Briefing on the Credit Law Review Process Portfolio Committee on Trade and Industry Cape Town 10 September 2003

Objectives of the presentation Provide the policy context for the credit law reform Present the findings and recommendations of the Technical Committee Obtain inputs into policy process

Setting the Scene Current legislation Usury Act, 73 of 1968 & Exemption Notice, Credit Agreement Act, 75 of 1980 Outdated legal framework reflects political reality of the apartheid era Rationalized credit market served the needs of a minority, primarily white middle-class consumers 1992 Exemption Notice perpetuated apartheid legal framework by denying low-income consumers protection

Symptoms of a dysfunctional market Credit market has been dysfunctional since pre-1994 Problems on the agenda have included: Rising over-indebtedness of some consumers with no mechanism for relief from excessive debt burdens ‘Blacklisting’ of consumers, default and misleading credit providers Unequal “rationed” access to credit Increasingly unpalatable market practices Exploitative interest rates, targeting of vulnerable groups (e.g. pensioners), fraud, non-disclosure, debt collection practices, Abuse of legitimate mechanisms e.g. Admin. Orders Symptoms are interdependent

Measures to address problems Regulation of debt collectors (Department of Justice) 1999 Usury Act Exemption and the establishment of the Micro Finance Regulatory Council MFRC “Reckless Lending Rules”’ and National Loans Register Extension of investigation powers of MFRC Moratorium on Persal deductions (National Treasury) Cafcom investigations into Credit Bureaux and Administration Orders Piecemeal responses obviating the need for a holistic review

Key Considerations for Credit Law Reform Credit: a double edged sword Positive impact through productive uses and for asset accumulation Negative impact through reckless lending and borrowing Need for: Affordable productive credit for the majority of the population Ensuring that consumers have enforceable rights and are able to make choices Effective measures to prevent and deal with excessive debt

The policy process The dti has been working on a policy for consumer credit law reform for some time; In order to accelerate process, the dti mandated a technical committee to conduct research into the credit market and its problems and to make recommendations for policy; Findings to be presented and discussed today; Inputs from Committee will prove valuable to policy process; Policy process to be initiated, drawing on recommendations from Technical Committee and other inputs e.g. Financial Sector Summit, Credit Bureau Forum

Thank you