PRESENTATION ON THE NATIONAL CREDIT AMENDMENT BILL

1. PRESENTATION ON THE NATIONAL CREDIT AMENDMENT BILL

2. Delegation Ms. Zodwa Ntuli: Deputy Director-General, Consumer and Corporate Regulation Division (CCRD) Nomsa Motshegare: Chief Executive Officer, National Credit Regulator Mr. Andisa Potwana: Director: Consumer Law and Policy, Policy and Legislation Unit, CCRD

3. Content 1. Introduction: Credit Regulation in South Africa 2. Role and Responsibility of the dti 3. Background: National Credit Act (NCA) 4.Reviewof the NCA & Public Consultations 5. Policy Framework: KeyPolicy & Legislative Challenges 6.OtherIssues Identified 7. Consultation with National Treasury 8. National Credit Amendment Bill 9. Current Status of the Framework and the Bill 10.Conclusion

4. Introduction • Credit Regulation in South Africa • Regulation of Consumer Credit Market is one of the constitutional imperatives advocated by the Constitution of the Republic of South Africa Act, 1996. • Credit regulation is but one way though which consumer protectioncan be realised in South Africa, as provided for in Part A of Schedule 4 of the Constitution. • This mandate and responsibility has been entrusted upon the Department of Trade and Industry (the dti).

5. The role Role and Responsibility of the dti • One of the strategic objectives of the dti is to create a fair regulatory environment that enables investment, trade and enterprise development in an equitable and socially responsible manner. • The Consumer and Corporate Regulation Division of the dti (CCRD) develops and implements regulatory solutions which must be coherent, predictable and transparent to be able to facilitate easy access to redress for its economic citizens. • Through its Policy and Legislation Unit, CCRD develops and reviews regulatory systems in consumer protection,company and intellectual property areas, as well as public interest regulation.

6. Quote “Inflationary pressures caused by the commodities boom had already caused South African interest rates to rise, reducing demand for credit a while before the global crisis hit, and tighter bank lending requirements imposed after the implementation of the National Credit Act in early 2007 had helped curb reckless lending practices and reduced the number of borrowers who were over-stretched. In addition to placing the onus on banks to ensure that customers can afford to repay loans, the new law introduced the concept of early debt counselling to avoid defaults and minimize home repossessions by changing spending behaviour and renegotiating repayment terms.” “Meanwhile, South Africa’s National Credit Act has attracted the attention of policymakers worldwide who are keen to prevent the reckless lending practices that were the root cause of many of the recent bank failures.” David Marrs is Cape Editor of South African financial daily newspaper Business Day, and editor of its trade supplement, The South African Exporter.

7. Background The National Credit Act 34 of 2005 • The National Credit Act, 34 of 2005 (NCA) fully came into effect on 1 June 2007. • The NCA was developed from A Policy Framework for Consumer Credit, finalised by the dti during 2003. • The NCA replaced the Credit Agreements Act and the Usury Act. • The NCA introduced a new era in preventing and curbing reckless credit practices and a new debt counselling dispensation. • The NCA has had a significant impact in regulating the credit market and increasing consumer protection against unscrupulous lenders. • The NCA has undoubtedly sheltered the South African economyfrom the effects most countries, including developed countries, suffered during the financial crisis. • The NCA has been successful, but areas of improvement have been identified to make it more effective.

8. Quote “Even so, as other countries look to reform their lending practices, they should pay close attention to South Africa's consumer protection efforts, says Patricia McCoy, a law professor at the University of Connecticut. The challenge, she notes, is how to enact similar reforms in countries such as the U.S., where "we're so enamored with providing people with choices" that forced disclosure, rather than regulation, has long been the norm.” Kathy Chu, December, 31, 2009, South African Credit Law could guide USA, USA Today

9. Review of the NCA Review of the NCA & Public Consultations • Positive impact of the NCA has not been without implementation challenges hence the need to review the policy and amend the NCA. • From June 2012 the dti embarked on a comprehensive review of the policy framework on Consumer Credit with the purpose of analysing and amending the current policy. • The main objective of the exercise was to analyse the policy upon which the NCAis founded and with a view to: • Identifywhether the necessary legislative amendments have a policy basis and where necessary provide a policy basisfor the amendment of the sections of the NCA that have given rise to implementation problems • Developpolicywhere necessary to guide and inform the necessary legislative amendments • Amendthe existing policy where it is imperative to do so

10. Review of the NCA • the dti appointed Business Enterprises at the University of Pretoria (Be@UP (Pty) Ltd) to conduct the analysis of the existing policy. Final report by Be@UP (Pty) Ltd was submitted during December 2012. • The draft policy review document was finalised during March 2013, and the dtiproceeded to draft the Bill on the proposed amendments. • Both the policy framework and the amendment Bill were then presented to Cabinet by Ministerand approved on 17 April 2013. • The draft policy framework was published on 29 May 2013 for public comments under General Notice 559 of 2013 (Government Gazette No.36504) whilst the amendment Bill under General Notice 560 of 2013 (Government Gazette No.36505). • Public consultations with various stakeholders were then arranged in 7 provinces in the country from 10 June 2013 until 28 June 2013.

11. Review of the NCA • the dti extended the deadline to 15 July 2013and the dtireceived written submissions/comments from 45 stakeholders. • The final draft policy framework and the amendment Bill was approved by the Minister and then tabled before Cabinet on 31 July 2013 for approval and for introduction of the amendment Bill to Parliament. • However, the documents were later withdrawn from Cabinet at the request of the National Treasury for bilateral discussions between the dti and National Treasury on various issues raised by National Treasury. • The documents were re-tabled later deliberated by Cabinet and approved on 04 September 2013.

12. Quote “South African banks have in general adhered to robust lending practices, and the introduction of the National Credit Act (NCA) in 2007, has led to better controls around affordability testing. However, regulators and policymakers may need to consider creating a set of best practice guidelines with regard to affordability testing, basic product, pricing, market and contract governance standards for lenders to adhere to. The enforcement guidelines using various existing forms of consumer legislation such as the Consumer Protection Act, National Credit Act and Treating Customers Fairly compliance standards should also be considered rather than introducing additional regulations.” The Consumer Credit Conundrum: Enhancing the relationship between regulators, consumers and lenders, Deloitte and Touche, 2012

13. Key Policy Issues Policy Framework : Key Policy andLegislative Challenges Draft policy framework highlighted the following key policy issues: • Strengthening the powers of the National Credit Regulator to ensure more efficient regulation. • Enhanced ways of dealing with reckless lending accompanied by effective penalties. • Finding a way of dealing with Alternative Dispute Resolution structures or agents in the debt resolution process by registering and accrediting them as well as defining the scope of their operation, within the Act. • Addressing the implementation challenges and gaps in the current legislation to improve efficiency on matters such as complaints handling and determination of a fit and proper person

14. Policy Issues … Key Policy Issues Identified • Rectification of ambigous drafting, incorrect referencing and unintended consequences. e.g. Section 130 (1) (a) which erroneously refers to a notice in terms of section 86 (9) instead of (10), Section 129 which refers a consumer to a debt counselor when section 86 (2) prevents. • Interpretation difficulties such as can be found in section 129 regarding notifying the consumer of the default. • Judgments such as the recent one declaring section 89 (5) (c) to be unconstitutional. • The mandate and practical functioning of the NCT should be enhanced, recourse to the NCT should be effective and efficient & the NCT can be re-positioned as an appeals/reviews body.

15. Legislative Issues … Key Legislative Issues Identified • Tightening requirements for people who may practice as debt counsellors or as credit providers (e.g requirement of fit and proper person). • Setting norms and standards when it comes to affordability assessment criteria, by empowering the NCR to issue affordability assessment guidelines. • Empowering the National Consumer Tribunal to be able to adjudicate and make rulings on applications for the suspension of reckless credit agreements, thus creating a cost effective relief for consumers. • Setting additional requirements for debt counsellors or credit providers who wish to be de-registered voluntarily.

16. Legislative Issues …Key Legislative Issues Identified • Defining the role of Alternative Dispute Resolution structures or agents as well as the manner in which they are registered or accredited. • Ensuring that debt counsellors employ trained staff in their practices but at the same time not allowing staff who are not registered as debt counsellors to perform functions of debt counsellors. • Ensuring that applicants are fit and proper persons to be debt counselors. • Providing a procedure for cancellation of registration of debt counselors. • To amend the provisions relating to debt review (sections 86, 129 and 130).

17. Other Policy Issues Other issues raised by stakeholders • The high cost Credit Life Insurance which the dti must look into • Consents to Judgment and Garnishee Orders. the dti is working with the Department of Justice on these matters • Spouse’s consent in online applications (including telephone and e-mail applications). • The application of the In Duplum rule as it appears under section 101 and includes other costs such as collection costs. • Voluntary Debt Mediation and the lack of oversight during this process

18. Other Issues … Other issues Identified • Prohibition of touting by Debt-Counselors. • Registration of Payment Distribution Agents. • The need for Clearance/ Rehabilitation Certificates where a consumer has settled all other debts under debt re-arrangement except long term debts such as the Mortgage Bonds. • Code of conducts to be converted into regulations. • The need to relook the governance structure of the regulator. • Correction of a provision in the Consumer Protection Act relating complaints. • The issues raised in the Private Member’s Bill by the Hon. Ambrosini (MP) were not raised by the stakeholders during the dti consultation process.

19. Consultations with NT Consultations with National Treasury (NT) • the dti and NT held various meetings between 12 and 16 August 2013 including teleconference meetings to discuss issues in order to finalise the Policy Framework and the Bill. • The following issues were discussed and agreed upon between these institutions: • Co-ordination between the dti and National Treasury • Agreement reached that the protocol between regulators in regard to notification is adequate and that section 17 should be beefed up to require that cooperation be done through a binding agreement. • Removal of Credit Information • Agreement reached that this will be done through prescribed regulations to ensure checks and balances. • De-registration of credit providers • Agreement reached that power to de-register credit providers will remain with the NCT.

20. The Bill National Credit Amendment Bill Amendment Bill makes provision of the following: • Empoweringthe Chief Executive Officer of the NCR to delegate certain powers to other officials of the NCR. • Precluding unrehabilitatedinsolvents from being registered as debt counsellors. • Empoweringthe NCR to issue affordability assessment standards and guidelines. • Empoweringthe NCR to register Payment Distribution Agents. • Additional requirements in respect of voluntary cancellations by debt counsellors and credit providers.

21. The Bill National Credit Amendment Bill • Issuingof clearance certificate if the consumer has satisfied all the debt obligations. • Automatic removal of consumer credit information. • Suspensionof reckless credit agreements by the National Consumer Tribunal. • Registrationand accreditation of alternative dispute resolution agents and deregistration of alternative dispute resolution agents respectively. • Givingthe NCR additional powers to take enforcement action after completing an investigation.

22. Status Current Status of the Policy Framework and the AmendmentBill • Amendment Bill approved by Cabinet on 4 September 2013. • Memorandum of Objects of the Bill finalised. • Notice of Introduction of Bill into Parliament published on 09 October 2013. • Bill was introduced into Parliament on 28 October 2013.

23. Quote “In a bit of a spot and need some money? It is so quick easy to get access to cash these days – you hardly even have to leave home.  If you’ve been employed for two months or more and are over 18, you can get a loan from Qwiek Loans even if you’ve been blacklisted. Walk into Standard Bank and the tellers are wearing T-shirts emblazoned with the words “Need A Loan?” Worse, if you earn as little as R1,000 a month, the blue bank suggests that you can qualify for “up to R300,000 with a Standard Bank Personal Loan”. Turn on the TV and a Cash Converters commercial asks: “Do you need instant cash? Payday Advance™ is an instant cash loan against your next salary.” Cheery music plays in the background of the ad which invites viewers to SMS “CASH” to a number to get information on how to get “instant cash”.” Mandy de Waal, June 2013, South Africans are sinking under debt – and the the Credit Amendment Bill wont pull us out, Daily Maverick

24. Conclusion It was evident from the review process that • South Africa is a role model in terms of credit regulation • The NCA has made a significant impact of curbing reckless lending • Implementation has pointed to various loopholes that defeat the objectives of the NCA • Emphasis should be placed on enabling publishing of guidelines to guide players to enhance compliance • Education and awareness programmes be enhanced to improve consumer literacy on credit and financial matters • Enforcement strategy should be driven by the need to change behaviour rather than punitive • Stiffer penalties be meted for repeat violators in order to protect consumers.

25. THANK YOU