WERKSMANS ATTORNYS SUBMISSION

29 July 2005

Dear Sir/Madam

NATIONAL CREDIT BILL B18-2005

 

1 We refer to the above matter and to the request for public submissions in response to the publication of the National Credit Bill ("Bill"). We thank you for the opportunity to present our written submissions to the Portfolio Committee, which we have set out below.

2 The majority of our comments are of a technical nature but we would submit are nonetheless important as we believe these will have a bearing on the practical implications of the proposed legislation.

3 DETAILED COMMENTS

3.1 Section 4(1)

Section 4(1)(a)(i) as read with section 4(2) excludes from the operation of the legislation a consumer who is a juristic person and whose asset value or annual turnover at the time the relevant credit agreement is concluded exceeds the prescribed threshold. In making such determination, it is not clear whether a credit provider would be required to consider the gross asset value or net asset value of the consumer for this purpose. We suggest that this issue be clarified in order to avoid any debate. We would interpret this provision as being reference to the gross asset value of the juristic person at the relevant time.

3.2 Section 8

3.2.1 Section 8(3) provides a general definition of an agreement which constitutes a credit facility. In terms of this definition, reference is made to "deferment" and the "cost of goods or services".

3.2.2 We would suggest that the concept of deferment be defined and/or clarified as well as what is meant by the term "cost of goods or services" as these provisions may result in agreements which would ordinarily not constitute credit agreements in the commonly understood sense of the word, falling within the ambit of the legislation.

3.2.3 Section 8(5) defines a "credit guarantee" as an agreement in terms of which a person undertakes or promises to satisfy upon demand any obligation of another consumer in terms of a credit facility or a credit transaction to which the Act applies. The definition of a "credit provider" in the context of a credit guarantee as well as the definition of a consumer in this context is confusing in that -

3.2.3.1 the credit provider is referred to as the party to whom the assurance or promise is given, we would think the opposite would be true; and

3.2.3.2 the consumer is referred to as being the guarantor in terms of the guarantee, again we would think the opposite to be true.

3.2.4 We submit that the above definitions, as read with section 8(5), should be clarified unless something else is intended by this.

3.3 Section 10

3.3.1 The definition of a "student loan" makes reference to an agreement in terms of which a credit provider pays money to a tertiary educational institution for educational fees or related costs for the benefit of the consumer or a dependant of the consumer.

3.3.2 It is not clear whether the provision of this definition, as read with the definition of "principal debt", would mean that in respect of a student loan, the "principal debt" would be the amount paid by the credit provider to the tertiary institution or the amount, the payment of which is deferred in terms of the credit agreement with the consumer, as indicated in section 101(1)(a). We suggest that this issue be clarified in order to avoid any uncertainty in this regard.

3.4 Section 40(1)

3.4.1 Section 40(1) indicates the circumstances where a credit provider is required to be licensed. The definition of a "credit provider" refers to a credit provider in terms of a credit agreement to which the Act applies.

3.4.2 Having regard to the fact that the legislation would only apply to a credit provider insofar as the credit provider extends credit under a credit agreement to which the Act applies, it would seem that it would not be necessary for a credit provider to be registered with the National Credit Regulator if it only extends credit under credit agreements which are not governed by the Act. This is our interpretation of the Bill. If this is not the intention, ie, all credit providers are required to be registered irrespective of whether or not they extend credit under credit agreements governed by the Act, the issue should be clarified in the legislation.

3.5 Section 84

3.5.1 Section 84(1)(b) states that during the period that the force and effect of a credit agreement is suspended in terms of the Act - no interest, fee or other charge under the agreement may be charged to the consumer.

3.5.2 In terms of section 84(2)(b) it is stated that - "After a suspension of the force and effect of the credit agreement ends - ... 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 in suspension in terms of sub-section 1(b)".

3.5.3 It is not understood what the legislature intends in respect of the revival of interest that had been suspended during the operation of section 84(1)(b).

3.5.4 Did the legislature intend that all interest that was not charged during the relevant suspension would be revived and charged to the consumer if in fact it is held that the credit agreement was not reckless as envisaged by the Act? In other words, if the credit provider is not at fault, should it not be able to recover interest that would have been charged during the suspension? We would think it would be equitable for this to be the case and suggest that the issue be clarified.

3.6 Section 85

3.6.1 In terms of section 86(10), if a consumer is in default under a credit agreement which is the subject of review in terms of this section, the credit provider may give notice to terminate the review in the prescribed manner to - (a) the consumer; (b) the debt counsellor or (c) the National Credit Regulator, at any time at least sixty business days after the date upon which the consumer applied for the debt review.

3.6.2 In terms of section 86(11), if a credit provider who has given notice to terminate a review as contemplated in sub-section 86(10), proceeds to enforce that agreement in terms of part (c) of chapter 6, the Magistrate's Court hearing the matter may order that the debt review resume on any conditions the court considers to be just in the circumstances.

3.6.3 There seems to bee a contradiction in respect of 86(10) and 86(11). Is it possible for the Magistrate's Court to postpone the sixty day business day period referred to in section 86(1) indefinitely, merely upon application by a consumer who would be the subject of the credit review? It remains unclear as to what time periods will apply from the date that a consumer submits himself and his credit agreement to review in terms of section 86. What is concerning is that when one considers the backlog in the Magistrate's Court (or the Consumer Court) the debt review process could be pushed out for an indefinite term which could result in the consumer being in a position to frustrate the credit review process indefinitely and thereby obtain a credit moratorium in respect of his/her obligations relevant to such credit agreement.

3.7 Section 102

We note that the provisions of section 102(1) apply only in respect of instalment agreements, mortgages, secured loans or leases and in this regard a credit provider is only entitled to charge a consumer in respect of the actual amount payable by the credit provider for the additional permissible fees or charges. We assume then that the application of this section, including the passing on of any discounts received by the credit provider to the consumer, is only limited to these categories of credit transactions and do not apply to any other types of credit agreements.

3.8 Schedule 3 - Transitional Provisions

3.8.1 In terms of schedule 3 of the Bill, a credit provider is required to provide a consumer under a pre-existing credit agreement which was concluded one year prior to the date of commencement of the legislation (or relevant part) with a statement that meets the requirements of section 92.

3.8.2 Section 92 in turn requires a credit provider to provide a pre-agreement statement to a consumer in the prescribed form, if applicable, and including the prescribed information. This includes the obligation to provide a quotation in the prescribed form.

3.8.3 We assume then that in complying with the provisions of schedule 3 as set out above, credit providers will be required to give all of their relevant customers a quotation setting out the principal debt and other finance charge for the remainder of the credit agreement. We are not certain whether this interpretation is correct and we suggest that the issue may be clarified in order to avoid any uncertainty.

3.9 Insolvency implications

3.9.1 An application for debt restructuring has implications in terms of the provisions of the Insolvency Act 24 of 1936 ("Insolvency Act").

3.9.2 In terms of section 8(e) of the Insolvency Act, an application for debt restructuring in terms of the proposed legislation (which is in effect an offer of arrangement) based on an "inability to pay one's debts" could result in there being a determination that the consumer has committed an "act of insolvency" and which could result in the consumer's sequestration.

3.9.3 Furthermore, in terms of section 8(g) of the Insolvency Act, if a debtor (consumer) gives notice in writing to any one of his creditors, that he is unable to pay his debts, such notice would also constitute an act of insolvency.

3.9.4 The evidence submitted by a consumer in support of his inability to pay his debts in terms of a debt review under the proposed legislation could, therefore, be used by the creditor of a consumer in making application for the consumer's sequestration/insolvency.

3.9.5 Has the legislature considered this? Will there be a relevant amendment to section 8 of the Insolvency Act to cater for such a circumstance? In our view these matters need to be clarified as triggering an "act of insolvency" under the Insolvency Act is clearly not what is intended under the proposed legislation with regard to debt review and restructuring.

4 Please do not hesitate to contact either Eric Levenstein or Diane Bouwmeester of our offices should you wish to discuss any aspect of this letter further.

 

Yours faithfully

 

 

W E R K S M A N S

THIS EMAIL HAS BEEN ELECTRONICALLY TRANSMITTED WITH NO SIGNATURE.

The Secretary to Parliament

29 July 2005 4