1. INTRODUCTION

The Chairperson of the Economic Affairs Committee, Mr Mondli Gungubele tables the Committee's Negotiating Mandate on the National Credit Bill [B18B - 2005] as follows

2. PROCESS FOLLOWED

The Speaker formally referred the National Credit Bill [B18B-2005], a Section 76 Bill to the Economic Affairs Committee on 14 October 2005.

The Committee received a briefing from the Gauteng permanent delegate to the NCOP, Ms Chen on the Bill on Friday, 21 October 2005. The Committee Researcher, Ms Caroline Modutoane presented her analysis to the Committee on Friday, 21 October 2005.

The Committee conducted Public hearings in two regions. The first hearing was at Sedibeng City Hall, Vereeniging on 01 November 2005 and the second hearing was held at the Johannesburg City Hall on 03 November 2005. In attendance, were members of the Economic Affairs Committee, stakeholders and members of the public.

The Gauteng Department of Finance and Economic Affairs was represented by the Chief Director, Mr Fati Manamela and the Gauteng Consumer Protector, Mr Gaki Pitso. The officials from the Department attended all hearings and briefed the Committee stakeholders and members of the public on the contents of the bill.

On Friday, 04 November 2005 the Committee deliberated on the submissions and substantive amendments to the Bill.

On the 08 November 2005 the Committee Adopted the Negotiating Mandate on the National Credit Bill.

3. PRINCIPLE AND DETAIL OF THE BILL

Under existing law, consumer credit is regulated by the Usury Act, the Credit Agreements Act, the Magistrates' Courts Act and common law. This Bill proposes to repeal the Usury Act 1968, and the Credit Agreements Act, 1980, replacing both with a single National Credit Act, The Committee agrees with the principle and detail of the bill.

4. OVERVIEW OF PUBLIC HEARINGS

Written and oral submissions were received from stakeholders and members of the public, in line with the Legislature's Constitutional obligation of facilitating and promoting public involvement in the legislative processes in the Legislature and its committees.

The core issues raised in the public hearings are:

1. The financially secured self-employed citizens (especially those from previously disadvantage background) are not considered for credit regardless of the sufficient income they generate. It is therefore recommended that in the Bill credit should be provided on a broad based level especially to those people who sustain themselves by self-employment.

2. The listing of a person at the credit bureau should not be used as a prerequisite for getting employment.

3. Couples married in community of property are judged jointly as one at the credit bureau. This should be reviewed in the Bill and the couples should be looked at individually.

4. One of the reasons consumers do not read their credit agreements in detail, is due to the way in which the information is presented and as well as the terminology used. It would be important that the format and print of agreements to be revised to make them clearer and more transparent.

5. Student loans do have a compound interest irrespective of whether one is employed or not. The escalation of interest with regard to unemployed students after completion of their studies should be looked at.

6. The Bill should consider amnesty for all people listed at the bureau. It should be noted that in the past, consumers had minimal education on consumer credit and that led them to indulge themselves in credit instalment.

7. Interest rates should be determined by market forces. The Bill should scrutinise practical difficulties in introducing a capping regime that would apply to so many different types of credit arrangement. For an example the amount of interest payable for very short-term loans may appear relatively modest, while in reality that might not be the case.

8. Expungement of bureau listing in dispute - Section 72 (5) creates significant risk for abuse. A consumer with an impaired credit profile can simply approach the bureau and credit provider and declare all adverse listings in dispute. Such a complaint must then be investigated in terms of Section 72(3), but these adverse records are in the interim expunged from the bureau data base while any good profiles would remain, creating a window period during which a bureau listing may present false picture of the consumers credit history.

It is of the opinion that this section will be open to abuse and that the consumers with bad credit will exploit this section and challenge their listing with mala fide intention. Also this section would compromise good consumer as the banking industry or other retailers will have to charge mmore to compensate for the risk of section 72 (5). Furthermore this would also erode sufficiency of the South African credit market. In order to overcome the risk the following alternative approach is proposed:

(i) That section 72 be amended to require that all such dispute listing be marked with an indicator "in dispute" on the bureau records; and

(ii) That credit providers be prohibited from taking such listings into account in declining credit applications, until such an indicator is removed, indicating that the dispute has been resolved.

9. Debt Review - Section 86

If the consumer is in default, section 86(10) allows credit provider to terminate debt review process, which is left incomplete within 60 days from the date of application. Section 86 (11) however defeats the object of this section, as it allows the magistrate on application by aggrieved party to reinstate the review process. During this period all rights of affected creditors remain suspended

It is of neither the opinion that 60 days is long rather the Bill cut the period to 30 days based on the uncertainty about the recoverability of certain debts nor the time period within which the debt will be repaid. Basel II provisions require strict bad debt provisioning policies in respect of its default definitions. Also the magistrate can make a determination with the option of reinstating the review process in Section 86 (11) and therefore recommend that this section be amended accordingly.

Furthermore, Section 86 affords all consumers to which the Bill applies the opportunity to apply for a debt review. It is of the opinion that not all consumers require such protection and the unscrupulous consumer might abuse the debt review process. The current administration order provisions of the Magistrate Court Act prescribe that an administration order may not be granted if the total debt exceeds R50, 000. It is therefore recommended that a similar provision be included in this section.

10. Charges to other accounts - Section 124 and 74(6) There are strict limitations contained in these sections that, to a certain extent exclude the use of technology such as voice recorded contracts, call centres and entering into a contract where the person is not physically present, despite the fact that the Bill specifically acknowledges and permits electromagnetic recordings by inference in section 116 (d).

It is of the opinion that section 124 and section 74 (6) should be amended to accommodate voice-recorded contracts. The argument is that technology is evolving and that should be accommodated.

Furthermore clarity over definition of the words like "charge" must be changed to "payment" as it is not appropriate as it refer to interest: fees; loan repayment: etc. In section 124 (1) (a) (i) the word "that third party" is not clear.

11. Limitation on declaring that a credit agreement is reckless – The notion in section 83 that a court may declare a credit agreement as reckless should be reconsidered as this section could be abused. If for twenty years after a mortgage loan was granted the consumer would claim that the credit was granted recklessly then the law of prescription should apply in this instance and the courts should only have their power to make a declaration of recklessness in respect of an action before them which was commenced within three years of date of the credit agreement.

12. Consumers right rescind credit agreements - Section 121 Section 121 remains unsatisfactory as it may have the consequence of forcing business models into direct business and away from the discounted model where transaction is entered with the bank. The rescission of the credit agreements should happen where a consumer has been induced to enter into a contract. Rescission should not be done blindly without cause.

It is of the opinion that this section will be open to abuse and that the consumers with bad credit will exploit this section and challenge their listing with mala fide intention. Also this section would compromise good consumer as the banking industry or other retailers will have to charge more to compensate for the risk of section 72 (5). Furthermore this would also erode sufficiency of the South African credit market. In order to overcome the risk the following alternative approach is proposed:

(i) That section 72 be amended to require that all such dispute listing be marked with an indicator "in dispute" on the bureau records; and

(ii) That credit providers be prohibited from taking such listings into account in declining credit applications, until such an indicator is removed, indicating that the dispute has been resolved.

7. NEGOTIATING POSITION

The Committee supports the principle and detail of the National Credit Bill [B18B-2005]

Mondi Gungubele