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Regulation and Legislation

National Credit Regulator stumbles over legislation

11 Jul.

Debt-review process hampered by disputes.

Disclosures of a debt counsellor’s alleged bid to bribe National Credit Regulator staff with alcohol and sex are among many problems besetting the organisation.

Five years after its birth out of the Micro Finance Regulatory Council that it replaced, the regulator is struggling to keep a grip on its mandated role. The debt-review process is battling to function under a quagmire of disputes and the court system is processing as few as 10% of cases brought to it each month.

The problems are not just of creditors seeking to stymie the process by holding it up — although there are suggestions that the banks would love to see the system fail. There are signs that the organisation , which had a staff of 90 last year, is under strain from the many roles it has to play.

The absence of a replacement for former CEO Gabriel Davel — who announced his retirement in August and left at the end of December — is also having an effect. “It’s affecting the industry,” says one Johannesburg-based debt counsellor. “There’s no leadership to talk of… nobody that can take that momentum forward.”

The suspension of senior official Peter Setou in May, for reasons that are not yet clear, adds to the confusion. Mr Setou, the regulator’s senior manager for education and strategy, was seen as a front- runner for the vacant post.

All the while, the regulator, with chief operating officer Nomsa Motshegare as acting CEO, is attempting to carry on its core role of implementing the relatively new legislation that created it and the debt- review framework.

While numerous high court cases have been brought by both creditors and the regulator to establish the working rules for the debt-review process, uncertainty remains.

In a March judgment, the Supreme Court of Appeal described the law behind the debt- review system as problematic.

“Unfortunately, the (National Credit Act) cannot be described as the best drafted act of Parliament which was ever passed.… Numerous drafting errors, untidy expressions and inconsistencies make its interpretation a particularly trying exercise,” the court ruled.

That judgment, on an appeal the regulator had brought against a high court ruling, made things harder for the regulator, as it sided with creditors on one key point.

Lenders had argued they could exempt any overdue credit agreement from the debt-review process by issuing a certain notice to the debtor specified under the act.

The regulator had argued unsuccessfully that such a notice could come even when a debt was as little as one month overdue, limiting the opportunity for an over-indebted consumer to submit that credit agreement to the debt-review process. However, the same judgment sided with the regulator on another point, the in duplum rule, which limits the extent to which an overdue debt can grow. The judgment means that if a consumer, for example, owed R1000 when they defaulted on a debt, the interest and other costs accruing from that debt cannot exceed R1000, limiting the amount deemed owing to R2000.

“It represents a massive potential loss in income (for creditors),” says Stephen Logan, an attorney and former debt counsellor. “It would run into hundreds of millions if debt counselling succeeds in this country,” he says.

While the basic legal framework under which it operates is being defined, the regulator also has to oversee the credit industry and the debt counsellors who fall under its jurisdiction. One such action the regulator is undertaking is against debt counsellor Reginald Matjokana, who sent an e-mail to regulator staff in November 2009, apparently offering to supply a bachelor’s party for one regulator official with women. In April last year, the regulator served Mr Matjokana with a compliance notice, threatening to withdraw his registration.

However, the notice does not refer to the events surrounding the bachelor party. Rather, it accuses him of not meeting certain procedural deadlines for managing his clients’ cases. In October, Mr Matjokana challenged the compliance notice in the National Consumer Tribunal on technical grounds, successfully arguing that the notice did not comply with the requirements of the act. The tribunal agreed and set the notice aside.

The regulator did not respond to requests for comment on its case against Mr Matjokana on Friday.

On top of all these issues, the regulator also has to oversee a credit market that, in the first quarter of this year, rose to R83,53bn, up 31,21% on the sum lent a year earlier.

Source: Business Day

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About Coastal Roy

A consultant experienced in the financial sector in Africa and with a background of central banking, the financial system and information technology. Area of expertise: - Financial market development and regulation. - Payment, clearing and settlement systems modernisation and regulation. - Strategy and policy development for central banks and the financial sector. - Capacity building, advising and mentoring in financial sector development. Educational qualifications: - Master of Business Leadership, degree; UNISA - BSc (Hons) degree in Physics, Manchester University

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