Credit Regulator calls for defined debt relief…
From November 2017 ParlyReport…..
MacDonald Netshitenzhe, of Department of Trade and Industry (DTI), has told parliamentarians that his department in general endorses the call by the National Credit Regulator (NCR) for the Minister of Trade and Industry to provide for debt relief provisions under the National Credit Act (NCA). The call will be answered by a Bill generated by Parliament because of its cross-cutting nature.
DTI’s input came after the portfolio committee last year held two meetings on the debt situation in South Africa, following a decision taken earlier in the year to gain input from the public and appropriate state entities on the possibility of debt forgiveness.
The parliamentary subcommittee, formed by Joan Fubbs (ANC), chair of the Trade and Industry Committee, was established last year to investigate possible debt relief systems for over-indebted households. The objective was to provide with consultation for as many parties as possible and to obtain a legal background to enable debt relief regulations to be drafted as an extension of the NCA.
It was tacitly accepted at the time that the result of the investigation would turn out to be a parliamentary committee Bill drafted on the subject to amend the anchor Bill after an initial policy review was carried out on indebtedness nationally. Documents before MPs showed that the World Bank had noted that South Africans currently owed R1.63-trillion to lenders and SA consumers were the most indebted in the world.
To draft the Bill, it was agreed that technical support would be given by DTI and that a Socio-Economic Impact Assessment (SEIAS) was to be undertaken when the Bill was agreed as a completed draft.
Meetings on debt relief have been held by the parliamentary subcommittee with South African Reserve Bank, the Financial Services Board, the National Credit Regulator (NCR) and the National Consumer Commission. Already implemented are revised cuts in interest and fees and the well publicised garnishee order changes for public servants.
National Treasury is also working on a draft Insolvency Bill with Department of Justice (DoJ) and input from DoJ has included the Debt Collectors Amendment Bill and the Courts of Law Amendment Bill both now before the PC on Trade and Industry, in separate meetings.
Debt relief per se
In recent meetings, Netshitenzhe who is Chief Director of Policy and Legislation at the DTI, when asked to contribute to the sub-committee’s work, outlined first whom he thought debt relief should apply to. He replied that DTI recommended that such relief could be for retrenched consumers, victims of unlawful emolument attachment orders (EAOs), victims of unlawful social grant deductions and victims of reckless credit lending.
In answer to questions, it was explained that an EAO, more commonly known as a garnishee order, was a deduction by an employer from a wage as distinct from the more sophisticated administration order where an appointed administrator paid one or more creditors from an allocated sum for which a fee was charged.
In expanding on debt levels generally and in talking on counter measures, Netshitenzhe said the position on levels of debt that were currently being experienced would not always be the same and therefore, in allowing the Minister to provide debt relief measures in some form, DTI recommended that it be understood right from the start that the provisions could altered from time to time and the position should remain fluid.
It was DTI’s view that the Minister of Trade & Industry should consult carefully with the appropriate members of the credit industry before drafting the first such amendments in the form of the Bill and making any subsequent changes later. Naturally, he said, National Treasury had to be drawn into the debate immediately.
Domestic debt targeted
As well as providing remedies for household debt relief, strong counter measures also should be adopted, he said, in cases where indebtedness resulted from the behaviour of unscrupulous credit providers. This had become a major problem in SA.
Parliamentarians were told that over-indebtedness had worsened with the slowdown in economic growth and ever-increasing joblessness. Some 40% of the 24m credit card consumers had currently an “impaired record”, which was defined currently as three or more months in arrears or were listed with a credit bureau or who had been subject to a court judgement or administration order.
Consumer over-indebtedness resulting from prejudicial behaviour by unscrupulous credit providers, he said, was a further major problem, followed by borrowers borrowing more to redeem debt with no checks being carried out by lenders.
In outlining DTI plans, Netshitenzhe said that proposals may have to be provided to alleviate or support those in debt for reasons to be defined and the State therefore would no doubt need to establish a fund reserved for debt relief interventions to either partially or fully pay off the debt of qualifying consumers dependant on their circumstances.
Who qualified for relief of any kind and how to define the circumstances was the next big issue coming under debate. He added that it was DTI’s view that the possibility had to arise whereby credit providers should provide debt relief to over-indebted consumers who have already paid “a significant portion” of their debt. This whole concept had to be fleshed out, he inferred.
At that stage, Opposition members welcomed the propositions in general but were deeply concerned, as were many parties, that the very offer of forgiveness of debt might provide encouragement of reckless borrowing or spending. They wanted to see strong counter measures in the form of affordability assessments when credit was granted.
In a follow-up meeting led again by Chair Joan Fubbs with National Treasury (NT), MPs were told by Katherine Gibson, Senior Adviser for Market Conduct at Treasury (who also handles Twin Peaks regulatory measures) that in economic terms, further research was needed to determine the impact of possible debt relief packages which as an outcome, she said, could heavily impact on retailers and microlenders.
Treasury, she said, had previously introduced a debt amnesty to assist poor and indebted consumers and they also were considering many options including ‘extinguishing’ some or all of debt to help people get a fresh start. “However, the underlying principle that if a person can pay, he or she should pay is adopted at Treasury in all considerations”, she said.
Ms Gibson told MPs that such research was essential since the impact of any kind of debt relief packages was likely to affect retailers and microlenders which could have a knock-on effect of further inability for consumers to access credit. This would, in turn, cause further “worst case scenarios” pushing the more desperate creditor into the hands of illegal
operators. In all considerations, protecting the poor and focusing on the poor was paramount, she said.
In her briefing, she noted that whilst the new requirement that registration of credit providers applied to only those granting credit of over R500,000 or at least 100 agreements, reckless lending was playing a large role in the deterioration of household debt.
Ms Gibson said it also concerned Treasury that a great number of credit providers had provided credit to already totally over-indebted consumers and had failed to conduct affordability assessments. To this end government, through the Treasury, had appointed a service provider (consultant?) to investigate all EAOs issued to public sector employees.
The service provider had tested the EAOs against various parameters and the credit provider involved was asked to withdraw the arrangements if certain criteria could not be met.
The next phase, said Ms Gibson, was to check on the types and details on EOUs that were currently being applied. It had been noted in discussion with paymasters in government service that employees with the largest level of exposure had instalment values ranging between R1 200 and R6 500.
The state departments with the largest number of EOUs were the SA Police Service (SAPS), followed by the Department of Education, the Department of Health and then the Department of Correctional Services. SAPS also had the largest exposure of different types of credit providers, she said.
Ms Gibson commented, in answer to questions from MPs, that mostly credit providers had corrected their processes and credit arrangements voluntarily after an enquiry by the team investigating. Those not doing so were now subject to litigation in court. This was happening across the various state departments but in answer to a question, Ms Gibson said she was not referring to SOEs.
She also identified many areas where Treasury agreed in principle with DTI as to who were the groups were most likely to receive relief in the final analysis.
These categories were those who had no money or assets; those who had low income and low assets but according to circumstances needed relief; those who had been defrauded and those who clearly had no basic understanding or capability to understand what they were signing because of lack of explanation, lack of understanding of a financial arrangement or lack of a needs assessment.
Any international precedents on the issue of whom should be assisted that had taken placed in developing countries should sought, said Ms Gibson. She said she understood this was in process at DTI.
Treasury had stated that a procedure must be established, she said, whether the debt was to be written off completely; whether it should be restructured; whether write-off should apply to people who were poor and whether the credit should never have been given in the first place and therefore how it was granted followed up on.
Other cases could involve people who were only insolvent for the moment and therefore needed only a debt restructuring plan to tide over. MPs flagged that they saw problems ahead with instituting such processes in practice but would await a further briefing from DTI and take matters up with them.
OK so far
Ms Gibson concluded that Treasury had already found it had common ground with DTI about debt relief. She acknowledged that the tailoring of measures to meet the circumstances was going to be difficult but most important was to install simplistic check systems.
However, she said, it was also important to control better with strict applications any credit availability and to “change the behaviour of reckless borrowers.” She understood that education processes were to be organised by DTI for borrowers on the subject of borrowing without conscience or thought of the implications of debt.
Chair Joan Fubbs explained to members that the whole issue of mortgages, secured loans, various banking arrangements and pawning were not discussed at this stage, this being left to further final debate and parliamentary presentations after the parliamentary recess in August.
Many inputs have, however, have already been made by the banking industry, business entities and employee representatives during initial discussions but with no draft Bill as a consideration.
Finance Regulatory Bill
Ms Gibson added that much would change upon the implementation of the “Twin Peaks” banking and finance institutional programme where Treasury’s influence upon the banking industry and debt collectors in general would come into play.
Legislation is being concluded by DG Roy Havemann of Treasury, she said, and “Twin Peaks” would change the aspect that the Treasury did not have the power to monitor debt collectors and banks but would have so shortly.
She said the banks had been highly co-operative but had expressed deep concern over long term debt effects and its effects on banking costs, as distinct from immediate short-term relief most of which was in place already as far as consultation with their own clients was concerned
However, she said, the proposed impact assessment on debt relief to attempt to measure outcomes on the proposals for both the private sector and public service sectors was now essential.
In conclusion, she said that there was a need for correlated action by all role players since there were many different players, consumer groupings and regulators involved and the views must be heard again of the various entities granting and dealing with credit when the Bill is in final stages of the Bill.
Consumer bodies dealing with debt relief should also be asked to comment, she said. Ms Gibson concluded by saying that there had to be a better understanding how debt was incurred by different South African groupings, why it was so easily incurred and to identify the most appropriate remedies and options that were available to various groups and cultures.
PMQ & A
Questioning from MPs was direct bearing in mind that the proposed Bill was to be a parliamentary submission for tabling. One MP noted that most debtors were litigating against creditor providers whereas it was the collector, such as a state department, that had wittingly or unwittingly entered an illegal garnishee and not necessarily the credit provider.
It was also suggested as not ideal that in some retail-to-consumer arrangements, the credit provider sold the debt to the debt collector in the first place. Then it was the debt collector who arranged the garnishee order and worked on a collection fee.
Ms Gibson responded that this kind of situation had to be accepted and, furthermore, it was not of consequence, providing the credit provider who granted the credit was registered and obeyed the rules and the arrangements fell inside of what was to be allowed in the Bill.
Dave Macpherson (DA) asked about the progress regarding the fraudulent EAOs and asked for a list of the deregistered credit providers who were still operating despite the restraint. Ms Gibson said she would supply such a list to the committee which would be confidential but such a list existed.
Ms Nomsa Motshegare, Chief Executive Officer: National Credit Regulator (NRC), also said that the “policing” of credit providers could not be controlled with existing legislation but that on the sale of debt, debt collectors were required to register with the NCR to allow monitoring. NCR had a mandate to ensure that the purpose of pensions should not be to pay off debt but to cater for retirees’ welfare
Charmaine van der Merwe, Parliamentary Legal Adviser, entered the discussion to say that not everything that debt collectors did was illegal, by any means, but it was incumbent upon any regulated debt collection profession to reported shady arrangements in credit provision, especially if it involved a legal application. Sadly, she said, reckless lending could not be reported because it was a matter of opinion and in most cases the facts were unavailable to governance authority.
Chairperson, Joan Fubbs asked for the number of teachers involved in debt education in government service since there were many consumers who resigned from the workplace in order to cash in their pensions and pay off debts resulting in skills being lost to the country. Ms Gibson advised that this was a problem that existed throughout South Africa and in any country.
On the issue of rigged auctions, which subject had arisen in earlier meetings, Fubbs said, that although banks were proven to be complicit in some cases, consumer conduct needed also to be addressed in this area since consumer fraud and unmanageable debt had arisen. The committee said this would have to be once again investigated.
Around in circles
MPs warned that in providing for stricter conditions on loans, it might become more difficult for the poor to secure credit. Chairperson Joan Fubbs said that all were aware of this problem but she charged that the most serious issue facing her Committee were poor people losing their homes because they had become jobless, a poor economic climate and unavoidable debt with school fees added to food costs. Frivolous debt was not the issue under discussion, she said.
Department of Justice will now see through the associated Bills and the question of debt relief moves to a final wording with approval of Treasury and ending with hearings. Being a parliamentary Bill, the NEDLAC process will be short-circuited.
Previous articles on category subject
Treasury proposals on debt control approved – ParlyReportSA
Credit regulations to squeeze racketeers – ParlyReportSA