Credit information amnesty proposals: Report back by Department of Trade & Industry & National Credit Regulator and adoption
The Department of Trade and Industry (dti) and the National Credit Regulator (NCR) gave a combined report-back to the Committee on the proposals for implementation of a Credit information amnesty. This was sequel to an earlier meeting held on 13 February 2013, where the Committee was taken through the process carried out in the hearings conducted by the Department. The Credit Amnesty proposals were aimed at reducing credit impairment, by addressing its cause, allowing for restorative justice, and aimed also to redress the failure of credit providers to make proper assessments of risk. The amnesty was also intended to address over-pricing, stimulate economic growth, and address some barriers to credit. The research methodology was outlined, and it was noted that broad consultation had taken place. The NCR had also appointed an independent firm to carry out an impact analysis of the likely effect of removing various data scenarios, looking into the number and extent of consumers affected, and risk to the credit providers’ portfolios. Three different proposals were made. Option 2 had a medium risk, and may lead to a small increase in credit providers’ risk portfolios and closure of smaller credit providers. Under this option, only some credit information would be removed, which was seen by other banks, as well as removing paid-up judgments and adverse information listings on an on-going basis, following payment of the underlying debt. It was further recommended that credit providers should not only conduct more comprehensive affordability assessments, but should employ discretionary income guidelines when awarding credit facilities, that audits of their assessments should be done, and cases of reckless lending, and other abuses, prosecuted. Legislative amendments were also being proposed, and it was recommended that the Minister may regulations to give effect to the amnesty. The time for public comment on these was recommended as 30 days, and the notices should be implemented by October 2013. The NCR added that it was assessed that more than 50% of the consumers with credit were impaired. It had been important to assess the causes of impairment and to put legislation in place that would tighten the position for all creditors. Commentators from the industry suggested that the programme should not be rushed, but approached in a responsible way, and the banking sector urged that public hearings would be useful, and confirmed that the main concerns were around unsecured lending and affordability guidelines.
Members agreed in principle that the procedures required improvement, but the DA and COPE members urged caution and the DA wondered why this proposal had to be implemented now, believing that it would be preferable to deal with the legislative amendments at the same time, and also urged that the actuarial firm’s report must be placed before the Committee before it took a decision. They questioned whether there were many pending court cases still, asked if the informal offerings in the marketplace had been investigated, expressed concerns that credit was extended on the strength of the Social Security cards, and the DA felt that the 30-day consultation period was too short and would have preferred three months. The effects of blacklisting were debated, and it was suggested that the Minister of Finance must do more to inculcate an attitude of saving in the public. All Members agreed that reckless lending by financial institutions needed to be curbed. The majority (five ANC Members) voted in favour of adopting Option 2, whilst the COPE Member abstained, and the DA recorded its opposition.
Credit information amnesty proposals: Department of Trade and Industry and National Credit Regulator feedback and adoption
The Chairperson welcomed everyone and expressed thanks to the media in particular for dutiful coverage of the meetings and excellent reports.
Mr McDonald Netshitenzhe, Acting Director General, Department of Trade and Industry, noted that his presentation, which was a joint effort by the Department of Trade and Industry (dti or the Department) and the National Credit Regulator (NCR), was now given as a follow up to an earlier meeting on 13 February 2013. The purpose, background to and context of the proposals for a credit information amnesty were outlined.
The Credit Amnesty proposals were aimed at not only reducing credit impairment, by addressing its cause and embarking on “restorative justice”, but also aimed to also redress failure of credit providers to consider broader economic factors. The programme would also address the issue of over-pricing, stimulating economic growth, and assisting consumers already impacted by the economic recession, as well as barriers to credit which hindered customers from being assisted, and the impact on employment would also be addressed.
He noted that various methods were employed to carry out the research and reach these conclusions, including consultations with players in the sector most directly affected by credit, with particular focus on the banks and their representatives, as well as credit providers. The causes of credit impairment were identified and noted. In addition to the consultation, an impact assessment was carried out to determine the scope of data removal. Based on this, an affordability assessment guideline was drafted, as well as adverse listing rules, to find means to incentive repayment of debts. The research also sought to ascertain the causes of high cost of credit at present. Due diligence was adopted throughout the research.
He also noted that the National Credit Regulator had appointed an independent firm to carry out an analysis of the impact assessment of the likely effect of removing various data scenarios. This study had looked at the number of consumers that would be impacted, the credit acceptances, risk to credit providers’ portfolios and the degree to which consumers would be impacted.
Three different proposals had been produced; the perceived Least Risk proposal (Option One), perceived Medium Risk proposal (Option Two) and perceived Highest Risk proposal (Option Three). The properties, effect and impact of each was duly highlighted. (See attached document for full analysis). While Option 1 had the least adverse effect on the credit providers, Option 2 may lead to a small increase in credit providers’ risk portfolios and closure of smaller credit providers. Option 3, with the highest risk, may lead to closure of smaller credit providers. The impact was basically on the credit risk portfolios.
Mr Netshitenzhe then summarised the recommendations to the Committee, based on the research carried out and the two institutions’ analysis. He noted that there was a recommendation to proceed with the amnesty by removing some credit information and paid up judgments and adverse information listings on an on-going basis, following payment of the underlying debt. This was similar to what had been done in Brazil. It was further recommended that credit providers should not only conduct more comprehensive affordability assessments, but should employ discretionary income guidelines when awarding credit facilities. The credit providers should be required to prove that the consumer had the discretionary income that he or she was claiming. An audit of the credit providers’ affordability assessments should be carried out on an on-going basis by the NCR. Cases of reckless lending should be prosecuted by the NCR. Abuses that may be attempted, such as collecting prescribed debt, and also exorbitant credit life insurance should be prevented. (See attached document for more suggestions on these points)
It was further recommended by the dti that in order to contribute to the success of the credit amnesty, legislative amendments should be considered, to deal with on-going removal of adverse information and the NCR legislation should be aligned with other legislation dealing with debt collection and garnishee orders. In addition, the Minister should be empowered to make regulations in order to give effect to the amnesty. It was advised that a notice and procedure to be followed should be published by the Minister. The time allowed for the public to comment should be fixed at 30 days. It was suggested that consultations in earnest should be conducted between June 2013 and end September 2013, to allow for implementation of the notices by October 2013. It was noted that due monitoring and evaluation of the programme would be carried out.
The Department urged the Committee to consider and approve the canvassed recommendations.
Ms Nomsa Motshegare, Chief Executive Officer, National Credit Regulator, added that the NCR had established that of the 19.6 million consumers with credit, more than 50% were considered to be “impaired”, which meant that if any circumstances arose such as a financial crisis or loss of job, they would find it difficult to meet their financial obligations. This explained why so many people had been blacklisted for failing to meet their debts in the past. The NCR believed that such people deserved a second chance, and that there would be prejudice to them if certain bad debt information was not removed from their record. The information amnesty was intended to rectify the situation.
Mr L Mashapa, Company Secretary, NCR, expressed his pleasure at the diligent work that had been done by both the dti and NCR. The research was conducted using empirical methods, and the affordability assessment guidelines had already been drafted and feedback was being received from those consulted. He noted that the amnesty, if implemented, would in the long run, with the recommended proposals, reduce credit impairment.
Mr Steven Logan, Consultant to NCR, said that there had been experience of this in the past and he affirmed the importance of the Department’s report to ascertain the cause of impairment, as well as put legislation in place to tackle the issues. He agreed with the need to investigate suitable legislative amendments, not only to assist impaired creditors, but to tighten up on the position with all creditors.
Another commentator, who said that she was an expert in the field, raised the point that there was a contradiction between the affordability guideline and the aim of the amnesty programme. The guideline stated conditions that must be met before access to funding could be guaranteed, and this apparent disjunct needed to be sorted out. She also noted the comment that the proposal was modelled on the Brazilian system, but said that there was disparity in the markets and this must be borne in mind. She expressed general support for the principle behind the amnesty programme but said that due diligence must be observed and cautioned that the programme should not be rushed.
Another comment from the floor, from Mr Patel, representative of a body which had representatives from local and foreign banks, noted that there had been interaction between the association and the Department. There had been concerns around unsecured lending, and the affordability guidelines, as well as the credit policy review and the need for amendment of the credit legislation. He also suggested that it would be useful to hold public hearings, to afford the input to banks, in particular, to give full input on the proposals to the Committee.
Mr K Sinclair (COPE, Northern Cape) took note of the proposed regulations on affordability guidelines. He said that the procedures needed to be improved, but it was important to examine carefully how best to do this. There were still a number of court cases pending and these should be taken into account. He said that whilst there seemed to be positives around the programme, in theory, it was likely that there might be some difficulties in implementing.
Ms E Van Lingen (DA, Eastern Cape) noted the way that the dti took noticed of the way the department was going about the amnesty, saying that she did not feel that it was sufficient. The Committee had not seen the report from the actuarial firm, and she asked that a copy be provided. She also noted that there were numerous informal product offerings in the market, including the “money double” and asked if NCR had done any research into those. The use of the South African Social Security Agency (SASSA) card to get credit in some places was highly regrettable, and she believed that anyone extending credit on this basis was acting recklessly. In relation to the time frame for public consultation, she felt that 30 days was to short a time, and suggested that she would prefer to see a three-month period for these consultations.
Ms B Abrahams (DA, Gauteng) asked for the time frame in which consultations were done in the provinces.
Mr A Nyambi (ANC, Mpumalanga) noted the delay in bringing this report to the Committee, and expressed some reservations, also suggesting that the proposal looked as if it was being rushed. He affirmed the need for this Committee to be careful in making the decisions. He proposed that Option 2, the medium risk option, was the most likely to address the lingering problem in South Africa, and believed that this was the most viable option.
Mr B Mnguni (ANC, Free State) expressed his concerns about the ongoing illegal operations in the financial sector, and the problem with credit providers. He said that there were numerous instances where an individual had been required to pay around five times the initial debt, as each judgment debt was enforced, and stressed that when individuals lost their jobs, this made the situation even worse. He urged that there must be extensive and full awareness campaigns for the individuals affected, setting out clearly the criteria and qualification for credit facility. Most of those with credit-impairments were probably not employed, in part due to the fact that they were formerly blacklisted, and the blacklisting was a severe impediment to those whose financial standing might have increased since then. The credit providers should also be made to follow rules when approving credit facilities. This would proscribe reckless lending to persons whose credit risk was not good.
He agreed with Mr Nyambi that Option 2 seemed to be the most suitable and an option that would alleviate the problems. He believed it was key to note that this would also assist students in getting loans for their education. He believed that a 30-day period was sufficient for public consultation, and expressed the view that the granting of an amnesty would not amount to reckless spending.
Mr M Maine (ANC, North West) said it was regrettable, but true, that most of the impaired people were those from previously disadvantaged categories. As a politician, he believed that Option 2 would help to bring people out of their state of suffering.
Ms M Dikgale (ANC, Limpopo), quoted a passage from the Bible, saying that people needed to be freed from suffering. She supported the 30-day public consultation period, and also noted that the media should be asked to help to sensitise the public about the credit information amnesty. She also expressed her support for Option 2.
Mr F Adams (ANC, Western Cape) agreed with the views of his ANC colleagues, and with Option 2. He added that it was important for the Minister of Finance to set matters in motion as to inculcate an attitude of saving in the people, which could be done by due awareness before and during the amnesty process.
The Chairperson also expressed regret at the recklessness of financial institutions in granting credit to persons who could not meet their debts, saying that this at times had amounted to people receiving loans of up to R50 000 by each of three banks, leaving the person with a debt of R150 000 and no means of satisfying the credit. He expressed the view that this was punishing the consumer but he believed that the credit provider should be held accountable for their actions. Citing a personal experience, he also noted that often such providers did use fear of blacklisting to intimidate their debtors into paying.
Mr Mnguni added that the scheme of securitisation by the banks was another way in which consumers were “ripped off” by the banks, and this was also something that needed to be addressed.
The Chairperson called the attention of members to the fact that the decision that would be made must not be reckless, as the effect would be felt by generations to come.
Mr Netshitenzhe addressed Members on the points raised. He noted that Mr Patel was not wanting to respond at this point. He asserted that stakeholders were consulted fully. He noted that there was a separate process with National Treasury, and the two should not be confused.
Ms Van Lingen reiterated that the purpose of the meeting was to look at the 2007 credit amnesty and the reasons why it had not been successful. She asserted that, from the information received from he Credit Bureau Association, the failure in the past was mostly due to unregulated sections. The judgment debts arising from the amnesty amounted to millions of rand and she asked what the NCR had been doing to correct this. In her opinion, no training, education or guidance had been given to avert such occurrences again. She asked why no enforcement regulations were yet in place, criticising the NCR and law enforcement agencies for failing to attend to it. She believed that about 17 million people who did have good credit records with the banks could be jeopardised by this move, and this had to be taken into account. She asked if the intention to introduce amending legislation to govern credit would be introduced by way of a Departmental bill, or a private member’s bill. She again expressed her concern about the SASSA cards being used to access credit. She urged that Parliament must not throw caution to the winds in implementing the amnesty process.
The Chairperson, correcting the statement of Ms van Lingen, asserted that out of the 19 million active credit consumers, more than 10 million were impaired, which was actually the majority, and this information had been discovered during the impact assessment study carried out by the Department. As regards the SASA card, he stated that it was a form of debit card rather than a credit card, and the person holding the card was able only to access the amount stated, nothing more, but there were problems around wrong use.
Mr Nyambi raised a point of order as to the orderliness of proceeding and this was duly noted by the Chairperson.
Mr Sinclair wanted clarity as to the legal process for the amnesty and also the change of recommendation from Option 1 to 2. He urged that the Committee must come to its decision in a fully responsible and not reckless manner.
Ms Dikgale asked who was going to benefit if the names of the creditors were still with the Bureau. In the event that none would benefit, she opined that Option 2 would be better to serve the purpose to achieve the aim of the amnesty.
Mr Mashapa said that it was not correct that people had fallen deeper into debt as a result of the 2007 amnesty. He affirmed that there was a major shortcoming with the accessibility report. The NCR was definitely looking at cushioning the effect on the consumers. The idea of some credit providers lending to the maximum limit of the consumer was regrettable and did indeed warrant investigation. On the issue of consultation, he opined that the timeline was sufficient, as consultations had actually been embarked upon first as long as nine months ago, and that sufficient time had been allowed for comment. Mr Mashapa answered the fears about the number of pending cases, by stating that there had been consultation with magistrates, and at the moment there were no backlogs of cases pending. He affirmed that there were bad debts and reckless lending across the board, but assured Members that instances of poor dealings by banks and micro-lenders were being investigated and referred to the Tribunal.
Ms Motshegare confirmed that there were no backlogs of cases.
Mr Logan shed more light on the issue of data removal. There were four sets of data relevant to the consumer. The first was the payment profile, which contained details of payment for 24 to 36 months, and linked to this was the fourth category, which comprised the notices which contained the debt cancelling, administration, sequestration and rehabilitation details of the person, whilst the third noted the judgments of the court or tribunal These were not to be removed. The second category of data, which contained the data pronounced to have the most adverse effect on the person, which was seen by other banks, would be removed.
Mr Logan noted the comment on the Brazilian system but said that they were two differing systems; Brazil operated on what he termed “the negative side” whilst South Africa was proposing both a positive and negative.
A representative from the NCR, addressing the issue of education and enforcement of the National Credit Act, confirmed that there had been due education in partnership with other bodies, to reach out, in particular, to the rural areas, as well as running campaigns on billboards and sensitisation programmes on TV, as well as workshops. In regard to the enforcement aspects, it was noted that this was taken seriously. Periodic raids had been conducted. A few days ago, a raid was done at the Central Business District of Cape Town and over 4,500 cards were seized, of which around 1 000 were found to belong to people who had died. There were partnership engagements with the justice sector, and the tribunal was effective.
Mr Netshitenzhe expressed thanks to the Committee and the teams. He urged the Committee to acceded to the dti and NCR proposals, and choose the most effective option so that the institutions could begin working.
Mr Maine said that the majority of the Members had agreed to adopt the presentation, and seemed to have chosen to adopt Option 2. He asked for any other comment.
Ms Van Lingen expressed the position of the DA, noting that she was opposed to adopting this option.
Mr Nyambi sought clarification on her objections, as well as to the adoption process.
Ms Abraham aligned herself with Ms Van Lingen’s position.
Mr Sinclair expressed reservations and doubts how the process would serve as “a magic wand” to eradicate the problems in the country. He confirmed that his party was abstaining, for the moment, from voting on the proposals. He expressed reservation as to the change to Option 2.
The Chairperson noted that the objections should be made explicit, as the presentation has already been made, noting that the Committee had now to pick one of the options.
Ms Van Lingen said her main concern was that the report had not been placed before her and she needed it in order to make a decision. She questioned why the decision should be forced through now, prior to anything else going before the House.
The Chairperson clarified that a position must be taken at the Committee level for something to be debated in the House.
Mr Nyambi wanted a more clear objection or explanation of her stance from Ms van Lingen.
The Chairperson noted that it was for the Department to make proposals and for the Committee to choose the most preferable. He urged the dti to kindly make the report available to Members once it had been deliberated upon by the Cabinet. He advised that, if possible, the Department should also meet with caucuses of parties to deliberate further on the issues.
The Chairperson then put the matter to the vote. He noted that five ANC Members supported the adoption of Option 2. The one Member from COPE was abstaining. Two objections were recorded, from the DA Members.
Ms Van Lingen sought clarification as to the relevance of the report being before the Cabinet and why this Committee was required to take a decision today.
The Chairperson asserted that both bodies were on a parallel path, as the executive and legislature are bound with different duties.
The meeting was adjourned.