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

2. 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

3. 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Outdated legal framework reflects political reality of the apartheid era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

4. 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

5. 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

6. 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

7. 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

8. Thank you