COSATU SUBMISSION ON THE NATIONAL CREDIT BILL B18-2005
PRESENTED TO THE PORTFOLIO COMMITTEE FOR TRADE AND INDUSTRY
31 AUGUST 2005
Table of contents
1. Introduction and context 2
1.1 Previous engagements to transform the consumer credit 3
industry 3
1.2 The response of the consumer credit industry to these initiatives 4
2. Agreements and negotiations finalised at NEDLAC and 6
the Financial Sector Charter 6
2.1 Problematic NEDLAC process 7
3. Specific amendments and shortcomings of the Bill 9
3.1 Debt counsellors 9
3.2 Emergency loans 10
3.2.1 Perspectives from the ground – a reality check 13
3.3 In Duplum rule 15
3.4 Credit information 16
3.5 Amnesty for blacklisted persons 16
3.6 Financial Co-operatives and Savings and Credit Co- 17
operatives (SACCO’s) 17
4. Matters prescribed in regulations 18
5. COSTING 19
6. Synergy and harmonisation with existing and pending 20
legislation 20
7. Key recommendations and conclusion 20
1. Introduction and context
COSATU welcomes the opportunity to comment on the National Credit Bill B18 of 2005 (hereafter referred to as the “Bill”).
It has been an interesting and complex process to finally table legislation to this Portfolio Committee. Given the importance and impact of the proposed legislation, it is not surprising to witness an extraordinarily large number of submissions arguing for or against the proposals contained in it, or proposing substantial amendments prior to its promulgation.
Whilst the Department of Trade and Industry has shaped the draft policy and legislative framework on consumer credit for more than 2 years, attempts to transform the consumer credit industry have been identified long before the current initiatives.
1.1 Previous engagements to transform the consumer credit
industry
In a previous submission to the Portfolio Committee for Trade and Industry just over 13 months ago[1], COSATU commented extensively on the Consumer Affair Committee's report and proposed regulations of Credit Bureaus.
We are glad to see that several of our recommendations have come to fruition, though there is room for further improvement. Government has finally realised that more than an agreement to a code of conduct is necessary to address the intransigence and unwillingness of credit bureaus and the consumer credit industry as a whole to transform and provide a more equitable service, and simultaneously criminalise practices that for years have gone unchallenged and continued to exploit powerless borrowers.
Claims by credit bureaus and the consumer credit industry representatives that they are merely the messengers in blacklisting, and not decision-makers should be challenged. COSATU believes that attempts to disguise, minimise or deny their pivotal role in selling credit information for profit is a travesty of economic justice.
We are frustrated to note that, in several of their submissions, particularly of some consumer credit linked institutions, there remains an air of pervasive denial, arrogance and failure to take even some responsibility for causing millions of South Africans untold hardship due to these exploitative practices. However, even slow progress must be noted. The comments by some credit grantors that the industry needed more control, is to be welcomed as a step in the right direction.
In our submission in July 2003, we made several recommendations to address these challenges, viz:
Thatfuture deliberations regarding the regulation of credit bureaus be
located within the framework of its impact on various Constitutional rights
including privacy, just administrative action, access to information and
equality and freedom from unfair discrimination;
· That several of the credit bureaus in South Africa, as subsidiaries of, (or have shareholders that are) American or UK-based companies, align their codes of conduct to international best practice, where appropriate;
· That the same bureaus be open to the establishment of a public/statutory body and that COSATU believes that this public statutory body be established to enforce these codes;
That the practice of credit bureaus selling information to employment and
other agencies in order to screen potential employees should be made
illegal and a punishable offence;
· That the practice of some credit bureaus acting as both listing agent and debt collecting agencies be declared illegal and banned;
· That positive information with regards to a borrowers credit management be added to their credit records, in recognition of their attempts to settle their debts, and that this information should be used to re-examine their access to credit;
· That, as a measure to ensure transparency and compliance, Credit Bureaus should report to NEDLAC and Parliament annually to assess compliance, and that these reports should influence the granting of a future business licence to continue practising as a credit bureau.
COSATU is pleased to note that the tabling of the draft Bill by government, indicates a favourable response to some of these recommendations and has moved forward significantly in terms of developing policy and legislation to “promote a fair and non-discriminatory marketplace for access to consumer credit and for that purpose to provide for the general regulation of consumer credit and improved standards of consumer information.”
With regards to the above recommendations, it is heartening to see that the draft Bill makes provisions for:
· the regulation of credit;
· registration of credit bureaux, credit providers and debt counselling services;
· the establishment of national norms and standards relating to consumer credit;
· promoting a consistent enforcement framework relating to consumer credit;
· the establishment of the National Credit Regulator and the National Tribunal
However, we do believe that some provisions in the Bill should be more rigorously enforced and find some provisions problematic. These concerns are listed and motivated further in this Submission.
1.2 The response of the consumer credit industry to these initiatives
The responses to this Bill by the consumer credit industry have been mixed at best. They range from claims and assertions that credit providers’ contractual freedom will be constrained, concerns around the assumed cost implications of the Bill on consumers; that more rights are accorded to consumers than credit providers; that reckless lending provisions appear to allow lenders the right to claim long after the credit agreement was made; that proposed price controls on the cost of credit would “drive borrowers underground to the ‘loan sharks’ and reduced competition”[2].
One submission by a magistrate even claimed that the “National Credit Regulator, the Consumer Tribunal and other institutions were unconstitutional,” likening these to “a kangaroo court” and “draconian” in nature, and feared for the loss of “experience and legal certainty secured by legislation of long standing such as the Usury Act.”
Other perspectives strongly opposed to the promulgation and/or implementation of the Bill, or parts thereof, included views that “credit bureaux restrained irresponsible credit use”; that “changes to interest, credit fees or charges created a cost problem for banks”; that “credit insurance should be the sole choice of the consumer”; that the problem of uncontrolled, abusive practices were only the fault of ‘loan sharks’ lending money over a short term at very high interest; that the proposals in the Bill would lead to a backlash from the industry resulting in “ultra-conservative risk management [that] would …reduce the granting of credit”. Other perspectives were that there should be no capping of the interest rate, “but rather a full disclosure on the costs of credit so that consumers can make informed decisions”.[3]
Yet, civil society submissions were, in general far more supportive of the Bill. Many saw the tabling of this Bill as the “first attempt by government to draft comprehensive legislation to regulate the credit industry in a fair and just manner”. COSATU agrees with this perspective, and would add that the fragmented and inadequate amendments to credit legislation in the past, linked to government’s failure to implement consumer protection provisions of existing credit laws, in particular the Usury Act, have resulted in the crippling exploitation of the majority of our people.
Thus the National Credit Bill has the potential to achieve:
· first and foremost, the long-standing demands of consumers of credit, particularly those of low-income earners; persons who were unfairly “blacklisted” by credit grantors; and relief to households negatively affected by their practices, and
· as a secondary objective, to balance the business interest of credit grantors, within the framework of an equitable, sustainable legislative regime.
This order of prioritisation is critical we maintain, since it will balance the need to transform the consumer credit industry, rather than merely reforming it. Already there have been several amendments to an earlier draft Bill that highlight this concern.
COSATU is aware that the Committee is critically aware that the Bill is more than a mere technical intervention, but profoundly affects the quality of life of many poor households and not merely the borrower. By way of example, some municipalities are increasingly introducing pre-payment meters as a means of credit control, with some even planning to have outside companies, as part of their debt management and credit control policy, jointly screen applicants who apply for indigency.
Furthermore, access to credit (i.e. paying after consumption rather than before) is an important way for poor households to ensure their continued access to free basic services such as water.[4]
The extent of the impoverishment and hardship of households is so severe, that at COSATU’s recent 3rd Central Committee meeting in August 2005, a draft resolution was passed to “demand access for all, to financial services, including an amnesty for those listed by credit bureaux and the development of affordable financial services for poor households.”
Arguments by those opposed to the Bill, have largely failed to take this reality into consideration. Passing the blame, denying responsibility and claims of costliness to implement the legislation have not been honest in acknowledging, let alone quantifying the social costs of existing practices.
2. Agreements and negotiations finalised at NEDLAC and
the Financial Sector Charter
Several recommendations in the Bill favourably address the demands on credit agreed by the social partners at the Financial Sector Summit in 2002. COSATU now participates in the Financial Sector Charter [FSC] process, after labour representation concerns have been addressed.
We are pleased to that note several demands of labour and civil society were considered favourably. In a submission to the PC of Finance last year, we highlighted the ongoing institutional discrimination and disadvantages that our members face within the financial sector. Ongoing challenges include the “failure of the financial institutions adequately to fund low-income housing and micro enterprise…systematic red-lining by banks of targeted communities; and the high costs of loans which contributes to perpetuating inequalities throughout the economy”[5]. Therefore we note and affirm the progress made on these demands, as contained in the Bill. Briefly these include the following:
· limits to total costs of credit and interest rates,
· access to credit information,
· contracts in simple language with full disclosure of charges, terms and conditions,
· effective regulation of credit information and credit bureaus
The final reports on the National Credit Bill and the Consumer Credit Policy framework were tabled recently at NEDLAC. The report listed several agreements between NEDLAC partners, in this case, the Task Team consisted of representatives from government, business and labour. Briefly these agreements were the following:
· notification of the debt process should take cognizance of issues like actual delivery and receipt of the summons/notifications, the manner of delivery, areas of residence, regular changes of address in the case of many lower income consumers, and other related constitutional rights;
· when determining the notification period for debt enforcement some accommodation should be made to take into consideration lower income consumers;
· the mode of notification should take the informal housing situation of some debtors into account;
· there was a need to streamline legislation in order to enhance efficiency and avoid cumbersome processes;
· debt counsellors were generally seen as a good intervention to advise vulnerable groups, and agreed further that the proposed education campaign to raise awareness and sensitivity around credit and its providers was important.
· reckless credit provision and the resultant over-indebtedness needed to be addressed
It is critical for the Committee to note therefore, that any submission by any stakeholder that has agreed to the above, but opposes the Bill on any of the above agreements, is actually violating NEDLAC protocol.
The Protocol for tabling and considering issues at NEDLAC is very clear that, with regards to raising reservations about an issue in Parliament , “parties are bound not to re-open discussion in Parliament on any area where agreement was reached in Nedlac. Parties have the right to raise issues in parliament on which there has been no agreement, or on which a Nedlac agreement was silent….”[6]
2.1 Problematic NEDLAC process
However, engagements in NEDLAC on the consumer credit policy were far from ideal, and at times completely unacceptable. COSATU is deeply concerned that on several occasions the policy and legislative processes followed by the DTI were not only illogical, but at times compromised the spirit and process of NEDLAC, where genuine consensus and agreements are supposed to be reached with the social partners.
Our most serious concerns are that, whilst DTI officials were negotiating the new credit policy in Nedlac, as required by law, there were negotiations occurring outside of Nedlac in bilateral forums between government and business groups on the already drafted Consumer Credit Bill (renamed to the National Credit Bill). Labour and Community maintains that some of the provisions contained in the current Bill, such as consumer protection measures in the policy and first draft bill (August 2004), were removed by the second draft, the National Credit Bill (April 2005), which is now being considered by the portfolio committee.
Evidence of these extra-NEDLAC bilaterals between government and business is a perhaps inadvertent admission in Parliament by the dti that “the DTI had made a compromise with the industry regarding the raising of consumers’ credit limits.”[7] This is a process that was not negotiated through NEDLAC and completely excluded the community and labour, the constituencies who were most directly affected by these developments.
More specifically, if one compares the objects of the current Bill with the August version, we note the following additions and deletions. The phrasing of the objects of the Bill does not necessarily mean that the issues are deleted in the Bill, but indicates the shift in emphasis of the drafters and the direction taken in bilateral agreements between government and business, which labour and community constituents of NEDLAC find unacceptable.
A significant addition to the objects of the current Bill has been to promote black economic empowerment and ownership within the consumer credit industry. Significant by its deletion, is the removal of the object of the Bill “to provide for financing for debt counselling services and consumer credit education programmes”. Whilst the older version of the Bill did not specify details of this financing objective (but merely listed it as one of the objects), the current version neither includes it as an object, norspecifies these details either, and it remains a shortcoming of the Bill.