By the end of March 2017, it was recorded that out of the 24.68 million consumers who are credit-active in South Africa, 9.69 million consumers had impaired1 credit records. Despite the existing mechanisms for debt review and debt administration procedures, it was found that a large portion of debtors remain in a debt trap.
Following discussions at national level, the Parliamentary Committee on Trade and Industry published the draft National Credit Amendment Bill (“the Bill”) in an attempt to deal with the inescapable debt trap a large portion of debtors find themselves in.
The Bill seeks to amend the National Credit Act No 34 of 2005 (“NCA”) so as to provide for inter alia:
- the introduction of debt intervention;
- include the evaluation and referral of debt intervention applications and the suspension of agreements considered to be reckless as part of the enforcement functions of the National Credit Regulator (“NCR”);
- include the consideration of a referral as a function of the National Credit Tribunal (“Tribunal”);
- require a credit provider and debt counsellor to determine whether an agreement is reckless;
- provide for a court to refer a matter for debt intervention;
- provide for an application for debt intervention and evaluation thereof;
- provide for orders related to debt intervention and rehabilitation in respect of such an order;
- enable the Minister to prescribe a debt intervention;
- to provide for mandatory credit life insurance;
- provide for the Tribunal to change or rescind an order under certain circumstances;
- require the Minister to prescribe a financial literacy and budgeting skills programme and to provide for matters connected therewith.
In a nutshell, it seems that the main focus of the Bill is the introduction of the debt intervention process and the balance of amendments revolve around the debt intervention process.
Debt intervention is essentially a debt review as defined in section 86 of the NCA, which is performed by the NCR for no charge. The debt intervention is available to natural persons, or natural persons who own a joint estate, who on the date of submission of the application for debt intervention, have a gross monthly income of no more than R7 500.00 and who have no readily realizable assets (excluding exempted items), and are not subject to debt review and have unsecured debt that is less than R50 000.00.2
The application process for debt intervention is set out in 86A of the Bill. An written application must be submitted by the consumer to the NCR, who upon receipt of the application must follow sections 86(4) and 86(6) of the NCA to assess and determine whether or not the debt intervention applicant is over-indebted and whether any of the credit agreements are reckless.
The effect of the NCR’s assessment and determination will lead to either the restructuring of the debt intervention applicant’s obligations over a period of 5 years or the obligations will be suspended in part or in full for 12 months. Both periods may be extended. If despite all obligations being suspended and the debt intervention applicant is still unable to solve the debt, the Tribunal may declare all, or part of these obligations extinguished.
There are also some similarities between the Bill and the NCA, for example section 88A of the Bill has been inserted to prohibit a debt intervention applicant from entering into further credit agreements with credit providers other than consolidated agreements unless the application is rejected and the time period to file the application has expired, or the debt intervention applicant is found not to be over-indebted, or the debt intervention applicant’s obligations in terms of a rearrangement have been fulfilled.
Similarly, section 88 of the NCA prohibits a consumer under debt review from incurring further charges under a credit facility or entering into any further credit agreements other than a consolidated agreement unless a debt counsellor rejects the debt review application, or a court determines that the debt review consumer is not over-indebted, or the debt review consumer’s obligations in terms of a restructuring plan have been fulfilled.
The mandatory requirement of life insurance has been extended by the insertion of section 106(1A), which requires a consumer to enter into and maintain credit life insurance for the duration of the credit agreement, where the term of the credit agreement exceeds 6 months and principal debt does not exceed R50 000.
Section 129(4)(b) and (c) of the NCA have been amended to state that a consumer may not re-instate a credit agreement after the execution of an order by the court or the Tribunal or the debt underlying the credit agreement was extinguished.
Of substantial interest are sections 157A, s157B, s157C and s157D of the Bill which amends the NCA by the inclusion of offences related to debt interventions, credit agreements, registrations (as a credit provider, credit bureau, debt counsellor, payment distribution agent and alternative dispute agent) and non-natural person.
It is an offence if any person intentionally submits or presents false information including information related to their financial circumstances (or joint financial circumstances) that is intended to mislead the NCR or Tribunal.
Section 157B sets out the offences related to credit providers in regard to the NCA. Any credit provider who intentionally:-
“(a) participates in an unlawful credit marketing practice contemplated in section 74(2) and (3), 75(1) or section 91;
(b) does not comply with the limitations to entering into a credit agreement at a private dwelling contemplated in section 75(2);
(c) does not comply with the limitations related to visiting or entering into a credit agreement at a person’s place of employment contemplated in section 75(3);
(d) enters into an unlawful agreement contemplated in section 89(2) with a prospective consumer;
(e) includes an unlawful provision contemplated in section 90 in a credit agreement with a prospective consumer; or
(f) offers or demands that a consumer purchases or maintains insurance that is unreasonable, at an unreasonable cost, or is to cover a risk that reasonably cannot arise in respect of that consumer, as contemplated in section 106(2)(a), (b) or (c) respectively,
is guilty of an offence.
(2) Any person who intentionally sells a debt under a credit agreement to which this Act applies and that has been extinguished by prescription under the Prescription Act, 1969 (Act No. 68 of 1969) as contemplated by section 126B(1)(a), commits is guilty of an offence.
(3) Any person who intentionally continues the collection of, or attempt to re-activate a debt under a credit agreement to which this Act applies under the circumstances contemplated in section 126B(1)(b), is guilty of an offence.”
In section 157C of the Bill we find the introduction of the offences related to registration under the NCA:-
“1) Any person who intentionally gives him or herself out to be—
(a) a credit provider, without having been registered under section 39 or section 40, as may be applicable;
(b) a credit provider of developmental credit, without having been registered under section 41;
(c) a credit bureau, without having been registered under section 43;
(d) a debt counsellor, without having been registered under section 44;
(e) a payment distribution agent, without having been registered under section 44A; or
(f) an alternative dispute resolution agent, without having been registered under section 134A,
is guilty of an offence.
(2) Subsection (1) does not apply if—
(a) at the time the credit agreement was made, or within 30 days after that time, the credit provider had applied for registration in terms of section 40, and was awaiting a determination of that application;
(b) at the time the credit agreement was made, the credit provider held a valid clearance certificate issued by the National Credit Regulator in terms of section 42(3)(b); or
(c) the act in question was a once-off transaction or incidental to the main business of the person contemplated in subsection (1): Provided that the main business of that person may not be the provision of credit, debt counselling, payment distribution or alternative dispute resolution as contemplated in this Act, nor may it be the retention of credit information as contemplated in this Act.”
The fourth category of offences relates to an offence committed by a non-natural person. If a non-natural person commits an offence in terms of the NCA, every director or prescribed officer of that non-natural person, who knowingly was a party to the contravention, is guilty of an offence and subject to the same penalties as if that director or prescribed officer committed the offence in person.
The penalties associated with the above offences and section 160(1) of the NCA can be found in section 161 of the Bill:-
(1) Any person convicted of an offence in terms of this Act, is liable—
(a) in the case of a contravention of section 160(1), to a fine or to imprisonment for a period not exceeding 10 years, or to both a fine and imprisonment; [or]
(aA) in the case of a contravention contemplated in section 157A, to—
(i) a fine or imprisonment not exceeding two years or to both a fine and such imprisonment; and
(ii) a permanent prohibition on applying for debt intervention;
(aB) in the case of a contravention contemplated in section 157B or 157C to a fine or imprisonment not exceeding 10 years or to both a fine and such imprisonment or, if the convicted person is not a natural person as contemplated in section 157D, to a fine not exceeding 10 per cent of its annual turnover or R1 000 000, whichever amount is the greater; or
(b) in any other case not listed in paragraphs (a), (aA) or (aB), to a fine or to imprisonment for a period not exceeding 12 months, or to both a fine and imprisonment.
Various factors will have to be considered when determining the appropriate penalties. These factors include inter alia:-
- The nature, duration, gravity and extent of the contravention;
- any loss or damage suffered;
- the value of the credit agreement in question;
- the degree of co-operation with the National Credit Regulator or Tribunal;
- previous contraventions of the NCA.
The wording of this Bill has undergone numerous adjustments and amendments and some sections have been removed since the publishing of the first draft. We are yet to see the final Bill, which the Committee on Trade and Industry intends to adopt on 16 August 2018.