SUBMISSION: NATIONAL CREDIT AMENDMENT BILL

PRESENTED BY KEN BREDENKAMP ATTORNEYS

CURRENT HOUSEHOLD OVER INDEBTEDNESS

• EMPLOYED = 13.6 MILLION • UNEMPLOYMENT = 4.6 MILLION• CREDIT ACTIVE = 20.08 MILLION • CREDIT IMPAIRED = 9.53 MILLION

7.2 MILLION DEFICIT

HOW DID THIS OCCUR ?

•LACK OF ENFORCEMENT BY THE NCR•SOUTH AFRICANS ARE FINANCIALLY ILLITERATE

AMENDMENT TO THE NCA, EFFICIENT

FUNCTIONING OF THE NCR & THE TRIBUNAL

REGISTRATION & REGULATION OF

PDA’S & THE NATIONAL

PAYMENTS SYSTEM

DEBT REVIEW PROCESSADR’S, MEDIATION

CODES OF CONDUCT

ADDRESS & CORRECT INEFFECTIVE &

INEFFICIENT ASPECTS OF THE NCA

TO REGULATE & IMPROVE THE PAYMENT

DISTRIBUTION AGENCIES

TO IMPROVE THE DEBT REVIEW PROCESS FOR

ALL STAKEHOLDERS

AMENDMENTS TO THE NATIONAL CREDIT ACT

CORRECTION OF PATENT ERRORS IN THE LEGISLATION REMOVE CONTRADICTORY & NON-SENSICAL RESULTS ENSURE THAT AMENDMENTS RESULT IN INCREASED EFFICIENCYENSURE AN EFFECTIVE FUNCTIONING NCR & TRIBUNALUPHOLDING THE AIMS & OBJECTIVES OF THE NCA

THE AMENDMENT TO THE DEFINITIONS WILL ASSIST IN ENSURING THAT THE NCA IS ACCURATELY INTERPRETED

AND THAT THE AIMS AND OBJECTIVES OF THE ACT ARE MET

OBJECTIVE 1: TO ADDRESS & CORRECT THE INEFFECTIVE & INEFFICIENT ASPECTS of the NCA

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DEFINITIONS:MORTGAGE: DEFINITION OUT OF LINE WITH COMMON LAWADR’S: REMOVE OR ALLOW FOR REGISTRATIONINTEREST: DEFINE FIXED, VARIABLE AND

MAXIMUM ALLOWABLE INTEREST RATESIN DUPLUM: DEFINE FIXED, VARIABLE AND

MAXIMUM ALLOWABLE INTEREST RATES

SURETYSHIP: DEFINED AS A CREDIT AGREEMENTDEVELOPMENTAL CREDIT: REGULATIONCONSOLIDATED LOANS : CONSUMER INTICEMENT

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A PROPER DEFINITION NEEDS TO BE INCLUDED

IN THE NCA

DISADVANTAGES

ADVANTAGES WITH DEBT COUNSELLOR’S

ALREADY SET UP REGULATED BY ACT &

NCR ALERT TO CHALLENGESAWARE OF PROPOSAL

FRAMEWORKCAN DETERMINE RECKLESS CREDITNO CONFUSION

OPTION 1REMOVAL & ADR

FUNCTIONS BE INCORPORATED IN DEBT COUSELLOR

FUNCTIONS

ADVANTAGES

COULD PROVIDE ALTERNATIVE RELIEF

FOR CONSUMERS

OPTION 2DEFINE WITH REGARDS

TO REGISTRATION ”DEBT COUNSELLOR

BASIS”NO DUAL REGISTRATION

DISADVANTAGES

MORE REGULATIONSET UP COSTS

CONFUSION IN PUBLICINDEPENDENCEBEST INTEREST

KEY DEFINITIONS: ALTERNATIVE DISPUTE RESOLUTION – ADR’S

A PROPER DEFINITION NEEDS TO BE INCLUDED

IN THE NCA

DISADVANTAGES

MAKE PROVISION FOR THE PROPER DEFINITION

OF FIXED, VARIABLE INTEREST & MAXIMUM ALLOWABLE INTEREST

RATE IN EACH SCENARIO

ADVANTAGES

•BETTER THAN CURRENT FORMULA •FIXED AT A MAXIMUM RATE•CAN ALLOW CREDIT PROVIDERS TO DETERMINE OWN INTEREST RATE BASED ON CONSUMER ASSESSMENT•INCREASED COMPETITIVENESS BETWEEN CREDIT PROVIDERS•CERTAINTY FOR CONSUMERS•ASSIST IN REPAYMENT PLAN CALCULATIONS•STATEMENT OF CAPITAL AMOUNT ON SECTION 129 LETTER

CLARIFICATION OF APPLICABILITY OF STATUATORY IN DUPLUM RULE – SECTION 103 (5)

KEY DEFINITIONS: INTEREST RATES

A PROPER DEFINITION NEEDS TO BE INCLUDED

IN THE NCA

DISADVANTAGES

PREVENT ENTICEMENT OF

CONSUMERS OUT FROM DEBT

REVIEW

EXPERIENCE

•The credit provider proposes to consolidate all the debt of the consumer into one account •The credit provider pays the consumer an amount in terms of the loan in order for the consumer to settle outstanding debt •The credit provider charges the consumer a lower interest rate than what the consumer would be paying on the outstanding debts in terms of the debt review order

CLARIFICATION OF APPLICABILITY OF STATUATORY IN DUPLUM RULE – SECTION 103 (5)

KEY DEFINITIONS: CONSOLIDATION LOANS

DISADVANTAGES

PREVENT ENTICEMEN OF CONSUMERS

OUT FROM DEBT REVIEW

EXPERIENCE

Often the consumer does not pay the outstanding debts with the money loaned and utilises it for other purposes. This is particularly so in light of the fact that the consumers would not have had access to such an amount of money for some time and they often spend the money on unnecessary items and luxuries which they were not able to do beforeAs consequences the consumer loses the protection afforded by debt reviewThe consolidation loans need to be monitored and dealt with in a manner to ensure that the consumer’s outstanding debts are paid by the credit provider and that the consumer is not in a worse position than while under debt review

KEY DEFINITIONS: CONSOLIDATION LOANS

PROPOSED AMENDMENT TO SECTION 136

DISADVANTAGES

COMPLAINTS NOT INVESTIGATED

PROPERLYENFORCEMENT

NATIONAL CREDIT REGULATOR

FORM 29PROCEDURE INEFFECTIVENO PROPER INVESTIGATIONNO REPORTING TO INDUSTRY STAKEHOLDERNO CERTAINTY REGARDING MATTERS

AGREEMENT TO CODE BY REGISTRANTSPROVISION OF COSTS AWARDPROVISION OF PENALTIES TO REPEAT OFFENDERS SUCH AS A FINE OR DEREGISTRATION – PROPOSED AMENDMENT SECTION 140REPORT DECISIONS TO INDUSTRY PLAYERSAPPEAL PROCEDURE

PROVISION OF “ANY PERSON” ALLEGING

RECKLESS CREDIT – NOT ADVISABLE

DEBT COUNSELLORS ARE EMPOWERED TO DO

THIS

PROPOSED AMENDMENT TO SECTION 136

DISADVANTAGES

COMPLAINTS NOT INVESTIGATED

ROPERLYENFORCEMENT

NATIONAL CREDIT REGULATOR

SOLUTIONS•EFFECTIVE TRAINING •SKILLED STAFF TO BE EMPLOYED•EFFECTIVE COMPLAINTS / RESOLUTION CODE WITH DEFINED TIME LINE•PENDING OF TIME PERIODS PROVIDED FOR IN THE NCA PENDING LITIGATION•TRANSPARENCY

NATURAL OR JURISTIC PERSONS

INSERTION OF SECTION 44AREGISTRATION OF PAYMENT DISTRIBUTION AGENCIES

CURRENT PAYMENT DISTRIBUTION AGENCIES NOT REGISTERED, INEFFECTIVE AND LEAD TO BREAKDOWN IN THE DEBT REVIEW PROCESS AND INCREASED

TERMINATION, STRESS AND LITIGATION COSTS FOR ALL

OBJECTIVE 2: TO REGULATE AND IMPROVE THE PAYMENT DISTRIBUTION AGENCIES

ACCREDITED PARTIES

NATURAL OR JURISTIC PERSONS

•ADMINISTRATION ISSUES WOULD CONTINUE CAUSING SYSTEMIC RISK •PAYMENT SYSTEMS UTILISED MAY BE INEFFECTIVE•ADDITIONAL COSTS TO NCR CHECKS & REGULATION•HAVE TO MAKE NEW REGULATIONS

ACCREDITED PARTIES

•TRIED AND TESTED•REGULATION PROVIDED FOR BY (SARB)•LEGISLATION IN PLACE – NATIONAL PAYMENT SYSTEM ACT 78 OF 1998•NO ADDITIONAL COSTS TO NCR•CERTAINTY

OBJECTIVE 2: TO REGULATE AND IMPROVE THE PAYMENT DISTRIBUTION AGENCIES

AVERAGE COST TO FINANCIALLY STRESSED CONSUMERS

PDA

10 Credit Agreement2 Distributions @ R7.00 = R14.004 Distributions @ R15.00 = R60.004 Distributions @R25.00= R100.00

Total R174.00

Switch

10 Credit Agreement2 Distributions @ R8.40 = R33.604 Distributions @ R8.40 = R33.604 Distributions @ R8.40 = R16.80

Total R84.00

SAVINGS OF R90.00 PER CONSUMER MONTHLY

Savings To The Industry & Consumers

• THE SAVINGS BETWEEN THE SWITCH AND PDA AS PER THE SCENARIO WOULD BE R90.00 MONTHLY PER CONSUMER.

• IF 100,000 CONSUMERS WERE GIVEN THIS ADVANTAGE THERE WOULD HAVE BE A COLLECTIVE R9,000.000 ADDITIONAL MONTHLY THAT COULD BE PAID TOWARDS CONSUMERS DEBTS.

• OVER A 24 MONTH PERIOD THERE WOULD BE A R216,000.000 SAVINGS AND AFTER 60 MONTH PERIOD A R540,000.00 SAVINGS.

• IF VOLUMES WERE GIVEN TO THE SWITCHES, THE COST OF R8.40 PER DISTRIBUTION COULD BE FURTHER NEGOTIATED AND BROUGHT DOWN SUBSTANTIALLY.

STAKEHOLDERS

CONSUMERREQUIRE CHEAP AND

EFFECTIVE METHOD TO REARRANGE DEBTS

OBJECTIVE 3: TO IMPROVE THE DEBT REVIEW PROCESS FOR ALL STAKEHOLDERS

CREDIT PROVIDERSREQUIRE CHEAP AND

EFFECTIVE METHOD TO OBTAIN REPAYMENT

DEBT COUNSELLORSREQUIRE PROCEDURE TO PERFORM FUNCTIONS IN

TERMS OF THE NCA

NCRREQUIRE COMPLIANCEPROVIDE ASSISTANCE

RECORD KEEPING

CONSUMERS: FAIR TREATMENTCHEAPQUICKREARRANGEMENT AND RELIEF

DEBT COUNSELLORS: QUICK FAIR TREATMENTDEFINED RULESASSISTANCE

CREDIT PROVIDERS: QUICK CHEAP FAIR TREATMENTASSISTANCE

CONSUMERS ARE LOSING FAITH IN THE DEBT REVIEW PROCESS

DEBT COUNSELLORS ARE LOSING FAITH IN THE DEBT REVIEW PROCESS

CREDITOR PROVIDERS ARE LOSING FAITH IN THE DEBT REVIEW PROCESS

COMMON FEATURES

IN FINANCIAL DISTRESSEXPENSIVEFINANCIALLY UNEMPOWERED

NO SUPPORTSTRESSCHANGING ENVIRONMENT AND UNCERTAINTY

DELAYSNO SUPPORT EXPENSIVECHANGING ENVIRONMENT AND UNCERTAINTY

Lack of information

ROOT CAUSES OF WHY STAKEHOLDERS HAVE LOST FAITH IN THE DEBT REVIEW PROCESS

UNCERTAINTY DELAYS COSTS

Changing environment

Legal ProcessNo resolution process

Court processConflicting

information No rehabiliationCodes

AdverserialTerminations Termination costs

PDA’s

UNCERTAINTY

CAUSES:1.Alternative proposals outside of debt review2.Different arrangements with credit providers for similar debt3.Court process & terminations

SOLUTION:1.Enforcement of the provisions of the nca – no mixed interests2.Code setting out minimum standards applicable3.Proper resolution process to avoid court – ncr to perform function in terms of the act

PRACTICE:1.Offers to consumers to stay out of debt review or to mediate 2.Variation regarding norms – consumers with immovables targeted3.No assistance from ncr = litigation

CREDIT PROVIDERS TEAMING UP WITH DEBT COUNSELLING FIRMS

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DELAYS 1CAUSES:1.Lack of information2.Adversarial3.Court process & terminations

SOLUTION:1.Enforcement - information2.Code setting out minimum standards for restructuring – parties will have a proper framework within which to negotiate - binding3.Delays in justice system, no proper mechanism to avoid court & costs

PRACTICE:1.No proper certificates of balance, no distinction between capital and interest 2.No proper communication process3.No assistance from ncr = litigation

REGULATORS RESPONSE TO PDA’S NOT DISTRIBUTING AS PER COURT ORDER

“ After many deliberations with the credit provider herein, they still refuse to reinstate the matter and responded as per the attached. The matter should then be referred to court and seek a remedy to enforce them to comply in terms of the order. Since the account was terminated due to pda not making payments in terms of the court order, I am still waiting for Snethemba of our office to provide me with their findings.Take note that unless you come your debt counselor provide the bank with a revised proposal, they will proceed to rescind the court order.Should you still feel that I am being biased in handling this file, you may proceed and contact my supervisor at tmudau@ncr.org.za.”

DELAYS 2

CAUSES:1.No resolution process – simply disputes can be resolved quickly 2.Pda’s – payment issues cause terminations3.Codes – no standard terms available, conflicting offers

SOLUTION:1.Quick and effective resolution process with feedback will cause number of referrals to decrease2.Properly monitored pda systems will prevent terminations3.Codes – standard structure allows for simplified negotiation and certainty

PRACTICE:1.Complaints to ncr ineffective, matters are resolved in court at cost2.No proper record keeping, no information available, incorrect payments3.No certainty with propsals or restructuring agreements

COSTS

CAUSES:1.Legal process – can become expensive if no prior ground rules2.Termination costs3.No rehabilitation

SOLUTION:1.QUICK AND EFFECTIVE RESOLUTION PROCESS WITH FEEDBACK WILL CAUSE NUMBER OF REFERRALS TO DECREASE2.PROPERLY MONITORED PDA SYSTEMS WILL PREVENT TERMINATIONS3.CODES – STANDARD STRUCTURE ALLOWS FOR SIMPLIFIED NEGOTIATION AND CERTAINTY

PRACTICE:1.IS COSTLY AND CAN TAKE TIME2.TERMINATIONS LEAD TO LITIGATION – EXPENSIVE FOR CONSUMERS – SECTION 86 (11)3.CONSUMERS ARE UNABLE TO RESTRUCTURE

UNITY AMONGST DEBT COUNSELLORS, CREDIT PROVIDERS

AND THE REGULATOR WILL MOVE THIS INDUSTRY FORWARD.