NATIONAL CREDIT BILL, 2005

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NATIONAL CREDIT BILL, 2005

• 05 August 2005

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Organization of the Presentation

• Current legislation for consumer credit
• Objectives of the National Credit Bill (the
  Bill)
• Overview of the contents of the Bill
• The long title of the Bill
• Detailed overview of the Bill in detail

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Current Legislation

• Money lending and credit transactions governed
  by -
• Usury Act, 73 of 1968
• Credit Agreements Act, 75 of 1980 and
• Exemption Notice, 1999
• Banks operate under the Usury Act, micro lenders
  under the Exemption Notice to the Usury Act and
  the Credit Agreements Act governs installment
  sales, such as car loans
• This Bill proposes to repeal this legislation and
  replace it with a single National Credit Act
  and modify the common law in some respects

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Objectives of the Bill

• 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

• Promote enhance consumer protection
• Pre-agreement disclosure, standardized quotation
  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

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Organization of Bill

• Chapter 1 Interpretation, purpose application,
  classification and categories of credit
  agreements
• Chapter 2 Consumer Credit Institutions national
  credit regulator, national consumer tribunal,
  administrative matters, national provincial
  co-operation
• Chapter 3 Consumer Credit Industry Regulation
  registration requirements, criteria procedures
  compliance procedures cancellation of
  registration
• Chapter 4 Consumer Credit Policy consumer
  rights confidentiality, personal information
  consumer credit records credit marketing
  practices over-indebtedness reckless credit
• Chapter 5 Consumer Credit Agreement unlawful
  agreements provisions disclosure, form and
  effect of credit agreements consumers
  liability, interest, charges fees statements
  of account alteration of credit agreement
  rescission termination of credit agreements

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Organization of Bill

• Chapter 6 Collection, Repayment, Surrender and
  Debt Enforcement collection and repayment
  practices, surrender of goods, debt enforcement
  by repossession and judgment
• Chapter 7 Dispute Settlement other than Debt
  Enforcement alternative dispute resolution
  initiating complaints or applications informal
  resolution or investigation of complaints
  tribunal consideration of complaints,
  applications referrals Tribunal orders
• Chapter 8 Enforcement of Act searches
  offences miscellaneous matters
• Chapter 9 General Provisions
• Schedule 1 Rules concerning Conflicting
  Legislation
• Schedule 2 Amendment of Laws
• Schedule 3Transitional Provisions

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Long Title of the Bill

• To promote a fair and non-discriminatory market
  place for access to consumer credit and for that
  purpose to provide for the general regulation of
  consumer credit, and improved standards of
  consumer information, to promote black economic
  empowerment and ownership within the consumer
  credit industry, to prohibit unfair credit and
  credit marketing practices, to promote
  responsible credit granting and use and for that
  purpose to prohibit reckless credit granting,

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Long Title of the Bill

• to provide for debt re-organization in cases of
  over-indebtedness, to regulate credit
  information, to provide for registration of
  credit bureaux, credit providers and debt
  counselling services, to establish national norms
  and standards relating to consumer credit, to
  promote a consistent enforcement framework
  relating to consumer credit, to establish the
  National Credit Regulator and the National
  Consumer Tribunal, to repeal the Usury Act, 1968
  (Act 73 of 1968) and the Credit Agreements Act,
  1980 (Act 75 of 1980), and to provide for related
  incidental matters

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Chapter 1

• Definitions - some innovations
• emergency loan means a credit agreement entered
  into by a consumer to finance costs arising from
  or associated with
• (a) a death, illness or medical condition
• (b) unexpected loss or interruption of income
• (c) catastrophic loss or damage to home or
  property due to fire, theft, or natural
  disaster or
• (d) other similar unanticipated life event,
  affecting the consumer, a person who is
  dependent upon the consumer or a person for whom
  the consumer is financially responsible
• incidental credit agreement means an
  outstanding account or a prepaid transaction
• reckless credit means the credit granted to a
  consumer under a credit agreement concluded in
  circumstances described in section 80

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Chapter 1

• Interpretation
• Appropriate foreign and international case law
  may be considered
• Electronic signature accepted if applied in
  presence of both parties (other than advanced
  electronic signature in terms of ECT Act)
• Historically disadvantaged persons or businesses
  as persons disadvantaged by unfair discrimination
  prior to interim Constitution or associations,
  where majority are historically disadvantaged or
  businesses majority owned by historically
  disadvantaged

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Chapter 1

• Purpose of the Act
• The purposes of this Act are to promote and
  advance the social and economic welfare of South
  Africa, promote a fair, transparent, competitive,
  sustainable, responsible, efficient, effective
  and accessible credit market and industry and to
  protect consumers by
• Promoting development of a credit market that is
  accessible to all South Africans, and in
  particular to those who have historically been
  unable to access credit
• Ensuring consistent treatment of different credit
  products and providers
• Promote responsibility in credit market .
• Promoting equity in the credit market by
  balancing the respective rights and
  responsibilities of credit providers and
  consumers and

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Chapter 1

• Purpose of the Act
• The purposes of this Act are to promote and
  advance the social and economic welfare of South
  Africa, promote a fair, transparent, competitive,
  sustainable, responsible, efficient, effective
  and accessible credit market and industry and to
  protect consumers by
• Addressing and correcting imbalances in
  negotiating power between consumers and credit
  providers .
• Improving credit information and reporting and
  regulation of CBs
• Addressing and preventing over-indebtedness and
  providing mechanisms to resolve over-indebtedness
• Providing consistent and accessible system for
  dispute resolution
• Providing consistent and harmonized system of
  debt restructuring, enforcement and judgment

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Chapter 1

• Application of the Act
• It will not apply to agreements closer than
  arms-length, thus loans between family members,
  partners and friends will not be regulated
• It will not apply to loans to the state, or any
  organ of state, or to a juristic person whose
  asset base or turnover exceeds a prescribed
  threshold (medium to large businesses) or a large
  agreement entered into by a small business
• legal entities excluded from certain sections
  (marketing advertising limitations, reckless
  credit provisions interest fee limitations)
• Incidental credit excluded from certain sections
  (marketing advertising limitations reckless
  credit provisions contractual obligations

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Chapter 1

• Categories of credit agreements
• Small agreements pawn small credit
  transactions (below 1st threshold)
• Intermediate agreements credit facilities mid
  sized transactions between 2 thresholds)
• Large agreements mortgages large transactions
  (above 2nd threshold)
• Developmental credit agreements supplementary
  registration required credit union
  co-operative lending, if not primarily for
  profit educational loan small business
  development,low-income housing any other
  prescribed purpose
• Public interest credit agreements Minister may
  declare certain credit for a specific period as
  public interest credit (in cases of natural
  disasters or similar public interest issue)

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Chapter 2

• Consumer Credit Institutions
• National Credit Regulator core functions
• Promoting the development of accessible credit
  market through conditions of registration ,
  monitoring and reporting, conducting research and
  advising Minister
• Registering (and suspend registration of) credit
  providers, credit bureaux and debt counsellors
• Enforcing the National Credit Act
• Increasing knowledge of credit market and
  promoting public awareness (incl monitoring
  socio-economic impact consumer education)
• Liaising with other regulators (provincial,
  other, international)

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Chapter 2

• Consumer Credit Institutions
• National Credit Regulator governance and
  accountability
• Report annually to Minister (and Parliament) on
  matters of research and policy, incl availability
  and distribution of credit every 5 years,
  Minister to review functioning of NCR and NCT
• Governed by a Board of Directors consisting of 3
  members designated by the Ministers of Finance,
  Housing and Social Development, and 8 others
  appointed by Minister (incl chair and deputy
  chair) for 5 years
• Board responsible for guiding strategic
  development of NCR overseeing efficient and
  effective use of resources and compliance with
  legal and financial reporting requirements
  providing advice to CEO on implementation matters
• CEO appointed by Minister and may in turn appoint
  inspectors and investigators

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Chapter 2

• Consumer Credit Institutions
• National Consumer Tribunal constitution
  functions
• 11 persons appointed by President for 5 years
  (incl chair), must be representative and have
  sufficient legal and other experience and
  training to fulfill functions
• Functions are to
• adjudicate in a wide variety of applications to
  conduct hearings into complaints
• make consent orders reflecting any resolution
  arrived at through an alternative forum
• Impose penalties on credit providers for any
  wrongdoing and
• Issue declaratory orders
• NCR NCT financed through voted funds, fees,
  income from respective investments and any other
  funds

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Chapter 2

• Consumer Credit Institutions
• National and 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
• Requires information sharing between NCR and
  provincial regulators

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Chapter 3

• Consumer Credit Industry Regulation
• Registration requirements, criteria procedures
• Registration of all credit providers including
  credit bureaux debt counsellors except a
  person who-
• (a) provides incidental credit only as a result
  of outstanding transactions or
• (b) has fewer than 100 agreements, or a total
  outstanding book of credit equal to or less than
  a threshold to be prescribed
• Credit bureaux registration requires minimum
  probity standards must have sufficient personnel
  and resources to function must have adopted
  certain procedures (excl. credit providers, debt
  collectors, any other prescribed business)
• Debt counsellor must meet prescribed education,
  experience and competency requirements or be in a
  position to meet the requirements within
  reasonable period of time
• Credit provider registration requires commitments
  to combating over-indebtedness and BEE and may
  result in conditions of registration

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Chapter 4

• Consumer Credit Policy
• Consumer Rights
• Right to apply for credit, but not to receive
  credit
• Protection against discrimination in credit
  granting no unfair discrimination when assessing
  ability to meet obligations, making credit
  granting decision, determining cost or conditions
  of credit, assessing or requiring compliance or
  terminating agreement applies to credit bureaux,
  credit providers, debt counsellors and employers
  and trade unions no unfair to discriminate
  against minors scoring models permitted if not
  based on discriminatory criteria.
• Right to reasons for credit being refused
  dominant reason for refusal upon request by
  consumer
• Right to information in official language right
  to receive documents in an official language that
  consumer understands can be limited to 2
  official languages by proposal to NCR
• Right to information in plain and understandable
  language
• Right to receive documents various modes of
  delivery provided upon election

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Chapter 4

• Consumer Credit Policy
• Confidentiality, Personal Information Consumer
  Credit Records
• Right to confidential treatment info only to be
  used for intended purpose and with permission of
  consumer
• Right to have information acquired, held
  reported by credit bureaux to meet national norms
  and standards, as set out in section 70, and to
  have records of debt adjustment expunged
• Right to access information held by credit
  bureaux (and credit register), to be notified
  when prescribed adverse information is reported,
  to demand investigation of disputed information,
  and correction of erroneous information free
  access once per year to check correction
• Minister may require National Credit Regulator to
  establish a National Credit Register of
  outstanding credit agreements credit provider
  must provide information

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Chapter 4

• Consumer Credit Policy
• Credit Marketing Practices
• To restrain or correct the worst abuses in the
  area of credit marketing the Bill introduces a
  number of provisions to address the following
• Negative option marketing is to be prohibited,
  however the rule is modified in respect of credit
  card limits, which are subject to an alternative
  scheme of regulation
• Marketing sales of credit at work home is
  restrained
• Advertising must not be misleading, fraudulent,
  or deceptive, promote a form of unlawful credit
  or contain statements prohibited by regulation
  may contain statement of comparative cost if
  meeting certain criteria pre-approval of
  advertising provided for
• Any written solicitation of credit must contain
  prescribed information, including cost of credit

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Chapter 4

• Consumer Credit Policy
• Over indebtedness reckless credit
• Consumer is over-indebted if unable to meet in a
  timely manner all obligations under all credit
  agreements
• Reckless credit extension defined as failure to
  conduct an assessment of affordability and/or
  entering into an agreement when consumer would be
  over-indebted
• Evaluative measures may be pre-approved by NCR or
  could follow non-binding guidelines issued by
  NCR
• Reckless agreements may be suspended by court
  court to decide outcome (e.g setting aside
  obligations or suspending agreement) and may
  order debt restructuring if consumer is
  over-indebted or refer to counsellor
• Consumer must apply to debt counsellor does not
  apply if enforcement action has already been
  taken prescribed fee may be payable by
  consumer counsellor must assess consumers
  financial position, restructure, and may
  recommend reckless loans suspended
• Time frames limit number of days permitted for
  the debt review process with regard to the
  Magistrates Court provisions

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Chapter 5

• Consumer Credit Agreement
• Unlawful Agreements provisions
• Unlawful agreements - If results from negative
  option marketing or if the consumer is a minor,
  mentally unfit, or subject to a debt
  administration order and the administrator has
  not consented
• Unlawful provisions anything that seeks to
  waive consumers rights (Act, common law etc),
  contravenes any specific provision in the Act
  (e.g marketing provisions) is a prohibited
  supplementary agreement exempts the credit
  provider from liability or requires consumer to
  agree to forfeit any money to credit provider if
  consumer rescinds agreement or fails to comply
  before receipt of goods or services appoint
  credit provider as an agent for the consumer
  requires deposit of ID, pin number or bank card
  gives payment priority etc

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Chapter 5

• Consumer Credit Agreement
• Disclosure, form and effect of credit agreements
• Requires provision of a quote that must be valid
  for 5 days for a small agreement, interest in
  contract must be quoted level or below for
  intermediate large agreement interest may only
  be higher than quoted to the extent that there
  was a variation of the prevailing bank rate
• Credit agreements for small agreements must be in
  prescribed form for intermediate and large
  agreements must comply with prescribed
  requirements
• Consumer may not be held liable for charges
  against accounts after reporting of loss or theft
  of card
• Consumer must disclose location of goods for
  hire-purchase transactions
• Provisions for pawn transactions set out

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Chapter 5

• Consumer Credit Agreement
• Consumers liability, interest, charges fees
• Consumer may only be charged principal debt,
  initiation fee, service fee interest, cost of
  credit insurance Minister to impose limits on
  whole market or by sub-sector (criteria access,
  prevailing conditions in credit market
  socio-economic impact)
• Allowed default administration charges,
  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
• Credit Life Insurance
• Credit provider only entitled to require
  insurance to value of debt obligation
• Must be reasonable and conform to prescribed
  standards
• if policy proposed by provider charged monthly,
  no capitalization of single premium insurance
• Regulator to monitor premiums and claims

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Chapter 5

• Consumer Credit Agreement
• Statements of Account
• Statements to be provided every 2 months for
  instalment finance every 6 months for mortgage
  monthly for everything else consumer may reduce
  frequency of statements
• Standard statements for small agreements more
  flexibility for intermediate and large
  agreements credit provider must provide
  statement of settlement amount upon request
• Consumer may terminate agreement at any point in
  time by paying settlement amount credit provider
  may only terminate if consumer is in default.

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Chapter 6

• Collection, Repayment, Surrender and Debt
  Enforcement
• Charge may only be made against an asset or
  account if agreed with consumer and resulting
  from a single or recurring obligation
• Consumer or guarantor can settle credit agreement
  at any point with or without notice to credit
  provider in case of large agreement, 3 month
  notice is required consumer may also prepay
  without penalty and with interest benefits
• Consumer can surrender goods and return them to
  credit provider for selling if consumer not in
  default, can withdraw notice to surrender or
  nominate another person to purchase goods at
  estimated value if nominated person does not
  respond, sell goods at best price
• Credit provider to give estimated market value of
  goods and if sells at better price must repay
  consumer Tribunal may order credit provider to
  pay consumer additional amount, if finding that
  not sold at best price
• If consumer in default, credit provider must send
  notice within 10 days consumer must respond to
  proposal or reject if no response, credit
  provider can proceed to court

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Chapter 7

• Dispute Settlement other than Debt Enforcement
• Alternative Dispute Resolution
• Parties to credit agreements are encouraged to
  seek resolution of disputes through mediation,
  conciliation or arbitration in either provincial
  or consumer courts, Ombuds and other alternative
  dispute agencies on the basis of prescribed
  standards
• In addition to its powers to adjudicate disputes
  directly, the Tribunal will have the authority to
  make a consent order reflecting any resolution
  arrived at through an alternative forum

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Chapter 8

• Enforcement of the Act
• Searches, Offences Miscellaneous Matters
• Procedural requirements in respect of authority
  and the conduct to enter search premises
• Provisions in respect of the implementation of
  the Act, including failure to attend a hearing,
  procedural matters such as the onus of proof in
  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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Conclusion

• The proposed new National Credit Bill aims to
  give protection to all borrowers, irrespective of
  the size of the loan or type of credit involved
  whether it involves a R500 loan taken out for one
  month or a R1000 000 home loan to be repaid over
  20 years

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National Credit Bill

• 
  THANK YOU