NATIONAL CREDIT BILL

SUBMISSION TO THE PORTFOLIO COMMITTEE DTI BY THE SOUTH AFRICAN MONEY LENDING AFFAIRS COUNCIL (SAMLAC)


CHAPTER
1 PART B

PURPOSE AND APPLICATION

SECTION 3: PURPOSE OF THE ACT


The purpose of the act should be to protect both consumers and credit providers and to maintain and ensure a sustainable and competitive credit industry.


1) It is of utmost importance that everybody must register irrespective of the amount or size of credit transactions, (see section 40(1)(a)) To make sure every credit granter is registered and therefore to make sure that there is no reckless lending and over indebtness.


2) If it is a criminal offence to give credit while not registered, then it must also be a criminal offence to take up credit from an unregistered lender. To enforce the act both credit provider and consumer must take the responsibility to enforce this act. If any person takes part in an illegal action or process, that person is an accomplice and must be charged accordingly.


PART B SECTION 7: THRESHOLD DETERMINATION AND INDUSTRY TIERS:


It is very unfortunate that the first threshold is not specified in this bill to make it possible to be argued before this committee. It creates the impression that this bill is being forced through Parliament and to give the Minister free rains with regulations. This should not be tolerated and this act must make it compulsory for the Minister and Credit Regulator to consult with all stakeholders in front of this committee.


PART C SECTION 9: CATEGORIES OF CREDIT AGREEMENTS:


1) A substantial part of the micro lending industry consists of "very small loans" that normally is payable within 30 days. This is commonly known as "pay day loans" (PDL). The considerations pertaining to PDL is completely different from all other categories of credit agreements and should be acknowledged and distinguished from "term lenders," with longer repayment periods. This will allow the Regulator to establish different total charge of credit for the different levels of the industry (the PDL to be at a higher total charge of credit rate for obvious reasons to be economically viarable, whereby allowing the lower income and disadvantaged part of the population much needed access to credit.


This part of the industry can be compared to the PDL system in the United States of America, the main difference being that in the USA most consumers have cheque accounts and issue postdated cheques, whereas in the RSA virtually no PDL borrower have cheque accounts (due mainly to the high costs of cheque accounts)


The method of lending and collecting of "term lenders" also differs substantially from PDL lenders in that the majority of "term lenders" have ties to the formal banking and payment systems (e.g. ABSA Bank, Standard Bank, etc) a PDL has to be repaid in full on the consumers next pay date affording him the convenience of not being bound to payments for a period of up to 36 months. The loan amounts vary from R10.00 to R5000.00 and is available at any time during the month. Typically a small loan of R50.00 to R100.00 is made a week before pay-day to allow the consumer to pay for transport to and from work, school fees, emergency medical expenses, vehicle repairs, traditional ceremonies (e.g. lebola), clothing, etc. Currently a new form of PDL emerged in the form of emergency funeral loans, mainly caused by the HIV/ Aids epidemic. Traditionally family and friends would contribute to the funeral expenses at the funeral, but a short-term loan of a few days is needed because funeral services providers must be paid upfront. This makes the debit order and other formal banking and payment systems impractical.


The PDL is in many instances the only source of funds available for a large disadvantaged group of the population and 30 day lenders provide a much needed service in this regard. As such the PDL should not only be differentiated from other loans but should also be exempted from those statutory requirements that makes it impossible to survive.


Ebony Consulting's research did a full investigation for the Department of Trade and Industry in this respect and the outcome of the court case, Lurama 15 and 49 others versus the Minister of Trade and Industry should be taken into consideration when this matter is addressed. It is very difficult to make further suggestions, because of the fact that the thresholds as well as the total charge of credit are not on the table yet.


CHAPTER 2: CONSUMER CREDIT INSTITUTIONS


NATIONAL
CREDIT REGULATOR AND TRIBUNAL


1) Recommendation that this bodies be organs of the state and to function under the DTI.


2) Penalties and fines are not in line with the offences according to other legislation. A 10% of turnover or R1000 000.00 fine will definitely close .any PDL taking Into consideration that 10 % is more than the capital of a 30 day lender.


3) There is a concern that financing of the NCR will further burden the industry to the detriment of the consumer. Clarification is required pertaining to fees payable by the industry.


CHAPTER 4: CONSUMER CREBIT POLICY

PART B:


The requirements of this section will inevitably place a financial and administrative burden on PDL. Lower tiers of the industry will not be able to -•'d the additional administrative and financial requirement's. For example very small loans R10- R100.00), 30 days loans and even small loans will become unaffordable to the detriment of a large part of the disadvantaged population. It is suggested that the lower tires, of the industry either be exempted from these requirements or only be required to annually register a maximum available credit "?v k)r a particular consumer.


CHAPTER 6

COLLECTION, REPAYMENT, SURRENDER AND DEBT ENFORCEMENT


Certain provisions in this act fail to fulfil this objective of the act for the following reasons :

1) Contractual default by consumers are promoted by the fact that credit could be suspended without cost or interest for a period of six months, while under investigation by Tribunal. The consumer cannot be relieved of his contractual responsibilities before the Tribunal or a court has ruled in his favour. If this rule is not changed, the entire credit industry will collapsed within three months


2) It is of utmost importance that this act make provision for informal collection by default , directly from employer , to cut cost and time for the credit consumer, credit providers and the courts. This informal procedure can be in a form and manner as prescribed by the Credit Regulator.


THANK YOU