was the NCR doing about that?

What was the process of withdrawal from debt review? The understanding of who qualified for assistance was not known by the poor people and they went to loan sharks. He also wanted a couple of slides on pricing manipulation during the pandemic in the next presentation by the NCR.

He asked about the enforcement of the National Credit Amendment Act. Where was the process, how far was the process, was the NCR winning or what were the challenges? He also asked about reckless lending and how that was being addressed.

Ms Motshegare informed Mr Thring that the NCR had put 70% or 80% as an annual target instead of 100% because there instances where some contraventions are identified in the last month or so of the year and it becomes impractical to take enforcement action on those matters in the same financial year. It was a timing issue. The NCR stills takes enforcement action on the balance (20% and 30%) in the following financial year. A number of tools are used in identifying contraventions. This includes reports from auditors that are submitted to the NCR and inspections. Some of the tools used in enforcement include referrals to the National Consumer Tribunal (NCT) and this in itself is a process.

She replied to Mr Macpherson’s concern that the NCR had not invoked the provisions of section 11. The NCR was of the view that credit providers can extend emergency loans to consumers affected by COVID -19 as per section 1. The extension of such credit is exempted from affordability assessment and reckless lending provisions. She said that they believed that it was not necessary to invoke the provisions of section 11 as it serves the same purpose as emergency loan provisions. It should only arise if different circumstances, which are much broader than the rationale for emergency loans, come to the fore.

Mr Mashapa stated the NCA made provision for an emergency loan where consumers had unexpectedly lost their jobs or incomes and there were no credit affordability criteria on those loans in section 11. The mechanism was there. One of the four major banks had approached the NCR for guidance as it had provided an emergency loan scheme and had kept the NCR updated on those loans. That meant that there was a mechanism available.

Regarding the Loan Guarantee Scheme, he assured Members that the loans had been guaranteed by the government. If borrowers defaulted, the government would bail out consumers. It would be wrong for the NCR to tell the banks to relax their loan criteria. Banks stated that people were reluctant to take on credit when there was no guarantee that those businesses would be able to repay the loan in the future. There was nothing the NCR could do about that.

Regarding the unfair discrimination by banks, he was concerned and had to state that the NCA outlawed unfair discrimination.  Consumers had the right to request reasons for any rejection by a bank but the NCR had not received any such complaints.  Regarding price manipulation of goods during the pandemic, that matter did not fall under the NCR, but the fees charged by financial services were legislated and so those could not be manipulated.

Mr Mashapa promised to provide details of the investigations undertaken. He reiterated that the targets of 80% and 70% catered for the lateness in the year in which such contraventions were found as action would be taken in the following financial year. He reassured the Committee that action was taken the following year.

The CEO responded to the question of procuring from 40% women-owned companies. The figure of 40% was derived from the President’s State of the Nation Address. She added that the training sessions would not be limited to law firms but extended to other firms servicing NCR. The Green Economy target was selected because a lot of paper was used in the NCR and so the organisation had decided on recycling paper in order to contribute to greening the economy to protect the environment.

The Deputy CEO informed Mr Mbuyane that pre-Covid, the NCR in collaboration with Traditional Authorities, conducted outreach programmes in rural communities. These campaigns had to be halted due to the onset of the COVID-19 pandemic. The NCR continues to conduct educational awareness campaigns, relying in the main on TV, print media, social media platforms and radio, especially community radio stations. To further extend its reach, the NCR has procured a mobile office through which to engage communities in far-flung areas.

He added that it should be noted that the NCR was a very small organisation but it was saddled with a big mandate and was also limited by budget cuts for the next three years. The advent of Covid-19 had also impacted on the registration fees. NCR’s registrants such as Banks have introduced ICT technology which resulted in the closure of branches in favour of on-line transactions. One could apply for a loan via an ‘app’ or via an ATM. The NCR had fewer than 200 employees of whom fewer than 20 were employed as inspectors. In addition, huge amounts of monies are spent on fighting legal challenges arising out of enforcement action taken, e.g objections to Compliance Notices and cases referred to the National Consumer Tribunal me. He assured the Committee that the NCR was doing its very best.

Regarding pro-active action by the NCR, Mr Tongoane said that in response to the pandemic, the NCR sent out a circular which extended the prescribed number of days to assist with avoid termination of credit agreements of those consumers under debt review.

Ms Motshegare stated that all questions had been answered.

The Chairperson stated that the secretariat would submit questions that had not been adequately responded to, and some concerns raised by the Committee Researcher, for a response in writing.

Mr Macpherson found the responses strange as the NCR had said (in summary) that, in respect of the Covid-19 loan scheme, it was not for the entity to get involved or to tell banks how to manage their affairs, but the NCR set the affordability assessments that the banks had to adhere to and so the NCR had a role to play in the R200 billion loan scheme, but had chosen not to play a role. That was the bottom line and that was a real abrogation of their responsibility to be proactively involved. The only proactive action cited by the NCR was that it had sent out one circular in the entire year. Where was the proactive work of the NCR? Credit was a lifeline to businesses and consumers, without which many could not function. Did the NCR think that it was a spectator? The NCR had got it wrong. It should have been involved and had discussions with banks and it should have reviewed the affordability assessments. It was a failure on the part of the NCR.

Mr Macpherson disagreed that there was no need to consider section 3 for emergency loans. Section 11 allowed for very specific types of smaller credit lines for consumers. If section 3 had been invoked, it would have made a huge difference to mitigating the distress of those who had faced financial difficulty. The NCR had left it up to the credit providers to come up with solutions. The DA had even suggested a 1% drop in the interest rates and that could have been done under section 3.

He stated that it seemed that the NCR was a compliance desk instead of being an entity that took a proactive role. Why would one have both sections 3 and 11 if they were the same?

The Debt Relief Bill had been signed by the President two years previously – on 19 August 2019. How far was the NCR in seeing that conditions were ready for the implementation of the Bill after two years?

The Chairperson stated that some areas of discussion needed a follow up, i.e. that the NCR should be more engaged and involved, as Mr Macpherson had pointed out, and the Committee needed to see what the NCR intended to do to reach out to consumers. The Committee needed to concern itself with whether there was a need for any legislative processes to address the issues and also consider what engagement there could be with stakeholders. The Committee encouraged the NCR to get more involved, so that it participated in giving direction and finding solutions.

Ms Motshegare stated that the NCR had discussion with the Reserve Bank and National Treasury regarding section 1 which relates to Emergency Loans versus section 11 and the NCR had advised the use of section 1 which was already available and provided for in the Act.

The National Credit Act Amendment processes were underway. The NCR had sent an action plan to the dtic. The DDG could advise on the progress. She stated that it was important for the NCR to collaborate with stakeholders and industry players in the credit industry as that was the best way to make a real impact and thereby protect consumers. For instance, the NRC is in the process of establishing the National Register of Credit Agreements and is collaborating with the Reserve Bank, FSCA, the Financial Intelligence Centre and other stakeholders to establish this register which will assist to regulate the industry more effectively and make the industry more sustainable. The NCR was collaborating with other Regulators and stakeholders because she believed collaboration was the only way forward.

Mr Mashapa stated that he agreed with Mr Macpherson that the NCR should participate more and had engaged with banks since April 2020 to ensure that banks assist consumers and businesses.

He pointed out that the affordability criteria did not apply to developmental credit. The advice to banks was based on provisions in the Act relating to reckless lending and criteria that had to be considered. Changing those criteria would have required legislative change of the National Credit Act as the regulations were based on the Act.

Mr Mashapa stated that in the past, consumers could apply to the High Court if they wished to exit a debt review order. In 2019, the full bench of the High Court in Gauteng had determined that it was not up to the courts to determine that a consumer could exit debit review. The only way a consumer could exit a debt review order was when the debt counsellor issued a clearance certificate and that meant that the person had to have met all debt obligations in the debt arrangement.

The Chairperson requested the Committee Secretary to capture all the issues so that the areas could be programmatised. The Committee could then consider opportunities for improvement or additions to the Annual Performance Programme.

Dr Masotja thanked the NCR and the Committee. She had noted the questions. She assured the Committee that the NCR engaged in advocacy and other programmes beyond compliance issues.

She stated that, in terms of the National Credit Act Amendment, the NCA and the dtic had been engaging and consulting with other regulators and key players in the sector to ensure a blended approach to implementation that was cost effective, which was especially important at the current time during the Covid-19 pandemic and the fiscal constraints. In the current financial year, the dtic and the NCR would continue to engage stakeholders to ensure that the work around an implementation plan was finalised for the introduction of the Act.

Dr Masotja added that a regulatory impact assessment that had been conducted on the Act and that impact assessment had highlighted concerns, such as the cost to the credit market and the fiscus and the fact that informal credit markets might be triggered by the legislation. That had resulted in a cautionary approach by the Department to ensure that there were extensive discussions with stakeholders.

Dr Masotja promised to provide a more detailed response to the Committee in writing.

Mr Macpherson asked the DDG for the proposed timeline for the implementation of the Amendment, seeing that it was two years since the President had signed the Bill.

The Chairperson suggested that the response to that question should be included in the written response promised by the dtic. He requested the secretariat to note all questions that had been raised and forward them to the dtic.

Concluding remarks

The Secretary had no further matters other than to state that the next meetings would be held on 1 and 2 June 2021.

The Chairperson concluded the meeting as the day’s programme had been completed. He thanked the NCR and Members for the engagement.

Mr Z Burns-Ncamashe (ANC) attempted to speak but it was impossible to hear anything that he said owing to poor connectivity.

The Chairperson requested that Mr Burns-Ncamashe raise the matter in writing and if it were a question for the NCR, it would be submitted to the entity.

The meeting was adjourned.