National Credit Amendment Bill, 2013

1. National Credit Amendment Bill, 2013 Presentation to the Portfolio Committee on Trade and Industry, 7 February 2014 Parliament, Cape Town

2. Purpose The purpose of the presentation is to provide the Portfolio Committee on Trade and Industry with responses on submissions made by stakeholders during the public hearings on the National Credit Amendment Bill, 2013

3. Delegation Zodwa Ntul Deputy Director General, Consumer and Corporate Regulation MacDonald Netshitenzhe Chief Director, Policy and Legislation Maria Nonyana-Mokabane Chief Director, Legislative Drafting NomsaMotshegare Chief Executive Officer, National Credit Regulator Diane Terblanche Chairperson, National Consumer Tribunal

4. Introduction • The National Credit Act (NCA) 34 of 2005 aims to promote and advance the social and economic welfare of South Africans. • The NCA has made progress in promoting its key policy aims: “A fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market and industry.” • Credit touches the lives of many millions of South Africans, with about 19.69 million (September 2012).  It not only has the potential to create opportunities for individuals to access goods and services, start businesses, obtain education or improve living standards, but also serves as a shock-absorber during periods of financial hardship. • However, while credit can have positive implications for the person accessing it, it can also destroy a person’s financial security. • The NCA further introduced initiatives to prevent reckless credit and a new debt-counselling industry to provide for debt restructuring for over-indebted consumers. • These new initiatives changed the dynamics between the stakeholders, including credit providers, potential new clients, over-indebted consumers, debt counsellors and the payment distribution agencies.

5. Introduction - Continued • Some of the practical outcomes of the NCA suggest that the time has come to re-assess the original policies underlying the NCA. • In this regard, the initial reviews and subsequent policy framework, legislative drafting of the NCA, its interpretation and implementation were considered with the prospect of improving on what has transpired. • The 2012 policy review of the framework, upon which the NCA is founded, has concluded that while the framework is sound and relevant, its intended outcomes have not always materialised as anticipated. • Since the scope and purpose of policy are outcome-based, the evaluation of outcomes indicates that there is a need for the enhancement of certain policies underlying the NCA, which may involve the further development of some of the provisions of the NCA. • NCA ‘cushioned’ SA from the global financial crisis. Innovative measures introduced (e.g. credit assessment, reckless lending rules, pre-agreement disclosure, regulation of agents etc.) • It is against this background that the dti approaches this Parliament for enhancement of some of the provisions of the NCA as per the policy review.

6. Issues raised Cost of Credit • Cost of credit is a concern that should be attended to • Cost of credit consists of interest, monthly service fee, initiation fee, default administration charges, collection costs & credit insurance (including credit life insurance (s101) • All the elements of the cost of credit are capped with the exception of credit insurance (s101, regs 42, 44, 46 & 47) • NCA requires that credit insurance not be at an unreasonable cost • Cost of credit life insurance (excessive pricing & lower claims ratios) • The cost of credit insurance needs to be regulated/capped and monitored closely • Collection costs under other laws should be capped in the NCA to bring alignment • In developing the capping, the Minister of the dti must confer with the Minister of DoJ&CD • Non-compliance with the agreed capping should be punishable • Time-frame for finalisation of proposed capping regulations should be 6 months.

7. Issues raised Towing & Medical Costs (Service Provider Fees) • The underlying contract does fall within NCA (s5(1); 78(1)(e); 78(2); and 107(2)(b) • Not initially a credit agreement, but becomes incidental with interest capped at 2% • Extent to which NCA applies to incidental credit (s5) • Outstanding debt to service provider may be listed wit bureaus as it falls within the ambit of consumer information (s70) • Where a dispute arises between the consumer and a credit provider that is not regisered, a remedy must be provided for in the NCA • The provisions of the Consumer protection in rgard to this area can be invoked by consumers as well.

8. Issues raised Formal Agreements between Regulators S 17(4) provides for co-ordination on matters of common interest • Cooperation between regulators must be mandatory as already provided in the Bill. • Agreement to be concluded with regulators will include agreement on notification periods on investgations • Dispute resolution mechanism to be agreed upon in the agreement • Cooperation not to interfere with the mandate in terms of respective legislation • Experience of the provisions under the Competition Act can be considered in this case.

9. Issues raised South African Social Security Agency (SASSA) (s20 of the Social Assistance Act, 2004) • This matter was brought before thedtiand discussed in a meeting held on 23 January 2014 and • There is a need for consultation with the relevant stakeholders by Social Development prior to effecting amendments • Dept of Social Development agreed to effect amendment on their legislation upon consultations with its beneficiaries • Due process of consultations with other affected departments will consequently take place. • As for now, the NCR may expressly exclude social grants as a means test for affordability purposes where applications for credit are concerned.

10. Issues raised Selling of Loan Books • In the main, this matter does not fall within the mandate of the NCA but continues to be an area of abuse towards consumers. • Therefore, the practice of collecting or selling debts that have prescribed should be prohibited and be made an offence in the NCA • All actions activating prescribed debts must be null and void. • Changes may thus be effected to strengthen this area in order to protect consumers.

11. Issues raised Debt Counsellors (DC) versus Payment Distribution Agent (PDA): • the dtiproposes considers both PDAs and Debt Counsellors to be playing a valuable role in the process of assisting the consumer • s44A should be extended to cover registration criteria and requirements for being a PDA and s46for disqualifications. • It is proposed that the “fit and proper” test be made part of the requirement for registration for all registrants. • The considerations for “fit and proper” should be prescribed in the regulations. • The provisions thus require strengthening to streamline the processes and make them more effective for consumer protection. • No exclusivity should be created for switches or PDAs, but rather a consumer should options as long as all are regulated properly.

12. Issues raised Guidelines vs Regulations • Affordability assessments should be done in accordance with regulations to be issued by the Minister. • Guidelines should remain those that the NCR can issue to guide the industry but are not binding. • Industry code provision should take the form of section 82 of the Consumer Protection Act, which allows the industry to propose a code. • Both affordability assessments and industry code once issued will be enforceable.

13. Issues raised Section 86(10): Debt review application • The credit provider may in respect of a credit agreement give notice for termination of a debt review of a consumer which period may not exceed 60 days after the date on which the consumer applied for debt review. Thus, the proposal for extension of the said period to 90 days may not be considered. • This extension is only sought because the existing mechanisms in the legislation is not being utilised. There needs to be some support ito regular training – the NCR wants to enhance the quality of our debt counsellors.

14. Issues raised Registration of Credit Providers Section 40 • Anyone in the business of lending money should be registered (s 40(1)). • The threshold should be revisited to ensure that every credit provider is registered. • The compliance requirements and fees can be prescribed in a manner that takes into account minimising cost of doing business for smaller operators. • the dti proposes for the NCR be required to publicise the cancellation and deregistration of deregistered entities and individuals widely.

15. Issues raised Tribunal Expertise and capacity • The NCT is well placed to hear matters relating to reckless credit. In addition the other matters it is currently empowered to adjudicate on matters referred to them. It has the necessary skills and expertise. • In respect of its geographic location the NCT has jurisdiction throughout SA and has established processes to hold hearings across the country and also via other technological means. • The NCA makes provision for appeals against decisions of the NCT to a High Court. Case example: In the matter of Southern African Fraud Prevention Services Ltd v NCR (1) 2010 ZANCT 28 (T) the decision of the Tribunal was taken on appeal to the High Court.

16. WHO IS WHO IN THE CREDIT MARKET High Court Consent Order Tribunal/Courts PDA’s Provincial Court AccrOmbud ADR Agent NCR/NCC Debt Counsellor/Ombuds Debt Collectors Attorneys Credit Providers Consumer

17. THANK YOU !