SUBMISSION BY FIRST NATIONAL BANK ON NATIONAL CREDIT BILL

 

  1. INTRODUCTION

    2.  

    1. FirstRand Bank Ltd ("FRB") has participated in submissions by the Banking Association to the Department of Trade and Industry ("DTI") and to the Portfolio Committee on Trade and Industry. FRB identifies itself with and supports these submissions. Further oral representation may be made on the submissions during the Portfolio Committee hearings.

      2.  

    2. In addition to these submissions by the Banking Association, FRB wishes to make further submissions, both in amplification of the submissions by the Banking Association and on issues of particular relevance to it. These submissions relate both to asset-based finance and the effect of the Bill in general. FRB also seeks the opportunity to make oral representations on any of these issues during the hearings.

    3. Ultimately it is FRB’s view that the Bill has not fully considered the operation of asset-based finance and the effect that the Bill will have on related credit agreements. In this submission FRB makes recommendations on amendments to the Bill. Ultimately it is FRB’s view that the issues which have been raised should be the subject of further discussions between the Banking Association and the DTI to attempt to reach a balanced solution which will have regard to the interests both of credit providers and consumers.

     

  2. ASSET-BASED FINANCE

    3.  

    1. Asset-based finance occurs when a bank provides financing to a customer to acquire a movable asset such as a motor vehicle or other equipment or machinery. Typically this financing will be by way of a lease or an instalment sale agreement. Transactions of this nature are provided for in both the Credit Agreements Act 75 of 1980 and the Usury Act 73 of 1968.

      2.  

    2. The areas to which FRB wishes to draw attention include:

 

 

DEFINITIONS

 

    1. Section 1 of the Bill contains definitions of an "instalment agreement" and a "lease". Paragraph (c) of the definition of "lease" anticipates that in terms of a lease agreement:

      2.  

      "Interest, fees or other charges are payable to the credit provider in respect of the agreement, or the amount that has been deferred; …"

       

    2. Whilst the definition of "instalment agreement" provides in paragraph (a) for all or part of the price to be deferred and to be paid by periodic instalments, it does not provide for the payment of interest, fees or other charges as provided for in the definition of "lease".

      3.  

    3. The practical effect of the Bill as currently worded therefore will be to restrict asset-based financing to lease agreements. There does not appear to be any reason to exclude transactions such as rental and instalment sale agreements from the Bill, particularly as these are provided for in the legislation which is currently in operation. Under the circumstances, it is recommended that provision is made in the Bill for interest, fees and other charges to be payable on that part of the price which is deferred in an instalment agreement.

    4. Consideration does not appear to have been given to the differences between a lease and an instalment agreement insofar as they deal with the passing of ownership. The differentiation between these different agreements is lost, which may have tax implications in the hands of consumers. It is therefore recommended that these definitions be reconsidered and the distinction between lease and instalment sale agreements be retained.

      5.  

    5. There are other anomalies in the drafting. By way of example, in an instalment agreement ownership will pass when the agreement is "fully complied with". In a lease, ownership will pass "upon the satisfaction of specific conditions set out in the agreement". The reason for this distinction is unclear.

      6.  

      SECTION 121

       

    6. An important element in asset-based finance is the fact that the asset which is financed, such as a motor vehicle, will form part of the bank’s security for the amount due to it in terms of the credit agreement. Coupled to this is the fact that many assets, including motor vehicles, will experience a significant depreciation on the conclusion of a credit agreement merely by virtue of the fact that they become second-hand.

      7.  

    7. The definition of "non-returnable goods" does not include motor vehicles. Section 121 will therefore be of application to credit agreements utilised to finance the purchase of assets. Section 121 will have enormous ramifications on the operation of asset-based finance. Section 121(2) enables a consumer to terminate a credit agreement within five business days of the date on which the agreement was signed. The effect of this is that a consumer may purchase a vehicle, drive an enormous distance within four days, perhaps damage the vehicle and on the fifth day, terminate the credit agreement by tendering the return of the vehicle. Under these circumstances, the following require comment:

      8.  

      1. Section 121(1)(a) refers to an "instalment account". This term is not defined. The reference is presumably intended to be an "instalment agreement".

        2.  

      2. The import of the term "tendering the return of … goods" in Section 121(2)(b) is unclear. Is the consumer required to deliver the vehicle to the credit provider or is it sufficient for the consumer to make the vehicle available for collection by the credit provider? Section 121(3)(b)(i) provides for the credit provider to recover the costs of having goods returned and may therefore support an interpretation that the consumer will merely be required to make a vehicle available for collection. However the position is unclear.

        3.  

      3. Section 121(3)(a) requires the credit provider to refund to the consumer any money paid under the agreement within seven business days. This requirement is not subject to any qualification or limitation. Section 121(3)(b) entitles the credit provider to require payment from the consumer for the reasonable cost of having goods returned and restored to a saleable condition and reasonable rent for the use of the goods. The wording does not appear to allow the credit provider to offset amounts due to the consumer against amounts to which it is entitled.

        4.  

         

      4. It is inequitable and will prejudice credit providers if they are required to refund money paid by the consumer and, having refunded this money, to go to the trouble both of recovering goods and restoring them to a saleable condition and to then seek to recover reasonable rent and the cost of recovery and repair from the consumer. Obtaining payment from the consumer for the reasonable cost of recovering and having the goods restored to a saleable condition and the reasonable rental is moreover likely to be a difficult and expensive procedure. Goods could be left in any number of inconvenient and inaccessible places, with the result that the costs of recovery could be substantial. Under circumstances where a consumer has elected to conclude a credit agreement, there does not appear to be any reason why the Bill should benefit the consumer in this manner. The Bill does not provide for any credit provider to decline to recover goods where the recovery may be difficult or expensive.

        5.  

      5. Section 121 must also be considered in the light of Section 92, which entitles a consumer to enter into a credit agreement with a credit provider for a period of five days after the provision of a quotation by the credit provider. Further recommendations are made on this in dealing with Section 92 later in this submission.

        6.  

      6. Generally in asset-based finance, a bank’s exposure to a customer is secured and the bank’s position is improved at least to the extent of the value of the asset forming the subject of the credit agreement. On the current wording of the Bill, this security will be lost.

        7.  

      7. The term "saleable condition" in Section 121(3)(b)(i) is likely to give rise to uncertainty and difficulties over issues such as what constitutes a "saleable condition" and whether a bank has taken proper steps to mitigate its loss. A vehicle will have a value and is saleable even in a damaged condition. Is the bank for instance required to claim an indemnity from the insurer of the vehicle and have the vehicle repaired by the insurer or will it be sufficient merely to sell the vehicle in a damaged condition?

        8.  

      8. No provision is made in the Bill for the credit provider to recover the cost of a subsequent sale. By way of example, if after being damaged a vehicle is subsequently repaired to a saleable condition and thereafter sold by the bank by auction, an auctioneer’s commission may be payable by the bank. There does not appear to be any reason why these costs should not be recoverable from the consumer.

        9.  

      9. The term "reasonable rent" in Section 121(3)(b)(ii) is vague and is also likely to give rise to uncertainty and difficulty. There are for instance many motor vehicles which are not readily available for hire and for which it will not be possible to determine an accurate market-related rental.

        10.  

      10. Section 102(1) allows the credit provider to include in the principal debt and recover costs such as delivery and initial fuelling charges and licence and registration fees. These charges are often paid by the credit provider on the consumer’s behalf and will subsequently be included as part of the principal debt in the credit agreement. As the Bill is currently worded, these costs which have been incurred by the credit provider for the benefit of the consumer will have to be repaid to the consumer and may not subsequently be recovered by the credit provider.

       

    8. Section 121(3) does not allow a credit provider to recover the costs of depreciation. Section 121(4) on the other hand envisages a dispute over depreciation. The following issues arise:

      9.  

      1. Whilst it is implicit in the Bill that a credit provider may recover the costs of depreciation, it is not clear why this is not specifically spelled out as in the case of the credit provider recovering the reasonable cost of having goods restored to a saleable condition and reasonable rent.

        2.  

      2. The procedure for dealing with disputes over depreciation is lengthy and cumbersome and will prejudice credit providers. It is moreover not clear why this procedure has been stipulated for disputes over depreciation but not for any disputes which may arise over the cost of restoring returned goods to a saleable condition or reasonable rent for use of the goods, particularly when regard is had to the fact that there will inevitably be links and overlaps between the cost of having goods restored to a saleable condition, rental and depreciation.

        3.  

      3. Depending on the circumstances under which the vehicle is subsequently disposed of by the bank, there may also be a difference between the depreciation and the amount which the bank is able to recover for the vehicle. The Bill does not provide for the recovery of this amount.

        4.  

      4. Section 16 of the Credit Agreements Act 75 of 1980 contains a procedure for the valuation of goods which are returned to a credit grantor. It is unclear why the Bill cannot provide for a similar procedure.

       

    9. Section 121(5) provides that in the event of a depreciation of the fair market value of the goods, the Tribunal may order the consumer to pay the credit provider a further amount not greater than the difference between the depreciation in actual fair market value and the amount that the credit provider is entitled to charge the consumer in terms of Section 121(3)(b). This section is unclear. In the case of a vehicle which has been damaged and has to be repaired, there will be both the repair costs to the vehicle and depreciation in the actual fair market value of the vehicle, notwithstanding the repair. The Bill should clearly provide for the recovery of both of these costs.

      10.  

    10. Finally, the Bill overlooks the fact that an asset which is financed may be customised machinery for which there may be no ready re-sale market and the depreciation of which may be difficult to determine.

    11. FRB recommends that the Bill be amended to enable the credit provider to deduct from any money due to the consumer the subsequent costs which it will incur such as the costs of recovery, restoring the goods to a saleable condition, reasonable rent and depreciation.

      12.  

      SECTION 127

       

    12. Section 127 of the Bill deals with the surrender of goods. In summary the procedure is:

      13.  

      1. In terms of Section 127(2)(a) the consumer may give written notice to the credit provider to terminate an agreement.

        2.  

      2. In terms of Section 127(2)(b)(ii) the consumer may return the goods to the credit provider’s place of business during ordinary business hours within five days of the date of the notice.

        3.  

      3. The credit provider is thereafter required by Section 127(3) to give the consumer written notice of the estimated value of the goods within ten business days.

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      4. In terms of Section 127(4) the consumer may within ten business days after receiving notice in terms of Section 126(3) unconditionally withdraw termination of the agreement and resume possession of the goods.

       

    13. The Bill overlooks the fact that in many cases the credit provider in asset-based finance is a bank as opposed to for instance a motor dealer. FRB conducts business at literally hundreds of branches throughout the country. The practical effect of Section 127 is that all of FRBs branches will have to be in a position to take possession of vehicles returned to them at short notice and to provide a safe storage for such vehicles for twenty days and perhaps for longer depending on how the matter is dealt with. This will entail considerable expense and is simply not feasible.

      14.  

    14. The Bill moreover makes no provision for issues such as the responsibility for storage, administration and other costs during this period.

      15.  

    15. Section 127 sets out the following procedure for the disposal of surrendered goods:

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      1. The credit provider is required to estimate the value of the goods (Section 127(3)).

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      2. The consumer may nominate in writing a person who is prepared to purchase the goods from the credit provider at the estimated value (Section 127(4)(b)).

        3.  

      3. The credit provider must offer the goods to the person nominated at the estimated value (Section 127(5)(b)(i)).

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      4. If the nominated buyer does not purchase the goods, the credit provider must sell the goods "as soon as practicable for the best price reasonably obtainable" (Section 127(5)(c)).

       

    16. This procedure is slow and unwieldy. There will also undoubtedly be disputes over issues such as the estimated value of motor vehicles as well as what constitutes the sale of the goods "as soon as practicable for the best price reasonably obtainable". There is an inherent contradiction between selling goods as soon as reasonably practicable and obtaining a reasonable price for the goods. Where goods are required to be sold as soon as practicable, due to the circumstances of the sale, the amount which is likely to be realised on the sale may often be well below the market value. This will create further difficulties in terms of Section 128(2) which requires the Tribunal to consider whether the credit provider sold the goods as soon as reasonably practicable or for the best price reasonably obtainable.

    17. FRB therefore recommends that Section 127 be amended:

      1. To provide that the consumer will be responsible for the costs relating to the surrender of the vehicle, including costs of storage and estimating the value of the vehicle.

      2. To expedite the procedure for the disposal of goods. There does not for instance appear to be any real reason why the consumer should be entitled to nominate in writing a person who is prepared to purchase the goods from the credit provider at the estimated value.

       

      SECTION 129

       

    18. The debt enforcement procedures are set out in Section 129 and following of the Bill.

      19.  

    19. Section 129(b)(1) refers to a notice as contemplated in Section 86(9). Section 86(9) deals with the right of a consumer to apply directly to a Magistrate’s Court for an order contemplated in Section 86(7)(c). The reference to Section 86(9) is therefore unclear.

      20.  

    20. The practical effect of the debt enforcement provisions is that debt enforcement will become a lengthy, drawn out and expensive procedure. As has been explained, an important element of asset-based finance is the fact that if a consumer defaults on obligations under a credit agreement, the credit provider has the security of obtaining ready access to the asset which has been financed and thereby reducing its potential loss.

      21.  

    21. Under the Bill as presently drafted, the purchaser of a motor vehicle under a credit agreement who has defaulted in his obligations in terms of the credit agreement will be entitled to continue using the motor vehicle during the debt enforcement procedure. This will have the following effect:

      22.  

      1. The credit provider will be unable to realise its security.

        2.  

      2. As a result of the continuing use of the vehicle, its value will continue to depreciate. Against this will be the fact that if the consumer continues to use the vehicle without paying the instalments due in terms of the credit agreement, the amount by which the consumer is in default in terms of the credit agreement will increase during the period of the debt enforcement procedures and the prospect of recovery by a bank of the amount due to it will diminish accordingly.

        3.  

      3. It is important to bear in mind in this regard that a consumer who is in a poor financial position may, notwithstanding the provisions of Section 132, have very little incentive to expeditiously resolve a dispute with a credit provider.

       

    22. It is inequitable and prejudicial to credit providers that consumers should be entitled to retain and use assets for which they are not paying and for which they have no intention of paying during the period of the debt enforcement procedures. Under circumstances where a consumer has elected to conclude a credit agreement there does not appear to be any reason why the Bill should benefit the consumer in this manner.

      23.  

    23. If the consumer’s default is, as is likely, due to the consumer being in a poor financial position, the credit provider’s position is likely to be further compromised by the fact that the consumer may:

      24.  

      1. Stop paying insurance premiums on the vehicle. If the vehicle is damaged in an accident or stolen, the credit provider will be unable to recover its loss from the insurer.

      2. Not incur the costs of maintaining the vehicle during this period.

    24. Whilst this part of the submission has been largely directed at difficulties which the debt enforcement procedures will create for asset-based finance, it must be borne in mind that these difficulties are not limited to asset-based finance but will impact on a wide range of FRB’s business. A typical example is mortgage bonds over immovable property. In the event of a default in payment under a mortgage bond, a mortgagee will remain in the property during the debt enforcement procedure. During this time the bank’s exposure will increase. The bank will be precluded from concluding a rapid sale of the property in order to recover its exposure. The bank may also incur holding costs of the property, including municipal rates and taxes, security, repairs and maintenance.

    25. FRB recommends that the bill be amended to cater for the following:

      1. In the event of a default in payment on a depreciating asset such as a motor vehicle the credit provider should be entitled to recover and hold the motor vehicle pending the conclusion of the debt enforcement procedures.

      2. The cost of recovering and holding the vehicle should be recoverable from the consumer.

      3. The debt enforcement procedures be expedited to prevent undue prejudice to credit providers.

      SECTION 92

    26. Section 92 provides for pre-agreement disclosure to a consumer and for the consumer to be provided with a quotation. Thereafter, for a period of five (5) business days, the consumer is entitled to enter into a credit agreement with the credit provider to purchase the item in question in terms of the quotation.

    27. Section 92 has important implications for asset-based finance. The effect of the section is that, in the case of the sale of a motor vehicle, a credit provider will be required to retain the vehicle for five days notwithstanding that another customer may wish to purchase the vehicle and the customer to whom the quotation has been provided may subsequently elect not to purchase the vehicle. This could result in a situation in which the motor dealer loses both sales and then has to attempt to sell the vehicle again.

    28. In a situation where a motor dealer may itself be incurring finance charges on a vehicle which it is attempting to sell, such a situation could have significant cost implications for the motor dealer.

    29. Section 92 also overlooks the fact that in many cases the actual transaction is that the motor dealer will sell the vehicle to the bank, which will in turn sell the vehicle to the consumer. The result is that it is the bank and not the motor dealer that is the credit provider. On the Bill as it is currently worded, the provision of a quotation by the bank will not preclude a motor dealer from selling the vehicle to a different customer. This could in turn give rise to difficulties between the motor dealer, the bank and the consumer.

    30. Credit Providers rely heavily in their business models on the ability to provide fast and efficient funding for the purchase of motor vehicles. Section 92 will hamper this speed and efficiency. Section 92 must also be considered in the light of Section 121 of the Bill. Not only can the vehicle not be sold to another party for five days after the provision of a quotation, but in terms of Section 121 the consumer has a further five days after the purchase within which to rescind the agreement. Whilst the need for a cooling-off period is appreciated, the combined effect of Sections 92 and 121 is to provide the consumer with a second cooling-off period.

    31. While Section 92(7) seeks to reduce the impact of the section by providing that it will not apply to any offer or proposal in terms of which a credit provider merely indicates to a prospective consumer a willingness to consider an application to enter into a hypothetical future agreement, in practice this will be of little assistance because:

      1. A quotation is by its very nature an offer or proposal indicating a willingness to consider an application to enter into a hypothetical future agreement.

      2. Notwithstanding Section 92(7), prior to any sale a quotation will still have to be provided which will prevent the vehicle from being sold to any other customer for five days.

    32. We further point out that Section 92 has important implications for all credit providers:

      1. Section 92(3)(b)(iii) refers to the "prevailing bank rates on the day of the quote". Bank rates may not be uniform on any particular day.

      2. A consumer’s financial position may change during the five day period although not to the extent that concluding the agreement may constitute reckless lending in terms of Section 81. Notwithstanding this, the credit provider will be unable to vary the interest rate to be charged to the credit agreement.

      3. The ultimate result of Section 92 is likely not to be a cooling off period as is intended but for a potential consumer to avoid the price of goods increasing or the goods being sold to another party whilst the consumer considers his options or obtains competing quotations.

    33. FRB recommends that the requirement for a quotation be reconsidered on the basis that it should be provided if a consumer requests it and that there should be no obligation on a credit provider to hold the goods in question for any period subsequent to the provision of a quotation.

      34.  

      DISCOUNTED TRANSACTIONS

       

    34. The structure of the business model in terms of which assets are financed is of importance to FRB. When a customer wishes to acquire a motor vehicle from a dealer, the actual transaction will often be that a bank will purchase the motor vehicle from the dealer and will in turn sell or lease the vehicle to the customer. Such transactions are generally referred to as "direct business".

      35.  

    35. In addition to "direct business", many transactions are concluded by way of what are known as "discounted agreements". In discounted agreements, the motor dealer will sell the vehicle to the customer and will in turn immediately cede or discount its rights, including its rights to payment from the customer, to a bank. This is a well known and established method of conducting business within the industry, which has cost benefits to consumers.

      36.  

    36. The Bill makes no allowance for discounted transactions. It is unclear whether this is due to a deliberate decision by the drafters to exclude discounted transactions from the operation of the Bill or whether the drafters were unaware of the operation of discounted transactions. Not allowing for discounted transactions will have a considerable impact on banks, motor dealers and consumers who conduct business in this manner.

      37.  

    37. In terms of the definition of a "credit provider", a motor dealer who concludes an agreement with a customer and immediately discounts the agreement to a finance house will be a credit provider. This will require motor dealers to register as credit providers in terms of Chapter 3 of the Act. Section 40(1) of the Act would exclude motor dealers from the registration requirements if they are credit providers under less than one hundred credit agreements or the total principal debt owed to the credit provider is less than R500 000.00 as provided for in Section 42(1) of the Bill. However, the price of motor vehicles is such that any motor dealer engaging in discounted transactions would have a principal debt in excess of R500 000.00.

      38.  

    38. It is therefore recommended that motor dealers that regularly engage in discounted business by ceding transactions to financiers be exempted from being registered as credit providers. An additional advantage of this would be to relieve the regulator of the cost and burden of having to administer the Bill in respect of thousands of motor dealers as opposed to the relatively small numbers of banks and financiers that are cessionaries under these transactions.

 

  1. INTEREST, CHARGES AND FEES

    2.  

    1. Section 101 of the Bill provides for specific fees and charges which may be levied. In addition to the fees and charges for which provision is made, additional fees and charges are currently levied by banks for which no provision is made in Section 101 of the Bill. Some of these issues have been dealt with in the Banking Council’s submissions. FNB wishes to add to these submissions as set out below.

      2.  

    2. At the outset we point out that Section 101(1)(c) refers to "a service fee". Section 101(3) refers to "any service charge". It is unclear whether a "service charge" and a "service fee" are the same or whether these two provisions are intended to regulate different charges.

      3.  

    3. There are many circumstances in which banks incur costs in administering the accounts of consumers who, whilst not in default, have breached the terms of credit agreements. This occurs particularly in revolving credit products such as cheques and credit cards. These include:

      4.  

      1. There may be insufficient funds in an account with the result that cheques and debit orders are returned.

        2.  

      2. A consumer may pay an instalment late or pay less than the agreed instalment.

        3.  

      3. A consumer may exceed an agreed credit limit or request temporary changes to a credit agreement.

       

    4. The additional costs incurred by the bank in these circumstances apply only to specific customers who have breached the terms of their credit agreements. It would not be fair nor good lending practice to recover these additional costs through service or initiation fees. The bank, moreover, has no way of knowing in advance whether a customer will breach a credit agreement and it would be unsound to follow a blanket approach to all customers as with would prevent the bank from pricing customers in accordance with their behaviour. The treating of customers according to their behaviour is an important aspect of the control by banks of their customers. Customers who operate their accounts in terms of their arrangements with the bank pay nothing extra. Customers that breach their arrangements and in so doing create additional administrative work for the credit provider should bear these costs.

      5.  

    5. A further factor to be considered is that when a customer for instance draws a cheque in excess of an agreed credit limit, this constitutes an implied request by a customer to the bank to extend the credit limit. The bank is required to make a decision on whether to accommodate the customer by extending the credit and meeting the cheque or credit card withdrawal. The bank incurs costs in this decision-making process. Currently, if the bank agrees to meet the cheque an "over the limit fee" is charged. The alternative to charging an "over the limit fee" is for the bank to decline the credit, which may well result in embarrassment and difficulty to the customer. This process is therefore greatly to a customer’s advantage. If these fees are not allowed, the result may be that such excesses of an agreed credit limit will simply not be met.

      6.  

    6. Whilst the Bill provides at Section 101(1)(f) for the payment of "default administration charges", the definition does not include costs related to the breach by customers of credit agreement. It is our submission therefore that the Bill should be amended to include provision for the payment fees to a credit provider for the recovery of costs reasonably incurred by the credit provider arising from the breach by a consumer of a credit agreement.

      7.  

    7. Particularly in the mortgage industry, proper valuations of the property to be mortgaged form an important part of the process by which banks determine the nature of their security and therefore whether or not a mortgage should be granted as well as the extent of the mortgage. There is a cost to the banks in performing these valuations and valuation fees are charged accordingly. Whilst the Bill provides for an "initiation fee", it is not clear whether a valuation fee will fall within the definition of an initiation fee. The cap that will be placed on an initiation fee may also not allow for the recovery of the valuation fee as well. It is therefore recommended that the definition of "initiation fee" be amended to remove any doubt and to make provision for the inclusion of a valuation fee under section 102 of the Bill.

      8.  

    8. A processing or document fee is currently charged by most financiers when financing goods. This fee is to cover the set up costs of an agreement. Whilst Section 102 provides for the recovery of taxes, licence and registration fees, it does not provide for the recovery of processing or document fees. It is submitted that these fees should be provided for.

     

  2. APPEAL AND REVIEW PROCEDURES

    3.  

    1. The terms "review" and "appeal" have separate and distinct meanings at law. Generally an appeal will deal with substantive issues relating for instance to the decision of a lower court. A review, on the other hand, would tend to deal with procedural rather than substantive issues. This distinction is reflected in the appeal and review procedures in Section 148 of the Bill.

      2.  

    2. In the first instance, in terms of Section 59 of the Bill, a person affected by the decision of National Credit Regulator ("NCR") under Chapter 3, may apply to the National Consumer Tribunal to review the decision of the NCR.

      3.  

    3. In terms of Section 148(1) the decision of a single member of the Tribunal may be taken on appeal to the full panel of the Tribunal. Section 148(2) in turn provides for a participant in a hearing before a full panel of the Tribunal:

      4.  

      1. To apply to the High Court to review the decision of the Tribunal; or

        2.  

      2. To appeal to the High Court against the decision of the Tribunal other than a decision of a full panel on a review or appeal of a decision of a single member of the Tribunal.

       

    4. Section 148(1) provides for an appeal to the full panel against the decision of a single member of the Tribunal. Section 148(2)(b)(ii) anticipates a review of, or an appeal against such a decision to the full panel. The powers of the full panel in dealing with the decision of a single member are therefore unclear and should be clarified.

      5.  

    5. It is unclear why there should be a general right of review and appeal to the High Court against decisions of the full Tribunal but no right of appeal to the High Court against the of the full Tribunal on a review or appeal of a decision by a single member of the Tribunal. This constitutes a severe curtailment of the rights of access to the courts of the parties to a credit agreement and should be reconsidered.

      6.  

    6. Section 142(g) sets out matters which the chairperson of the Tribunal must assign to be heard by a single member of the Tribunal, sitting alone. It is unclear whether other matters not included in Section 142(3) may be assigned by the chairperson of the Tribunal to a single member sitting alone or whether they are to be heard by the full panel. This should be clarified.

     

     

     

     

  3. GENERAL

    1. FNB has a number of further comments of general application which are set out below.

    2. Section 1: Definitions

      3. The term "mortgage" is defined as a mortgage of immovable property. There appears to be no reason why a mortgage should be limited to immovable property and why the definition should not be extended to include movable property. In practice movable property is often the subject of a mortgage.

    3. Section 60

      4. Section 60 refers to "association of persons". Section 61 refers to "association". This should be clarified.

    4. Section 76(1)(c)

      5. Any written solicitation is required to include the credit provider’s annual interest rate and other costs of credit. There are a number of factors such as the risk and the term of a credit agreement which will influence the rate which a bank will charge. Generally therefore a bank will not have an annual interest rate which is applicable to all consumers. The interest rate to be charged to a particular consumer as well as the costs of credit are only able to be determined once an application has been received and considered. Likewise, a bank will only be able to determine whether a deposit or security is required as provided for in Section 76(1)(d) on receipt of an application. It is not possible for a bank to make decisions of this nature in advance.

       

    5. Section 89(2)

      6. This section provides that an agreement that was made when the consumer was an unemancipated minor will be unlawful. This will preclude a credit provider from contracting with a minor who is assisted by a guardian. This appears unnecessary.

    6. Section 93

      7. Section 93 requires documents recording credit agreements to be in the "prescribed form". It is unclear what the prescribed form will be and whether it will provide for the many different types of credit agreements which are available to consumers.

    7. Section 103(5)

      8. The Banking Council has made submissions on this section. In addition to the Banking Council’s submissions, FNB points out that it has considered the impact of the amendment, in particular on small loans. If collection costs are to be included in the limitation of the interest which may be charged on a credit agreement, a situation would be rapidly reached where banks would fail to recover any interest at all. FNB therefore recommends that the collection costs as contained in Section 101(1)(g) be excluded from the calculation of the amount which may be recovered under this section.

       

    8. Schedule 3: Transitional Provisions

      1. Section 4(2) provides that Section 92 of the Bill will not apply to pre-existing credit agreements. Section 4(3) however requires the consumer to be provided with a statement that meets the requirements of Section 92. This appears to be in contradiction with Section 4(2).

      2. The cost of providing consumers with documents that meet with the requirements of Sections 92 and 93 in respect of credit agreements made within one year before the effective date will be substantial and we request that this requirement be reconsidered.

 

THIS IS AN ELECTRONIC TRANSMISSION AND IS THEREFORE UNSIGNED

CREDIT COMPLIANCE HEAD OFFICE

7TH Floor, 2 First Place, Bank City,

Simmonds Street, Johannesburg 2001

P O Box 1553 Johannesburg 2000

Telephone: (011) 371 4194

Telefax: (011) 352 4745

 

 

 

 

Directors: G T Ferreira (Chairman), P K Harris (Chief Executive Officer) V W Bartlett, J P Burger, ICharnley, L L Dippenaar, D M Falck, P M Goss, M W King, S E Nxasana, R K Store, B J van der Ross, R Williams