I refer to my oral presentation given at the public hearings on 17 August 2005. During said public hearings the Honourable Mr BA Martins, the Chairperson of the Portfolio Committee on Trade and Industry (National Assembly), requested my written submissions regarding the National Credit Bill. I have indicated those areas of my oral presentations that require further attention by the committee, the Department of Trade and Industry and the drafting team of the Bill.

• The definition of "juristic person" in the Bill cause serious confusion, as it is in conflict with our current law, for example in our law partnerships and trust are not deemed to be juristic persons. It is suggested that this definition of juristic person should rather be deleted. The Bill should not change our law in this area. The Bill does not require a definition of a juristic person.

• The definition of "non-returnable goods" needs to be expanded so that it also makes provision for goods that may not be returned for hygiene purposes, for example underwear or earrings, and provision should also be made that perishable goods may not be returned. It should also be investigated whether or not it should also include livestock.

• The Bill should also contain a definition of a "debt counsellor".

This section causes confusion, as it provides for an electronic signature, but then continues and states that persons may only make such an electronic signature in the physical presence of the other party. This ignores the whole idea of electronic signatures. This section should either be deleted as a whole or it should be amended. If it is decided to keep this section the Bill should merely provide that the signing or initialling of a document might either be made physically in the presence of the other party or electronically in line with the provisions of the Electronic Communication and Transactions Act 25 of 2002.

The limited application of the Bill to incidental credit agreements, as set out in section 5, needs to be addressed as a whole and it should be made more user-friendly. In particular the definition of credit facility in section 8(3)(b)(iii) needs to be amended. The definition of an incidental credit agreement in section 1 should also be better defined. An important issue that requires further attention relations to when a service provider should report information regarding its incidental credit agreements to the National Credit Register. It is submitted that a service provider should only report an arrear incidental agreement when the consumer is in arrears for at least three or four months.

Section 10 should also provide that a credit agreement, irrespective of its form, type or category, is a developmental credit agreement if –

"it is entered into for the development of agriculture."

The heading of section 19 contains a reference to the governance and "objectives" of the Regulator, but in real fact section 19 only refers to the governance of the Regulator and not also to the objectives of the Regulator. Therefore it is suggested that the reference to "[objectives]" in the heading should be deleted. This is a mere cosmetic change.

The position and regulation of debt counsellors will become clearer once the Regulations to the Bill are published. As long as these counsellors are regulated and set fees (not linked to a percentage of the consumer’s estate) are provided for, and the appointments of counsellors are regulated and they take place on a fair basis, it might provide a workable solution/alternative to administration orders. The main problem experienced with administration orders relates to the fact that income received mostly end up in the pockets of the administrators. Also another problem is that administration orders only relate to debtor’s whose estates do not exceed R50 000. The provisions in the Bill that relates to debt counsellors and debt reviews are welcomed and could, if managed well, provide a workable alternative to making use of the expensive debt enforcement procedures and sequestration procedures.

The requirements for registering as a credit bureau are set out in section 43.  It requires in section 43(3)(a) that those qualifications, competence, knowledge and experience required for the employees or contractors of credit bureaus must be equivalent to those prescribed for a debt counsellor. The standards that will be prescribed for a debt counsellors cannot be made applicable to the employees or contractors of the credit bureaus, debt counsellors and employees and contractors of credit bureaus have very different roles to play and they clearly require different qualifications, competence, knowledge and experience. It is submitted that section 43(3)(a) should be amended and the words "[at least equivalent to those prescribed for debt counsellors]" should be deleted and be replaced by the words: "as prescribed by regulation". Therefore, section 43(3)(a) should read as follows:

In various instances the Bill provides that certain documents (for example pre-agreement statements and quotations (section 92), copies of the credit agreements (section 93) and statements of accounts (sections 108-110)) should be provided to consumers. Although this might have a result of increasing the administration costs of credit providers, it should also be remembered that the Bill clearly provides that these documents may be delivered in various forms, for example it may be e-mailed, faxed, placed on a printable website, and it may be sent by way of a sms just as long as it is electronically printable. So although it does bring about an increase in administration costs, it is still limited due to the fact that postal and physical paper costs can be saved. More importantly the cost involved in creating such duties should be weighed up against the objectives that these documents aim to achieve, and seen in this light, I submit that the increased costs are justifiable.

The creation of a National Register of Credit Agreements has considerable advantages. Section 69 provides that the Minister may require the Regulator to establish such a register, however, it is my submission that the section should read that the "Minister requires the Regulator to create such a register".

Such a register will be an important instrument to assist with assessing a consumer’s ability to meet credit obligations and to prevent reckless lending. Credit providers won’t have to solely rely on the truthfulness and information received from consumers and credit bureaus when they conclude credit agreements with consumers.

Initially it will be time consuming and costly for credit providers to submit the relevant information to this register, but later once all the relevant information regarding pre-existing credit agreements are submitted and provision is made for the electronic submission of the required information, it will not be so costly to continue to submit the required information. The electronic submission of information will ensure that the process of reporting takes place quicker and the administration costs will also eventually be cheaper. In the end, the proper functioning of such a register will be to the advantage of ALL credit providers. If the cost involved in creating such a duty on credit providers should be weighed up against the objective that it aims to achieve it becomes apparent that such costs are justifiable. A possibility that could be investigated to assist the credit provider with the administration costs of reporting the required information to such a register, would be, to allow the credit provider to charge its consumer a small set portion (regulated by the Regulations) for reporting the required information regarding a specific consumer under the concerned credit agreement.

An area of concern is the fact that the Bill does not provide for the continuation of the NATIONAL LOAN REGISTER. It is my submission that the workability and value of this register should be investigated. If the Micro Finance Regulatory Council shows that this National Loans Register has value, it would be my submission that a provision should be included in the transitional portion (schedule 3) of the Bill which allows for the continuance of information to be submitted to it by the credit providers currently submitting information to it, until the National Register of Credit Agreements is created.

These provisions are welcomed and are fully supported. All credit providers have their own policies to assess the financial abilities of consumers. If credit providers have been doing responsible lending and have made used of fair and objective assessment policies they will not have to worry about these provisions. Currently credit providers are supposed to be granting credit responsibility. Surely credit providers should not grant credit to consumer if they will have no means to repay it. These provisions will only have an affect on those credit providers who have not been lending responsibly and who do not make proper assessments! From the huge outcry of certain credit providers, the banks in particular, against these provisions it would appear that these credit providers do not lend responsibly at present and this might be the reason why they are so opposed to these provisions. Therefore, it becomes even clearer that these sections of the Bill are imperative. A consumer trusts that a credit provider whose business it is to lend money, would be in a better position to judge whether or not he or she will be able to afford the credit applied for. Also, if credit providers are unsure of whether or not they have been making use of the correct assessment policies they will be able to have their policies pre-approved by the National Credit Regulator.

Section 84(1) provides that during the period that the force and effect of a credit agreement is suspended the consumer is not required to make any payment under the agreement and no interest, fee or other charge under the agreement may be charged to the consumer; and the credit provider’s rights under the agreement or under any law in respect of that agreement are unenforceable.

Section 84(2) that provides what happens after a suspension of the force of a credit agreement has ended, creates some confusion. Subsection 84(2)(a) provides that after the suspension all the rights and obligations of the credit provider and the consumer is revived; and are fully enforceable except to the extent that a court may order otherwise; and then subsection 84(2)(b) provides that for greater certainty, no amount may be charged to the consumer by the credit provider with respect to any interest, fee or other charge that were unable to be charged during the suspension in terms of subsection (1)(b). The confusion is found in the impression that is created by subsection 84(2)(b). This subsection creates the impression that although the suspension has ended and all the rights and obligations of the parties under the agreement is revived, the interest, fees or other charges that could not be charged during the time of suspension will never be allowed to be charged again, even when the suspension has ended and it has been found that the agreement does not constitute reckless credit or that the consumer is over-indebted. It is suggested that subsection 84(2)(b) is not required and only unnecessarily creates confusion and it should merely be deleted, as subsection 84(1)(b) adequately provides for the fact that during the period of suspension the credit provider may not charge the consumer any interest, fee or other charge.

Various subsections of section 86 concern me. Section 86(7)(c) provides that if a debt counsellor concludes that a consumer is over indebted, the counsellor may issue a proposal recommending that the Magistrate’s Court may either declare that the credit agreement is reckless credit and/or that the consumer’s obligations should be re-arranged. Section 86(8)(b) makes provision for the debt counsellor to refer his recommendation to the Magistrate’s Court. Section 86(10) also provides that a consumer may apply to a Magistrate’s Court for an order. Lastly section 86(11) provides that if a credit provider has given notice to terminate a debt review he may proceed to enforce that agreement in terms of the Bill and then the section also specifically provides that the Magistrate’s Court hearing the matter may order that the debt review may resume on any conditions the court considers to be just in the circumstances. The Magistrate’s Court currently has jurisdiction over claims not exceeding R100 000. Therefore, to allow the Magistrate’s Court to make such decisions as provided for in the abovementioned subsections, the jurisdiction of the Magistrate’s Court should either be expanded or alternatively it is suggested that the references to the Magistrate’s Court in all these subsections be deleted and be replaced by merely referring to "a court". I submit that all the courts should have the jurisdiction to make such orders. In the consequential amendments (see schedule 2) provision is also made for the Small Claims Court to hear matters not exceeding its jurisdiction (currently R7 000). Therefore, it makes sense not to limit this power to only the Magistrate’s Courts.

Subsection 89(2) should not be so rigid; the section should merely provide that in the given situations the agreement would be unlawful, but that it is not limited to only those situations. Our common law is quite clear on when a contact would be unlawful and the Bill does not adequately provide for all these instances. The Bill should not unnecessarily amend our law of contract. So therefore, the subsection should merely provide that the instances set out in subsection 84(2) will constitute unlawful agreements, but they are not limited to only those listed.

In particular, subsection 89(2)(a) is very problematic as it unnecessarily amends the common law. This subsection provides that a credit agreement will be unlawful if it is concluded with an unemancipated minor. Currently in terms of our common law a contract concluded with an unemancipated minor will be valid, provided that the minor was assisted by his or her guardian. Therefore subsection 89(2)(a) should merely be amended so that it reads:

Section 90(2)(k)(ii) contains a general reference to the giving of a power of attorney in advance. This reference is too wide and it should be amended so that it provides for exactly which types of power of attorneys are prohibited by the Bill.

Section 93(3) contains a reference to subsection (2)(b), the reference should merely be a reference to subsection (2). This is merely a cosmetic change.

The period of notice provided for in section 104(3) does not seem to be practical, especially if, for example the prime lending rate is reduced late in the afternoon, then it will be impossible for the credit provider to comply with this provision. It is submitted that the section should be amended so that it provides that:

Allowing a consumer to choose his own insurance policy is welcomed. If credit providers’ insurance policies are competitive, they ought not loose out on this form of income! The only aspect that needs to be amended and that need to be provided for is to allow the consumer to choose whether or not he would like to make monthly or singly premiums where he takes up the insurance policy offered by the credit provider (see sections 106(4)(c)-(d)). I submit this due to the fact that various credit agreements, in particular agricultural credit agreements, often require that instalments should only be paid quarterly or once a year, and if the Bill only provides for credit insurance policies of the credit providers to be deducted monthly, it would be to the disadvantage of these types of consumers who only have to pay instalments quarterly or once a year. Therefore, I submit that it should always be the decision of the consumer how he or she wishes to pay for the credit insurance premiums.

This section could be problematic in the case of credit facilities, for example where changes are made to the credit limits under a credit facility, like a credit card or an overdrawn limit on a current account. It will nearly be impossible for banks to have their consumers sign every time their credit limit under a credit facility is automatically increased. Therefore, this section should provide that "it does not apply to automatic increases made in terms of section 119(4)".

Another concern is the fact that this section does not provide for an electronic signature or initial to be made in line with the Electronic Communication and Transaction Act 25 of 2002. This defect should be remedied.

Section 120(2) provides that a credit provider must give the consumer written notice of at least five business days of a unilateral change. It is not clear to which five days this refers. Does it refer to five days after a decision to make a unilateral changes is made or does it refer to five days after the unilateral change has already been made, or does it refer to the fact that the credit provider must give the consumer five days notice of a unilateral change before it is to take effect?

Section 121(2)(b) should, just like section 127(2)(ii), also provide that the goods may be delivered to the credit provider’s place of business during normal business hours or at such other place as may be agreed with the credit provider.

This provision is welcomed, as it will be to the advantage of both the consumer and the credit provider.

It is a pity though that the Bill does not also provide for the situation where a consumer could also decide to surrender his or her immovable property covered by a mortgage bond in the same way.

However, sections 127(6)(a) and 127(7)(a) need to be amended, as it they do not acknowledge the common law ranking order of creditors. These subsections do not provide for the fact that the credit provider to whom the goods might have been surrendered to might not be the person who has the strongest (real) right to receive payment thereto. The subsections should provide that if there is another person who has a real right that rank above the credit provider (for example the holder of a lien or first notarial bondholder) to whom the goods have been surrendered to, the credit provider must first pay the cost of the sale; and secondly that person (holder of a stronger real right) before the credit provider may receive payment and may credit the consumer’s account. If there is still a balance left thereafter, and there are still credit providers that rank after the credit provider to who the goods have been surrendered to, it must be submitted to the Tribunal for distribution, after which the final balance, if any, may then be submitted to the consumer.

Section 127(9) should also be amended. It provides that where the goods that have been surrendered by the consumer have been sold and where there is still an amount owed to the credit provider, such a credit provider may claim the shortfall by instituting proceedings in terms of the Magistrate’s Court Act. Again I draw your attention to the fact that the Magistrate’s Court only has jurisdiction to hear matters not exceeding R100 000. Therefore, the jurisdiction of the Magistrate’s Court should either be expanded or alternatively the subsection should merely state the credit provider might commence proceedings "in any court" for judgment enforcing the credit agreement. I submit that all the courts should have the jurisdiction to make such orders. In the consequential amendments provision is also made for the Small Claims Court to hear matters not exceeding its jurisdiction (currently R7 000). Therefore, it makes sense not to limit this power to only the Magistrate’s Courts.

Section 129(1)(b)(i) contains a reference to section 86(9). The reference to this subsection here does not make sense and it is suggested that it should probably be a reference to section 86(10). This is merely a cosmetic change.

Section 129(3)(a)-(b) provides for the re-instatement of an agreement by a consumer. It provides that if a consumer has defaulted he or she may resume possession of any property that had been repossessed by the credit provider, by paying to the credit provider all the amounts that are overdue, together with the credit provider’s permitted default charges and reasonable cost of enforcing the agreement up to the time of re-instatement owed plus costs to take possession of the property. The problem here is that in the event that a consumer defaults a credit provider usually first request that the arrear instalments be paid and then later the credit provider calls up the full outstanding amount and not only the arrear portion when it takes legal action. Therefore this section is unclear as what amount exactly should be paid by the consumer to enable him or her to resume possession of his or her property again in the case when the full amount under the agreement has been called up.

In terms of sections 33 and 34 of the Land and Agricultural Development Bank Act 15 of 2002, the Land and Agricultural Development Bank ("the Land Bank") has certain special debt collecting remedies that it may take in certain instances against it defaulting farmers, for example where there are goods of a perishable nature that urgently needs to be attached and sold or where there is a serious risk that the goods (livestock) may be removed. It is suggested that section 129 should clearly acknowledge that in instances where sections 33 and 34 of the Land Bank Act apply, the Land Bank’s rights to act in terms of its Act will not be influenced by the Bill and in such instances the Land Bank would not have to comply with, for example subsection 129(1).

Section 130(1)(a) contains a reference to section 86(9). The reference to this subsection does not make sense here and it is suggested that it should probably be a reference to section 86(10). This is a mere cosmetic change.

Section 130 is extremely confusing as the impression is gained that it is only the Magistrate’s Court that will have jurisdiction. The wording used in the heading, namely "Debt procedures in Magistrate’s Court", strengthens this impression. Again I draw your attention to the fact that the Magistrate’s Court only has jurisdiction to hear matters not exceeding R100 000. Therefore, the jurisdiction of the Magistrate’s Court should either be expanded or alternatively the heading should be changed to: "Debt collecting procedures in a court". I submit that all the courts should have the jurisdiction to make such orders. In the consequential amendments provision is also made for the Small Claims Court to hear matters not exceeding its jurisdiction (currently R7 000). Therefore, it makes sense not to limit this power to only the Magistrate’s Courts.

Subsection 130(3) should therefore read:

As indicated above, the Land Bank does have certain special debt collecting remedies, and therefore, section 130(1) should acknowledge the rights the Land Bank has in terms of the Land Bank Act.

In terms of section 128 a consumer may apply to the Tribunal to make an order regarding compensation for the consumer. Section 132 provides that the credit provider may apply to a court to make an order regarding compensation for the credit provider. Section 132 thus specifically disallows the credit provider to make use of the Tribunal. It is suggested that the credit provider should also be allowed to make use of the Tribunal.

Section 143(2) contains a reference to section 24(c). This reference is incorrect and it should be section 27(c). This is merely a cosmetic change.

The Bill contains various references to alternative dispute resolution agents, but the Bill does not provide any detail as to how these agents will be appointed or whether they will be regulated (or merely monitored) by the National Credit Regulator. The Bill does not provide for the creation of regulations that will provide for the setting of prescribed fees. It is submitted that the Bill should contain a provision that will provide for the creation of a regulation that will provide for the prescribed fees that may be charged. It is important that the fees should be set, otherwise it might defy the purpose of the Bill to create an affordable, cheap and workable alternative dispute resolution process.

It is suggested that the duties created on credit providers in terms of items 4(3)(a)(i)-(ii) and (b) will have the affect of unnecessarily increasing the administration costs of credit providers and it is submitted that these duties should be abolished and that these items should be deleted.

Item 8(b) of Schedule 3 seems to imply that service providers of the Micro Finance Regulatory Council would become employees of the National Credit Regulator. It is submitted that this item needs to be amended for purposes of clarification.

Overall I support and welcome the National Credit Bill. I submit that the increased administration costs that the Bill will have on credit providers, should be weighed up against the objectives of the Bill. When that is done, it is my submission that the increase in the administration costs that the Bill will have on credit providers will be clearly justifiable.

I do, however, request that the committee, the Department of Trade and Industry and the drafting team consider my concerns raised regarding the abovementioned sections. It is submitted that these sections can easily and quickly be corrected and they should not pose a serious problem in the approval process of the National Credit Bill.

I trust that you will find the above in order. Please do not hesitate to contact the writer should you have any further queries regarding this letter.

Yours faithfully,

BIURIS, LLB, LLM (SPES IN COMMERCIAL LAW) (UNISA) AND DIPLOMA IN INSOLVENCY LAW AND PRACTICE (AIPSA) (RAU)