1 Section 2: Credit Law Review Technical Committee appointed by Dr Alistair Ruiters September 2003.

1

Section 2:Credit Law Review

Technical Committee appointed by Dr Alistair RuitersSeptember 2003

2

Section 2Specific proposals for the regulation of Consumer Credit

Presented by Kgosi Pule,

Member of the Technical Committee

3

Specific Proposals

1. Scope2. Protection & Redress3. Disclosure4. Credit Life Insurance,

fees & charges5. Sales, Marketing &

Intermediaries

6. Payroll Deductions & collection prefs

7. Consumer Education8. Enforcement9. Over-indebtedness10. Interest rate control11. Credit Bureaux

4

Specific Proposals



Intermediaries



5

1 – Scope of Legislation

One “Consumer Credit Act”, replacing Usury Act, Credit Agreements Act & Exemption Notice

All transactions treated equally, irrespective of form

Include natural persons < R500,000, exclude legal entities

6

Specific Proposals



Intermediaries



7

2 – Protection & redress Prohibit unfair or abusive conduct &

contracting terms, Prescribe minimum, standard contracting

terms Prevent exclusion of common law protections Create statutory mechanisms for complaints

resolution & redress, … including provision for financial

compensation & debt rescheduling Create enforcement mechanisms within

national consumer credit regulator & provincial government

8

Specific Proposals



Intermediaries



9

3 – Disclosure (a)

Simple, standardised disclosure, comparable between credit providers,

… both content and format of disclosure being regulated … prescribed forms for different contract types

prevent inflation of cost through “add-on” charges, e.g. credit life insurance, club fees etc

10

3 – Disclosure (b) Focus not (only) on contractual disclosure,

but to apply to any media that refer to the availability of consumer credit, (adverts, product brochures, shop floor notices …)

Where disclosure req’ments not met, legislation to provide for (a) financial relief to consumers & (b) penalties against credit providers

11

Specific Proposals



Intermediaries



12

4 – Credit life insurance and other fees & charges

Interest rate to be shown inclusive of credit life insurance & similar charges

Special disclosure rules for compulsory credit related services & bank charges

Power to Minister to make further regulations, prohibitions where required

13

Specific Proposals



Intermediaries



14

5 – Sales & marketing techniques and conduct of intermediaries

Prohibit solicitation at home or job, except after consumer’s invitation

Prohibit deceptive or hazardous credit terms, e.g. residual balances on vehicle finance, incremental repayment terms, “zero interest” marketing

Principals held responsible for intermediaries (training, liability etc)

Ministerial power to prohibit practices/terms, or issue additional regulations

15

Specific Proposals



Intermediaries

6. Payroll Deductions & collection preferences


16

6 – Payroll deductions & collection preferences (a)

Retain potential benefit, limit negative consequences:

Ensure at least minimum level of competition, consumer choice,

Prescribe higher disclosure standards Prescribe max deduction level & compulsory

affordability assessment Allow Minister to issue additional (specific)

regulations if consumer choice, protection or competition undermined

17

6 – Payroll deductions & collection preferences (b)

Minister, in consultation with National Treasury & SA Reserve Bank, should introduce regulations that will ensure neutrality of National Payments System in respect of (a) payments processing &, (b) treatment of different credit providers, to remove the current discrepancy with international standards

18

Specific Proposals



Intermediaries



19

7 – Consumer Education

Incorporated consumer education in mandates of consumer credit regulator & provincial consumer agencies

Agencies should report on the achievement of targets

Create incentives for consumer education by NGOs, CBOs & credit providers

Provide joint government / private sector funding to make consumer education sustainable

20

Specific Proposals



Intermediaries



21

8 – Enforcement & “Consumer Credit Regulator” (a)

Establish Consumer Credit Regulator to regulate all form of consumer credit, including bank credit

Mandate: (a) protect consumers; (b) create regulatory environment that would facilitate increased access to finance &; (c) increase competition between credit providers.

Statutory body with board including consumers & credit providers

Decisions subject to review by court

22

8 – Enforcement & “Consumer Credit Regulator” (b)

Credit providers should be registered & provide annual compliance certificates from auditors

Regulator to perform inspections, (a) issue fines, (b) instructions for consumer compensation, (c) withdraw certificates; (d) prohibit rogue entities & individuals from market

Regulator to create & co-ordinate education, complaints resolution & establish a debt counseling framework

Create “Office of Access to Finance” in regulator to monitor credit market in general & access to finance in particular

23

Specific Proposals



Intermediaries



24

9 – Over-indebtedness (a)

Introduce legislative requirement on all credit providers to assess consumers’ ability to meet their debt service obligations, prior to advancing credit;

Monitor through inspections & compliance audits, subject to fines & deregistration if not compliant;

Revise Magistrate Court Act to make access to court orders subject to creditor showing proof of affordability assessment;

25

9 – Over-indebtedness (b)

Enable comprehensive affordability assessment through formal regulation of credit bureaux & broader information sharing on all types of debt;

National network of debt counseling, with provisions for debt rescheduling & debt reduction

Limitations on ‘solicitation’, hazardous terms (discussed before)

Investigate feasibility of penalties on consumers that provide false information or act fraudulently

26

Specific Proposals



Intermediaries



27

10 – Interest Rate Control (a) Already discussed: Improved, standardised

disclosure, curbs on marketing, affordability assessments & enforcement;

THUS: Discontinue general interest rate control as per the current Usury Act & Credit Agreements Act

BUT: Minister to retain power to introduce limits on rates, fees or charges for specific products or providers if there are limited competition or price manipulation

28

10 – Interest Rate Control (b) An alternative approach considered by the

committee, was the introduction of a ‘structured cap’, consisting of different caps for interest, origination fee

and monthly loan administration fees, set at different levels for different loan sizes, in order to be more reflective of the different cost of originating different types and sizes of credit

However, this would have to be set at levels high enough not to amount to government prescribed credit prices (as in current regulations)

It introduces many complexities, e.g. the danger that these prices be accepted as ‘government prescribed prices’ and thus further undermine competition

29

10 – Interest Rate Control (c)

Irrespective of the above, to Legislate the “In Duplum Rule”, i.e.

place a statutory limit on interest when accounts are in arrears

Regulator to perform an annual review of the cost of all credit products & publish results

30

Specific Proposals



Intermediaries



31

11 – Regulation of Credit Bureaux & Credit Information Exchange (a)

All credit bureaux should be registered & regulated in terms of (a) the full range of their operations, (b) the activities of credit providers in relation to information provided to the bureaux, & (c) use of information received from the bureaux

32

11 – Regulation of Credit Bureaux & Credit Information Exchange (b)

Drastically curtail all other exchange of consumer information (e.g. client lists for marketing)

Compulsory consumer consent Free access for consumers to their records Introduce standards for data validation &

correction Provide ministerial power to force information

sharing by creditor providers in order to enable comprehensive affordability assessment

33

Summary

Key features of the legislative & regulatory proposals being proposed …

34

Summary

Move away from a system of ineffectual price control, that results in misleading disclosure, that distorts the market and that segregates it into the “super included” and “super excluded”

To a system that integrates the market & are effectively enforced,

that forces simple, comparable disclosure,

that curtails over-indebtedness,

and that assists consumers that are vulnerable or treated unfairly

35

Discussion of this second section of the presentation

1 Section 2: Credit Law Review Technical Committee appointed by Dr Alistair Ruiters September 2003.

Documents

Transcript of 1 Section 2: Credit Law Review Technical Committee appointed by Dr Alistair Ruiters September 2003.