Parliament, Wednesday, 31 January 2018 – The Portfolio Committee on Trade and Industry this week (Tuesday and Wednesday) held public hearings on the draft National Credit Amendment Bill, which aims to provide for once-off debt intervention to promote a change in South Africans’ borrowing and spending habits.
The Bill intends to provide relief to over-indebted South Africans who have no other effective options to relieve their over-indebtedness. It also proposes a mandatory credit life insurance on all credit agreements of longer than six months and no more than R50 000 in value. This is to prevent lower income groups from falling into over-indebtedness due to changes in their financial circumstances.
The Bill also proposes to further limit the widespread abuse of consumers by unscrupulous lenders and to allow for simpler and more rigorous enforcement of the Act by, amongst other things, providing for criminal prosecution of persons who contravene the Act.
The Committee had robust public consultations with 15 stakeholders over the two days, including the Banking Association of South Africa, MicroFinance South Africa, the National Clothing Retail Federation of South Africa, the Large Non-Bank Lender Association, the Debt Counsellors Association of South Africa, and Summit Finance.
There was general agreement around the need to address over-indebtedness and assist lower income consumers to escape debt traps. However, there was widely divergent positions on how to achieve this. A number of key points were raised and largely constructive recommendations made in this regard.
Firstly, there were concerns about the constitutionality of the Bill in terms of deprivation of property. Several proposals were made to rectify this concern. In particular, there is a need to protect credit providers’ right to a fair process and to limit the National Credit Regulator’s (NCR) role to that of a regulatory agency. Further, that the NCR not be allowed to play an adjudicating role, such as suspending reckless credit agreements prior to an investigation.
Secondly, the reporting of reckless credit by credit providers and debt counsellors poses a significant practical challenge and criminalising non-reporting poses a risk to these role-players. The assessment of reckless lending is costly and difficult to determine. Therefore, many credit providers and debt counsellors may not have the capacity and access to appropriate information to implement this obligation. Furthermore, credit providers may be expected to inadvertently incriminate themselves or may unfairly police their competitors.
Thirdly, the stakeholders who made submissions and presented them to the Committee maintained that the introduction of mandatory credit life insurance creates a risk of excluding the targeted income group, if no insurance is available that accords with the prescripts of the law. It was also purported that this could limit access to credit of less than R50 000, if such credit life insurance was not commercially viable given the lower ceiling to be prescribed by the Minister of Trade and Industry.
Fourthly, a number of additional criteria for qualification for the debt intervention was proposed. There have been calls for a means test or proof of over-indebtedness to be introduced. Furthermore, that the caps for income and total unsecured debt be reduced. These changes would decrease the impact on financial and economic stability.
Fifthly, in terms of the debt intervention application process, the current capacity of the NCR and the National Consumer Tribunal (NCT) to implement the process was raised by various stakeholders as a concern, noting that there is insufficient capacity in these two entities to handle this process. Alternative proposals were simulating administration orders, introducing a permanent “poor man’s sequestration” or no income, no assets (NINA) process, and a subsidised or incentivised debt review process to improve accessibility to individuals earning less than R7 500.
Other concerns raised included the perception that the powers given to the Minister to prescribe further debt interventions was too broad, the unintended consequences of debt intervention, and the re-criminalisation of credit legislation.
Concerns of reckless lending by financial service providers as well as lack of household financial literacy were mentioned as contributing factors to over-indebtedness.
The Committee will continue its public hearings on Friday, 2 February 2018.
ISSUED BY THE PARLIAMENTARY COMMUNICATION SERVICES ON BEHALF OF THE CHAIRPERSON OF THE PORTFOLIO COMMITTEE ON TRADE AND INDUSTRY, MS JOANMARIAE FUBBS.
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