NATIONAL CREDIT BILL, 2005

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NATIONAL CREDIT BILL, 2005

• MS ASTRID LUDIN
• DEPUTY DIRECTOR GENERAL
• DEPARTMENT OF TRADE AND INDUSTRY
• MAY 2005

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ORGANISATION OF PRESENTATION

• Need for a Review
• Background
• Process including consultation
• Objectives and principles of Bill
• Scheme of the Bill
• Detailed overview of the Bill

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Need for a Review

• Criticisms of a dysfunctional market based on
• Fragmented and outdated legislation
• Ineffective consumer protection, particularly in
  relation to consumers in low income groups
• High cost of credit in some areas access
  remains a problem
• Rising levels of over-indebtedness and
• Reckless behaviour by credit providers
  exploitation by micro-lenders, intermediaries,
  debt collectors debt administrators

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Research

• Research at a cost of over R2 million...
• Research Reports
• The Cost Volume Allocation of consumer credit
  in South Africa. Dr. P Hawkins
• Credit Contract disclosure associated factors.
  Reality Research Africa
• A Market Research Report. Rudo Research
  Training

• Expert Opinions
• Interest Rates Usury in Emerging Markets. Prof
  G Dymski
• Assessment of current SA legislation
• Regulation of payday lending in the United
  States. Prof. P Meagher

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Primary Findings

• Consumers -
• Feel disempowered, see certain products as
  dangerous but do not believe they have much
  choice
• Would like more disclosure, better treatment
• Indicate that the urgency of obtaining
  credit/excitement of making a purchase overrides
  reason when entering a contract
• Industry Experts -
• Agree current laws are weak, outdated
  inconsistent in treatment of different products
  poor enforcement

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Primary Findings

• Legislative weakness weak enforcement a major
  contributor to current problems, aggravated by
  problems in contract enforcement through the
  courts
• Compared to International Best Practices
• SA at least 20 years behind other leading
  dispensations but current challenges very
  similar over-indebtedness, marginal/high cash
  lenders, credit life insurance,
  disclosure/consumer awareness credit bureaux

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Key Findings

• R362bn consumer credit market, approximately 19
  million accounts, with South Africans paying
  about R95bn in interest fees
• BUT a large number of consumers are paying as
  much as 100 p.a. on loans furniture
  finance..from micro-lenders as well as leading
  retailers banks
• The benefit of access to finance is undermined by
  this extremely high cost of finance, skewed
  allocation, with least access to those who need
  it most
• YET, discrimination not the main cause rather
  legislative weaknesses

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Suggestions

• Recommendations of the Technical Committee-
• Move away from a system of ineffectual
  price-control that results in misleading
  disclosure distorts the market segregates it
  into the Super Included and Super Excluded
• Create a system that integrates the market
• Provide for effective enforcement
• Curtail over-indebtedness
• Provide assistance for consumers who are
  vulnerable or unfairly treated

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Background

• No significant review of credit legislation
  Usury Act, 1968 Credit Agreements Act, 1980
  over past 25 years
• Need for a holistic review long acknowledged
  despite various attempts, only recently
  significantly progressed
• Mandate from the dti to Technical Committee to
  review consumer credit policy and legislation
  Report received by the dti in October 2003

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Background

• Briefings to stakeholders, including to
  Parliamentary Committee on the findings of
  Technical Committee October December 2003
• Round Table meeting with International Review
  Panel - June 2004
• Consumer credit policy framework and Bill
  finalized Bill published for general
  information and comment in Government Gazette on
  17 August 2004
• After consultation with stakeholders, revised
  Bill sent to the State Law Advisers in November
  2004 for certification

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Process

• Information sessions country wide on draft Bill
  August September 2004
• More than 80 submissions received from
  organizations and individuals Consultation
  with stakeholders, including provinces September
  November 2004
• Workshop with Portfolio Committee in Parliament
  October 2004
• Policy tabled at Nedlac and process concluded in
  agreement September 2004 April 2005

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Objectives of Bill

• Promote enhanced consumer protection
• Pre-agreement disclosure, quotes contracts
• Sales marketing
• Enhanced enforcement redress through new
  institutional framework
• Promote competition transparency
• All credit transactions treated equally but
  recognition of different products categories of
  agreements

• Control over-indebtedness reckless lending
• Debt counselors debt review with
  recommendations to the Magistrates Court
• Debt enforcement by repossession judgment
• Obligation to properly assess consumers ability
  to meet obligations

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Scheme of the Bill

• Chapter 1 Interpretation, purpose application
• Chapter 2 Consumer credit institutions
• Chapter 3 Consumer credit industry regulation
• Chapter 4 Consumer credit policy
• Chapter 5 Consumer credit agreement

• Chapter 6 Collection, repayment, surrender
  debt enforcement
• Chapter 7 Dispute settlement other than debt
  enforcement
• Chapter 8 Enforcement of Act
• Chapter 9 General provisions
• Schedules 1-3

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Chapter 1

• Interpretation, Purpose Application
• Part A Interpretation- definitions
• Part B Purpose application
• Part C Classification of credit agreements
  -Small (pawn small credit transactions)
  Intermediate (credit facilities mid sized
  transactions) Large (mortgages large
  transactions)

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Chapter 2

• Consumer Credit Institutions
• Part A National Credit Regulator
• Core functions include registration of all
  credit providers operating in more than one
  province, compliance monitoring enforcement
  complaints investigation (liaison with relevant
  regulators provincial consumer desks).
• Reporting to Minister Parliament
• Funded from fees government allocations

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Chapter 2

• Consumer Credit Institutions
• Part B National Consumer Tribunal
• Establishment constitution of Tribunal
• Prosecution of credit providers by Regulator
• Declaratory orders
• Part C Administrative Matters

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Chapter 2

• Consumer Credit Institutions
• Part D National Provincial Co-operation
• Co-Operative exercise of concurrent jurisdiction
• Provincial regulators if provincial legislation
  passed institutions established
• Provincial registration if credit provider has
  branches in only one province

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Chapter 3

• Consumer Credit Industry Regulation
• Part A Registration requirements, Criteria
  Procedures
• Who must register? - credit providers gt100
  agreements or book gt threshold (R500,000)
  juristic persons individuals minimal fit
  proper tests on owners directors BEE
  commitment balanced score card
• Also registration requirement for credit bureaus
  debt counselors
• Special category for developmental credit
  providers credit unions education small
  business housing
• Part B
• Compliance procedures cancellation of
  registration

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Chapter 4

• Consumer Credit Policy
• The Bill codifies a number of fundamental rights
  of consumers
• Part A Consumer Rights
• Protection against discrimination in credit
  granting, right to reasons for credit being
  refused, right to information in official
  language, right to receive documents

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Chapter 4

• Consumer Credit Policy
• Part B Confidentiality, Personal Information
  Consumer Credit Records
• Minister may require National Credit Regulator to
  establish a National Register of credit
  agreements- to contain minimum data, to perform
  affordability assessments loan and repayment
  status only no payment history compulsory
  submission by credit providers
• But Affordability assessments not necessarily
  linked to NCR data
• Credit Bureau information- right to accurate
  information, access to information notification
  of adverse reports

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Chapter 4

• Consumer Credit Policy
• Part C Credit Marketing Practices
• Prohibited Negative option marketing
  automatic increases in facility limits (except
  annual ave monthly cash advances/ credits)
  telemarketing sale of client information only
  if consent agreements at home only if invited
  Marketing or agreements at work only if agreement
  if employer/union
• Advertising practices- prescribed statements
  disclosure of cost unregistered providers
  prohibited from advertising

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Chapter 4

• Consumer Credit Policy
• Part D Over- indebtedness Reckless Credit
• Over-indebtedness criteria to determine status
  of consumer Failure to take reasonable steps to
  assess repayment history and existing financial
  means, prospects and obligations and extending
  credit despite the fact that the preponderance
  of information available to the credit provider
  was not supportive of such a decision

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Chapter 4

• Consumer Credit Policy
• Part D Over- indebtedness reckless credit
• If reckless Magistrates may not issue court
  orders for debt recovery Debt counselor may
  recommend debt cancellation or restructuring
  Agreement may be suspended or obligation reduced
  by Court or Tribunal Provider may be prosecuted
  by Regulator
• BUT these provisions only available when
  consumers disclosed accurately unjust
  enrichment prevented

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Chapter 5

• Consumer Credit Agreement
• Part A Unlawful Agreements provisions
• Sets out the application of the provisions of
  unlawful credit agreements together with criteria
  for unlawful provisions of credit agreement
• Prohibits the inducement by the credit provider
  of the consumer to enter into a supplementary
  agreement or sign a document containing an
  unlawful provision

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Chapter 5

• Consumer Credit Agreement
• Part B Disclosure, form and effect of credit
  agreements
• Requires pre-agreement disclosure statement on
  terms conditions
• Outlines treatment of forms of agreement,
  including delivery to the consumer liability
  for lost or stolen cards or other identification
  devices
• Provisions set out for - charges deferrals
  waivers, address for notice and consumers
  obligation to disclose location of goods,
  substituted goods
• Obligations of pawn-brokers

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Chapter 5

• Consumer Credit Agreement
• Part C Consumers liability, interest, charges
  and fees
• Provisions on the cost of credit
• income on loans limited to interest to -
  application service fees
• Minister to impose limits, whole market or
  by sub-sector (but not to distort market,
  reduce access)
• Allowed default administration charge
  collection costs extended warranty delivery,
  installation fueling, connection taxes, charges
  unrelated to credit provision at cost recovery
• Codify in duplum rule default interest limited
  to settlement value at point of default

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Chapter 5

• Consumer Credit Agreement
• Part C Consumers liability, interest, charges
  and fees
• Credit life insurance
• -Must be reasonable and conform to prescribed
  standards if policy proposed by provider
  charged monthly, no capitalisation of single
  premium insurance
• Regulator to monitor premiums claims
• Does not prohibit insurance on value of goods
  purchased (if selected by consumer)

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Chapter 5

• Consumer Credit Agreement
• Part D Consumers liability, interest, charges
  and fees
• Provisions applying to the delivery, form
  content of statements of accounts in so far as
  certain transactions excludes pawn
  transactions, discounted incidental credit
  agreement

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Chapter 5

• Consumer Credit Agreement
• Part E Alteration of credit agreement
• Procedures regarding the alteration of original
  or amended credit agreement changes by
  agreement provisions dealing with reductions
  increases under a credit facility
• Part F- Rescission termination of credit
  agreements
• Provides for consumers right to rescind agreement
  and procedures for the termination of agreement
  by either consumer or credit provider

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Chapter 6

• Collection, Repayment, Surrender debt
  Enforcement
• Part A Collection repayment practices
• Provisions regarding settlement of agreement,
  including early payments
• Part B Surrender of goods
• Provisions outlining process in the surrender of
  goods

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Chapter 6

• Collection, Repayment, Surrender Debt
  Enforcement
• Part C Debt enforcement by repossession
  judgment
• Court proceedings only commence 20 days after
  default 10 days since informed of right to
  approach debt counselor, Ombud etc
• Court to enquire whether or not reckless
• Repossession Notify Value Consumer nominate
  buyer or resume obligations No response sell
  at best price

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Chapter 7

• Dispute Settlement other than Debt Enforcement
• Part A Alternative dispute resolution
• Provisions for the choice of the appropriate
  forum for the resolution of disputes, including
  Consumer Courts Ombuds
• Part B Initiating Complaints or Applications
• Provisions for the initiation of complaints to
  the National Credit Regulator applications to
  the Tribunal
• Part C Informal Resolution or Investigation of
  Complaints
• Provisions for the proactive resolution of
  disputes by the National Credit Regulator

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Chapter 7

• Dispute Settlement other than Debt Enforcement
• Part D Tribunal consideration of complaints,
  applications referrals
• Provisions for the functioning of the Tribunal,
  including rules of procedure, costs appeals
  reviews
• Part E- Tribunal Orders
• Provisions outlining circumstances for the
  Tribunal to make enforce orders impose
  administrative fines

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Chapter 8

• Enforcement of the Act
• Part A Searches
• Procedural requirements in respect of authority
  and the conduct to enter search premises
• Part B - Offences
• Administrative matters set out in respect of the
  implementation of the Act, including failure to
  attend a hearing and applicable penalties in
  terms of the Act
• Part C Miscellaneous Matters
• Provisions including the onus of proof and the
  service of documents

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Chapter 9

• General Provisions
• Matters dealt with include the publication of
  regulations by the Minister, conflicting
  legislation, consequential amendments, repeal of
  laws transitional arrangements
• Schedules 1 3
• Provisions setting out the application of the
  Act, including to pre-existing agreements and
  Provincial regulatory capacity

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Summary

• Complete overhaul of credit law, with reference
  to international best practices - in order to
• Modernise integrate legislation
• Remove perverse incentives to credit providers
• Improve disclosure, contracting standards
  create effective access to redress
• Deal with reckless lending over-indebtedness
• that will evolve improve through case law
  revision
• Create institutional capacity for effective
  enforcement

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THANK YOU