Hello Consumer Law Review subscribers
We have decided to make this edition of the Consumer Law Review all about consumer credit. Why? Because there have been a lot of changes to the National Credit Act in the last six months. At least one of these changes will affect the majority of businesses in South Africa, and not just credit providers.
Of course, no edition of the Consumer Law Review would be complete without some mention of POPI. There has been some movement on that front lately.
We have decided to ‘up the ante’ with our plain language tips. Liezl van Zyl (from the Stellenbosch University Language Centre) and I are writing an inter-disciplinary book on plain language drafting and document design. We decided that we would give you a sneak peek over the next couple of months.
Elizabeth de Stadler
Elizabeth de Stadler is the editor of the Consumer Law Review and a senior associate at Esselaar Attorneys in Long Street in Cape Town (http://www.esselaar.co.za). The firm specialises in consumer law. She is also a founding director of Novation Consulting (www.novcon.co.za or @NovConSA), a company which specialises in providing regulatory compliance solutions and designing innovative and effective ways to communicate ‘legal’ documents to consumers. She is the author of a number of publications including co-authorship of A Guide to the Protection of Personal Information Act (Juta) and Commentary on the Consumer Protection Act (Juta).
Consumer Law news
Movement on appointment of the Information Regulator and budget allocated:
There has been movement on the appointment of the Information Regulator. Parliament voted for the appointment of the former IEC chairperson, Pansy Tlakula, as the chairperson of the Information Regulator. Johannes Weapond and Lebogang Stroom were recommended as full-time members and Sizwe Snail and Tana Pistorius as part-time members. Unfortunately, the required majority to take this decision was not obtained. This means that another vote will have to be scheduled when Parliament reconvenes in August. The other names on the shortlist recommended by the Portfolio Committee were Davis Taylor, Siyakhula Simelane, Thav Reddy, Francis Cronjé and Shamila Singh.
In addition, R50 million (spaced over the next three financial years) has been allocated in the 2016 National Treasury Budget to establish the office of the Information Regulator.
The South African government has been criticized by the United Nations for the delay in appointing the Regulator.
European Union adopts the General Data Protection Regulation:
The European Union has adopted the General Data Protection Regulation. This repeals the previous directive on data protection. Member states have to adopt the regulation into their law by 6 May 2018. Why do we care? If you process the data of EU citizens, you will have to comply with the EU rules. Click here for more information. In related news, the EU has also launched the EU-US Privacy Shield. This replaces the Safe Harbour agreement, which was declared invalid by the European Court of Justice. This is particularly relevant if your company is located in the US and processes the personal information of European citizens.
PAIA manuals for some private bodies deferred until 2020:
In the previous edition we referred to the deferral of the requirement to have a PAIA manual. Some private bodies in certain sectors who have more than 50 employees and an annual turnover above the required threshold must still submit a PAIA manual. Check here for whether you are required to submit a PAIA manual.
Electronic Communication End-user Subscriber Service Charter Regulations:
In the previous edition we analysed the draft Electronic Communication End-user and Subscriber Service Charter Regulations. In short, the regulations prescribe minimum standards for electronic communications services in order to protect consumers by ensuring that they have enough information to make informed decisions and that complaints are resolved efficiently. The final regulations have now been published.
The Consumer Goods and Services Ombud published its annual report:
The CGSO has published its 2015/2016 Annual Report. It makes for a very interesting read. Between March 2015 and February 2016 the Ombud received 14 599 calls, which resulted in 3495 cases being opened. Of those cases 2192 were resolved. Cellphones, services, furniture, electrical appliances and computer equipment are the top five categories of complaints. The report also contains a list of companies who received more than 10 complaints. Last, but not least, the report contains case summaries for the past year. This resource is very valuable as it is finally possible to gauge what the Ombud’s approach will be to certain types of cases.
Best practices applicable to the motor industry published for comment:
The National Consumer Commission has published a voluntary code of practice for the motor industry in terms of section 93 of the CPA. Amongst other things, it is intended to promote better alternative dispute resolution within the industry and it describes what is required for valid pre-authorisation of repairs (section 15 of the CPA). Significantly, it also provides that vehicle manufacturers must indemnify the direct supplier in cases where the consumer is claiming for harm caused because the vehicle is unsafe. It is not clear what force this latter ‘best practice’ has, given that compliance with the code is voluntary.
Draft Amendment Regulations on the establishment of the Consumer Advisory Panel published by ICASA:
ICASA published draft regulations on the establishment of a consumer advisory panel on 21 July 2016 (again). The function of this panel will be to advise ICASA on critical concerns of consumers, directing the focus of consumer protection research by ICASA and providing a consumer perspective through commentary on regulations. Comments on the regulations must be submitted by 2 September 2016.
Proposed industry code of practice and ombudsman scheme for advertising and marketing industry:
The DTI published an industry code received from the Advertising Standards Authority of South Africa on 26 July 2016. We will analyse the content of the code in next month’s CLR, but suffice it to say that the reach of ASASA will be extended substantially. The public and members of the industry (which is anybody who markets and is not regulated elsewhere) have two months to comment.
Lots of movement in the credit industry
The last year has been an exceptionally busy one in the credit industry. In this article we will focus on just some of the most dramatic developments. Also have a look at the article below on the new affordability assessments by Paul Esselaar. Not the most exciting of topics, but important nonetheless. If you want to refresh your memory about the content of last year’s National Credit Amendment Act you can read our summary in the June 2015 edition of Consumer Law Review.
One of the most curious developments is that all credit providers have to register from 11 November 2016. This is significant as many companies enter into isolated credit agreements with employees, directors, etc. The only way to avoid registration is to ensure that the agreement does not fall within the definition of a ‘credit agreement’ (eg by not charging interest). Prior to the amendment of the NCA a credit provider only had to register if he or she entered into more than 100 credit agreements or if the total principal debt exceeded R500,000. The amendment removed the number of credit agreements as an exception to the registration duty. But that was not the end of the story. The Minister has reduced the threshold to R0. Effectively, the Minister has removed the second exception. As an aside, I have reservations about whether setting a R0 threshold is not ultra vires. It effectively amounts to an amendment of the NCA without involving Parliament.
The new Regulations on Review of Limitation on Fees and Interest Rates came into effect on 6 May 2016. This means that credit providers must now adhere to the new prescribed interest rates, initiation fees and service fees. One question which remains somewhat unclear is whether the new thresholds apply to existing credit agreements. It is a well-established principle of statutory interpretation that there is a presumption against the retrospective application of a statute. Put differently, in the absence of an express provision to the contrary, a statute will as a rule not interfere with vested rights or create additional obligations retrospectively.
The saga relating to compulsory fees and the Lewis Group is ongoing. Summons has been issued in the Cape High Court on behalf of 15 Lewis customers. Read more about it in this Fin24 article. Other retailers are also in trouble for selling inappropriate and sometimes unnecessary insurance products. These alleged abuses have prompted the Department of Trade and Industry to publish the Draft Credit Life Insurance Regulations late last year for comment. The regulations would curtail retailers’ ability to sell credit life insurance dramatically. The final regulations have not been published.
The constitutionality of section 65J of the Magistrates’ Courts Act, which allows an emoluments attachment order (commonly referred to as a garnishee order) to be issued with the consent of the judgment debtor, was questioned in University of Stellenbosch Legal Aid Clinic and Others v Minister of Justice and Correctional Services and Others 2015 (5) SA 221 (WCC). When judgment debtors consent to the garnishee order there is no judicial oversight or enquiries into whether debtors can afford the deduction from their salaries. This system has led to abuse in particularly the micro-lending industry. The situation is exacerbated by the fact that the orders are obtained in jurisdictions far from where the debtor works or lives by virtue of the provisions of section 45 of the Magistrates’ Court Act, which allows for a debtor to consent to the jurisdiction of a particular court. This allows micro-lenders to do forum shopping. The court held that section 65J is unconstitutional insofar as it does not require judicial oversight. It also held that section 45 cannot be reconciled with section 90(2)(k)(vi) of the NCA, which provides that it is unlawful to obtain the consent of a debtor to a jurisdiction other than the one where the debtor resides or works, or with section 65J, which also refers to the court with that jurisdiction. The court held that in matters involving credit agreements, section 45 does not allow the judgment debtor to consent to a jurisdiction other than where he or she lives or works. The case is currently being considered by the Constitutional Court. Incidentally, in the case of MBD Securitisation (Pty) Ltd v Booi 2015 (5) SA 450 (FB) the court came to a similar decision in relation to s 45. In that case it was also pointed out that a clerk of the court cannot grant a judgment by consent (in terms of section 58) or a garnishee order in cases involving credit agreements. It must be referred to the magistrate (rule 12(5)). The National Assembly is now considering an amendment bill to the Magistrates’ Court Act which would limit emoluments orders to 25% of the salary of a judgment debtor, provided also that the debtor will have sufficient means for his or her own maintenance and that of his or her dependants after payment of the instalment. The bill is currently before the Portfolio Committee of Justice and Correctional Services.
New affordability assessments: How to calculate minimum expense norms
By Paul Esselaar, Director at Novation Consulting
While an affordability assessment has always been part of the National Credit Act (NCA), recent amendments to the NCA Regulations have introduced a mandatory procedure for affordability assessments in the form of regulation 23A (‘Criteria to conduct affordability assessment’ (‘Application’). This effectively reduces the discretion that credit providers had previously to conduct their own form of an affordability assessment.
In broad terms every credit provider who is obliged to comply with regulation 23A (note that not all credit agreements require an affordability assessment – see regulation 23) must conduct an affordability assessment under the following broad headings:
Under the heading of ‘assessing existing financial obligations’, regulation 23A(8)–(12) sets out the ‘minimum expense norms’ that a credit provider needs to consider when granting credit to a consumer. Before we explain how this is calculated, it is worthwhile to expand on why these provisions exist at all.
In general, any consumer who approaches a credit provider for a loan will portray his or her financial circumstances in as favourable a light as possible in order for the credit provider to be inclined to grant the loan. What this ultimately means is that the consumer will often be fairly loose with what their actual monthly expenses are – sometimes leading to an absurd situation where they claim to have no monthly expenses at all. In order to combat this tendency a formula has been devised in the regulations to determine what the statistical minimum monthly expenses of a consumer would be, based on their gross income. Thus, for example, we would expect a consumer to have at least R1167.88 in expenses if he or she earned a gross monthly salary of R6250. This is termed the ‘minimum expense norm’.
When determining the discretionary income available to the consumer (and thus his or her ability to repay the loan) the credit provider needs to use the following formula:
Monthly gross income
LESS: statutory deductions (tax)
LESS: monthly living expenses
LESS: existing credit agreement monthly repayments
LESS: maintenance obligations for dependants
EQUALS: Discretionary income
The focus of this article is on how the ‘monthly living expenses norm’ in the above formula is calculated.
When a credit provider does an affordability assessment of a consumer it must ask the consumer what his or her monthly expenses are. If those monthly expenses are above the minimum monthly expenses as set out by regulation 23A, then the credit provider is entitled to believe the consumer and must record the total expenses that the consumer alleges that he or she has. Where the consumer alleges that his or her minimum monthly expense are below the minimum monthly expense norm, then the consumer must either –
In either case the credit provider is obliged to calculate what the minimum monthly expense norm is for the consumer.
Unfortunately the minimum monthly expense norm table as found in regulation 23A(10) is particularly obscure and needs some explanation. The table reads as follows:
The best way to demonstrate how this works is to provide an example:
Joe Soap earns R5000 per month as a gross income. This places him in the R800.01 to R6250.00 bracket (row 2 in the above table). The norm for a person in Joe Soap’s position is for him to have R800 worth of expenses (the minimum monthly fixed factor) PLUS a percentage of the remaining income over the minimum income. In this case this means that his expenses are:
R800 + (6250.00 – R800 x 6.75%) = R800 + (5450 x 6.75%) = R800 + R367.88 = R1167.88
What this ultimately means is that if Joe Soap alleges that his expenses are more than R1167.88 per month then (unless you have contrary evidence) you are entitled to believe him. If he says that his expenses are less than R1167.88 per month then you have to ask him to prove that this is true by filling out Form 48, or he must accept that the credit provider will assume his monthly expenses are R1167.88.
In our next edition of the consumer law newsletter we will consider how this minimum expense norm integrates with the affordability assessment that credit providers must perform.
Plain language tip
Avoiding negative formulation always seems to make it to the list of top ten tips for plain language writing, along with keeping your sentences short and writing in the active voice.
Negative formulation increases the mental capacity required for processing text. This increases the chances that the reader could misunderstand the clause. Furthermore, a negative formulation could create a negative image of the organisation sending the communication. Consider the following example:
Original: [The company] is not liable for any losses or damages which you may suffer, regardless of how such losses or damages arise, unless the claims are directly attributable to fraud, dishonesty or gross negligence of [The company] or its employees acting in the course and scope of their employment. [The company] is under no circumstances responsible for any indirect, special or consequential losses or damages.
Revised: [The company] holds adequate professional indemnity and fidelity insurance cover. This means that we are covered against claims that are directly attributable to fraud, dishonesty or gross negligence of employees (not intermediaries) acting in the course and scope of their employment. Note that you cannot claim for any losses you may suffer that arise for other reasons and you cannot claim for any consequential (also referred to as indirect or special) losses.
The meaning has not changed in the revised version although we added the first sentence about the insurance cover. While the original formulation focusses on what the client may not claim for, the revised version states clearly that there are instances when the client may claim. We asked a group of potential clients whether they felt differently about the revised version compared to the original one and the outcome was thirteen to three in favour of the revised version. The three reactions not in favour of the revision were not negative, but neutral. Here are the most notable reactions:
‘The second version makes me feel like “care” was taken; it is inclusive and considerate and I can trust the institution even though I may lose my money.’
‘I prefer the second version. It creates the impression that [the company] takes responsibility rather than trying to avoid responsibility.’
‘The second version puts my mind at ease.’
‘The second version first tells clients that they have insurance cover and what it means and then what they cannot claim for. It just makes a more positive impression.’
‘It sounds as if [the company] is taking responsibility.’
‘The second version makes more sense. It is in laymen’s terms as opposed to “lawyer language”. So the new version is cleaner and more intuitive and understandable.’
We often read plain language tips and question whether they would really make a difference. From these results we can deduce that positive formulation not only increases reader comprehension, but it also has a positive influence on the reader’s perception of the company. A positive image means increased trust and a better relationship between the client and the company. I’d say that’s a worthwhile difference.
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