National Credit Bill: Promoting Fair Consumer Credit

1. 05 August 2005 NATIONAL CREDIT BILL, 2005

2. 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 National Credit Bill

3. 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 National Credit Bill

4. 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 Objectives of the Bill 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 National Credit Bill

5. Organization of Bill • Chapter1: Interpretation, purpose & application, classification and categories of credit agreements • Chapter2: Consumer Credit Institutions: national credit regulator, national consumer tribunal, administrative matters, national & provincial co-operation • Chapter3: 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; consumer’s liability, interest, charges & fees; statements of account; alteration of credit agreement; rescission & termination of credit agreements National Credit Bill

6. 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 • Schedule1: Rules concerning Conflicting Legislation • Schedule2: Amendment of Laws • Schedule 3:Transitional Provisions National Credit Bill

7. 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, … National Credit Bill

8. 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 National Credit Bill

9. Chapter 1 Definitions: - someinnovations • “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” National Credit Bill

10. 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 National Credit Bill

11. 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 National Credit Bill

12. 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 National Credit Bill

13. 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 National Credit Bill

14. 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) National Credit Bill

15. 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) National Credit Bill

16. 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 National Credit Bill

17. 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 conducthearings into complaints • make consentorders reflecting any resolution arrived at through an alternative forum • Impose penalties on credit providers for any wrongdoing; and • Issue declaratoryorders • NCR & NCT financed through voted funds, fees, income from respective investments and any other funds National Credit Bill

18. 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 National Credit Bill

19. 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 National Credit Bill

20. 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 National Credit Bill

21. 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 National Credit Bill

22. 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 National Credit Bill

23. Chapter 4 Consumer Credit Policy Over –indebtedness & reckless credit • Consumer is over-indebted ifunable 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 National Credit Bill

24. 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 National Credit Bill

25. 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 National Credit Bill

26. Chapter 5 Consumer Credit Agreement Consumer’s 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 National Credit Bill

27. 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 National Credit Bill

28. 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. National Credit Bill

29. 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 National Credit Bill

30. 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 National Credit Bill

31. 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 National Credit Bill

32. 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 National Credit Bill

33. 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” National Credit Bill

34. National Credit Bill THANK YOU National Credit Bill