"You & Your Money" is a voluntary association, and registered non-profit organisation. The association was set up in 2001, with the goal of helping to address the debt crisis in which vast numbers of South Africans find themselves.

"You & Your Money" also runs financial life-skills training workshops, both in the corporate and the non-profit sectors. The director of the association’s training department is a qualified teacher with experience in adult education.

1. General Comments: Support for the Bill, and some Concerns

 

1. "You & Your Money" applauds the attempts of government to come to terms with the state of lending and borrowing in South Africa, and wholeheartedly supports the ongoing revision of the legislative framework regarding credit.
2. More specifically, the association wholeheartedly supports legislative attempts to

• Provide access to credit for all South Africans;
• Create a balance between the rights of responsibilities of both borrowers and lenders;
• Reduce over-indebtedness; and
• Ensure that effective education measures allow for the real protection of rights and responsibilities within communities.

1. We submit, however, that co-operation between the Department of Trade and Industry, and the Department of Justice, should be increased, so as to enable the consolidation of all legislation impacting on the credit industry. The following acts need to be revised, in light of the National Credit Act, in order for the whole ambit of the credit industry to be fully reformed:

• The Magistrates’ Court Act, and in particular provisions relating to debt collection, and to debt administration;

• The Debt Collectors Act, and regulations;

• The Banks Act;

• The Social Grants Act, and in particular provisions relating to money-lenders;

• Current regulations relating to "common bond" groups, stokvels and credit co-operatives;

• Labour law, and in particular, the use of credit bureaux reports during the recruitment of employees.

 

1. Comments on the Debt Counselling Function, as introduced by the Act

 

"You & Your Money" has been conducting debt counselling for three years. The goal of the centre is to promote responsible personal financial management, and to assist clients to repay their debts in a dignified manner which is not harmful to their well-being or that of the members of their households.

Current clients at the centre have household incomes ranging from R500 a month to R45000 a month. Approximately 30% of clients are low-income earners – i.e., those earning less than R3500 a month. The majority earn between R3500 and R9000 a month. The organisation has, at date of writing, approximately 500 clients on file, and has helped many more telephonically, without opening a client file. The majority of clients are located in the Western Cape, although an increasing number are based in Gauteng, Kwazulu Natal and the Free State are being counselled via email, fax or telephone.

The aim of the counselling conducted at the centre has been primarily to restore the dignity of the individual involved, by

1. providing correct information regarding credit, and in particular regarding the consequences of non-payment;
2. empowering the individual to make responsible decisions as to the manner in which he is to plan his finances in the future, and to repay his debts; and
3. providing emotional support to the indebted individual, who often experiences severe stress.

During the three years of operation, it has become very apparent that effective counselling involves all three of the aspects mentioned above – i.e., guidance in financial management; legal information and education, and psychological or emotional support. Should any one of these "legs" be missing, counselling is unlikely to promote positive personal change.

"You & Your Money" is deeply concerned that legislatively regulated debt counselling should embrace these aspects.

In addition, it is essential that debt counselling not become a function similar to that currently played by debt administrators. The abuse of administration orders, and excessive fee-charging by debt administrators, is well documented.

In order to prevent similar abuses by debt counsellors, it is imperative that the Act or its regulations make provision for the following:

 

1. Qualifications:

We submit that debt counsellors should have the qualifications listed in Section 46(3) of the Act, as well as the following:

 

• Knowledge:

Counsellors require knowledge of

• personal financial management, at a basic level, in particular regarding budgeting, purchasing options (cash or credit), and savings options;

• the law relating to credit, debt collection procedures and administration or insolvency options, at least at a qualified para-legal level;

• the current credit industry, and key players; and

• points of referral, for those clients who cannot be appropriately helped by the debt counsellor herself; and in particular regarding pro bono legal services available for clients who cannot afford to apply to the Magistrates’ Court for any order to which they may be entitled in terms of the Act.

 

• Skills:

Debt counsellors require skills in

• Numeracy; particular so as to be able to teach effective household budgeting;

• Adult education;

• Counselling, and dealing with people in crisis;

• Decision making, and the giving of appropriate, sensible advice; and

• Appropriate communication with creditors and with legal professionals.

 

• Attitude and personal attributes:

Counsellors require

• empathy,

• commitment to the job at hand,

• a sense of social and ethical responsibility, and

• appropriate, responsible management of their own personal finances.

 

Given the above,

• We submit that debt counsellors should be required to be over the age of 25: purely because of the life experience and maturity required to deal with people in crisis.

• Those who are under debt administration themselves, or who have been declared insolvent, should be excluded from being debt counsellors. This is not the case in the Act as it stands.

• Attorneys in private practice, in particular those operating debt collection departments, as well as those currently conducting the business of debt administrators, should not be entitled to register as debt counsellors.

Finally, we are concerned about the correlation drawn in the Act between the qualifications required for credit bureaux staff, and for debt counsellors – the two functions are very different, and we would suggest that educational requirements also be assessed differently.

 

1. Fees and Charges:

The "You & Your Money" centre receives at least one query per week from a client currently under administration, questioning the fees charged by the administrator, the lack of transparency in the administration itself, and the lack of appropriate and affordable recourse, should the administrator be abusing his functions.

We are deeply concerned that the same abusive environment should not be carried over into the new office of debt counsellor.

For this reason, it is imperative that fees to be charged by debt counsellors be tightly regulated. We would recommend the following:

• Fees should be kept to a minimum – in particular, so as not to make debt counselling unobtainable for the vast numbers of over-indebted very low income earners.

• The recovery of disbursements should be strictly regulated, so as to prevent disbursements being charged excessively or inaccurately. Debt counsellors should be entitled to recover only actual, demonstrable expenses, which should not be based on a tariff, and should have been reasonably incurred.

• Debt Counsellors should be required to provide full and complete statements of fees and charges, at any stage, on demand from a client.

• Debt Counsellors’ statements of fees and charges should be subject to review, on demand, and free of charge to the client, by an appropriate regulatory institution, with sufficient enforcement capacity.

• The charging of fees by Debt Counsellors should not be made compulsory, so that those currently offering free debt counselling may continue to do so.

• State-funded debt counselling centres should be established, most importantly, in rural as well as in urban areas, so that the service is made accessible at all levels of society.

• Free of charge debt counselling services should be given special State support.

 

1. Debt Counsellors and the Courts:

"You & Your Money" fully supports the proposed inter-relationship between debt counsellors and the courts, and the procedure for the referral of over-indebted clients to a debt counsellor in terms of section 85 of the Act.

We also support the potential referral of clients to debt counsellors prior to the enforcement of credit agreements by credit providers, as contained in section 129 (1) (a) and (b)(i).

However, we are concerned by the obvious absence of debt counsellors in South Africa at present, which may prevent the successful operation of this section. We would like to make ourselves available to assist, however possible, in the nation-wide roll out of this function.

It cannot be stressed enough that the involvement of the courts, and the charging of fees by debt counsellors, is likely to make the debt counselling option unavailable to a very large number of over-indebted South Africans.

It is urged that courts be required to set up an office similar to that currently held by court maintenance officers, to assist over-indebted clients in obtaining the orders available to them in terms of the National Credit Act. Any court action which requires intervention by a practicing attorney, charging normal attorney’s fees, will prevent access to justice for numerous people.

 

2. Debt Counsellors and the Credit Bureaux:

We are concerned by the requirement that a debt counsellor must notify a credit bureau of a client’s application for debt restructuring. In our opinion:

• Credit bureaux already have sufficient negative information about such a client’s debt situation to enable effective risk assessment by credit providers.

• The knowledge that credit bureaux will obtain even more negative detail may cause clients in need of counselling and debt restructuring not to seek it.

• The application to a debt counsellor may in any event be refused, after the report is made to the credit bureau. Alternatively, a declaration of reckless credit may be obtained. A subsequent refusal, or such a declaration, would not necessarily reflect at the credit bureaux – although both should.

 

1. Debt Counsellors and Dispute Resolution:

We are glad to see that debt counsellors are not to be involved in dispute resolution in terms of Section 134. We believe that it is imperative that counsellors act so as to promote to the benefit of their indebted clients, and not as neutral third parties.

 

2. General Comments and Offer of Services:

We would submit that the functions of debt administrators should also be subject to ongoing review, so that the provisions of the Magistrates’ Court Act in this regard are integrated appropriately with the debt counselling function to be made available by the National Credit Act.

Secondly, the transitional provisions relating to debt counsellors do not make sense as they stand – to the best of our knowledge, no person has yet been registered as a debt counsellor. It is imperative that existing administrators not be deemed to be so registered.

Thirdly, and as stated above, "You & Your Money" would like to offer whatever services are required, and which it could reasonably perform, in assisting the roll out of debt counselling centres throughout the country.

 

3. Comments on Other Aspects of the Act

 

1. The National Credit Regulator:

"You & Your Money" supports the establishment of a government-funded and regulated body, dedicated to the regulation of the credit industry.

We would recommend that the list of persons excluded from Board membership of the National Credit Regulator include those persons who are under administration in terms of Section 74 of the Magistrates’ Court Act.

 

2. The National Consumer Tribunal:

"You & Your Money" has concerns regarding the constitutionality of appointing non-legal professionals to a tribunal of record. Section 31(2)(a) requires only that one member of each three-person panel be a legal professional. However, decisions are to be taken by majority vote (section 31(5)), and thus this person will have no additional authority in the matter.

"You & Your Money" would recommend that the traditional court system is used for this purpose – i.e., that a legally trained judge preside over the proceedings, but that the use of lay assessors be made compulsory.

 

3. Right to information in official language:

We would urge that all consumers be able to obtain documents in the official language of their choice – not merely in one of two official languages. The cost of translation of documents into all 11 official languages will always be minimal in relation to the profit to be obtained by the credit provider in terms of the agreement concluded with the borrower, and we would submit that the expense is not unreasonable.

 

4. Fees for documentation:

Section 65(3) disallows credit providers from charging fees for the original copies of documents to be provided in terms of the Act. The Act needs to clarify whether this section is meant to prevent the traditional "agreement fees" charged by lenders for the drafting of loan agreements.

 

5. Confidentiality:

At present, credit reports are often used to assess employment applications. Negative credit reports can prevent indebted people from obtaining employment, which exacerbates their inability to repay debt. We would urge that this use of credit information be made illegal, in the same way that forced personality profiling, psychiatric testing and HIV / AIDS testing may not be used as part of a recruitment process. Section 68 could be extended for this purpose.

Secondly, we are deeply concerned that credit bureaux are entitled to register information extending beyond an individual’s credit history, in terms of Section 70 of the Act – in particular, the information contained in section 1(c). We would suggest an investigation into whether this section may not constitute an unreasonable limitation of an individual’s right to privacy as contained in the constitution.

 

6. Regulation of advertising:

We would submit that advertisements regarding the availability of credit should indicate the total cost of credit, in rands and cents. The Act as its stands (sections 75 to 77) provides for disclosure of costs, but does not specify the form of this disclosure.

South Africans have high levels of financial illiteracy, and are unlikely to be able to understand any cost disclosures which are not explicit about the rand and cent costs.

In particular, You & Your Money has yet to encounter a client who fully understood the implications of the interest rate charged on his loan or instalment sale agreement. It is essential that the annual interest rate (as opposed to the monthly rate) is disclosed clearly, and that this is converted into rands and cents, in a manner that borrowers can understand.

 

7. Interest Rates:

We are very pleased to note that interest rates will in future be capped in each sector.

What is unclear from the transitional provisions, is the effect of the commencement of the Act on the current Exemption Notice issued in terms of the Usury Act. It is clear that the current maximum annual interest rate for those bound by the Act will remain in force, but what of those micro-lenders who currently exceed that rate by far?

 

8. Codification of the "In Duplum" Rule:

Section 103(5) provides a codification of the "in duplum" rule, with some extension. We are delighted to note the capping of fees and charges provided for in this section.

However, urgent clarity is needed as to the relationship of this section to the current common law rule, and the effect of this section on judgment debts.

 

9. Statements for credit transactions:

We would submit that creditors should be able to obtain full statements of instalment sale agreements and loans – as from the date on which the agreement was initially concluded – on reasonable demand. There will be no way in which to assess whether the "in duplum" rule (or section 103(5)) has been breached without being able to obtain such a statement.

 

10. Provisions not included in the Act, which should be considered:

 

• Determinations of "reckless lending" :

We would submit that some guidance be given as to when lending would be reckless. At present,

• Home loan repayments should not exceed 30% of household income; and

• Emolument attachments orders for the repayment of amounts owing under instalment sale transactions should not exceed 25%, in terms of the current Credit Agreements Act.

We would submit that these levels (25-30%) are reasonable indications of ability to repay while maintaining an appropriate lifestyle, and should be taken into consideration when defining the ability of indebted clients to repay debts.

 

• "Stepped" leasing transactions:

We submit that the annual increase of motor vehicle lease instalments be declared illegal to the extent that it is likely to influence the lessee’s ability to meet his financial obligations in the future. (We have encountered lease instalments which increase by up to R1000 a year. By the time the agreement is in its third year, repayments have become totally unaffordable, and the client stands to lose the vehicle and all monies paid in up until that point.)

 

• Specific protection of retrenched or unemployed persons

We would urge that unemployment insurance be made compulsory for all borrowers, so as to protect consumers against the consequences of non-payment of debts following the loss of a job. "You & Your Money" regularly encounters unemployed clients who had handled finances responsibly up until their retrenchment, and were thereafter unable to pay their debts. The resultant bad credit listing then prevents them from obtaining further credit for up to 5 years.

 

3. CONCLUSION

Once again, "You & Your Money" applauds the efforts of government to restructure the current credit environment.

We remain concerned, however, that the wonderful work which has been done, and continues to be done, will prove ineffective in the lives of our poorest citizens, because of the costs involved in obtaining the available legal recourse.

To paraphrase Mahatma Ghandi - the moral worth of a nation can be seen in the way in which it treats its animals, and its prisoners. By extension, we submit that one of the indicators of this country’s sense of morality will be the extent of the support it gives its poorest and financially most vulnerable citizens, both legally and practically.

We reiterate that "You & Your Money" offers all of its available resources to enable government to ensure that our country’s morality, and its sense of social justice, is placed beyond dispute.

 

 

PER : MS LOUISE ALSTON

DEBT ADVICE CENTRE DIRECTOR, "YOU & YOUR MONEY"

TEL: 021 761 3287

FAX: 021 762 7662

EMAIL: [email protected]