WATCH: How debt creates economic apartheid
Cape Town - The voice of South African consumers has still not been heard with regards to the Draft National Credit Amendment Bill, according to Summit Financial Partners CEO Clark Gardner.
Gardner was speaking to Fin24 about the bill, reckless lending, and the lack of financial justice for the economically disempowered after his input into public hearings around amendments to the National Credit Act in early February.
With consumers at times still paying 300% to 400% interest per year for credit, he argued the amendments that came out of the hearings were driven by the credit industry and lawmakers, and that the act as it stands amounts to a "whole lot of white noise that you can’t implement”.
Hello and welcome to Fin24. Public hearings on the Draft National Credit Amendment Bill recently took place in Parliament. Clark Gardner, who is a well-known consumer champion and CEO of Summit Financial Partners, was there to give his input. Clark, tell us a little bit more about what is taking place in Parliament with regards to the National Credit Amendment Bill.
The amendments that came out were perhaps driven by the credit industry and lawmakers, and we found, and felt quite strongly, that the consumer’s voice had not been taken into account.
The reason for that is that we sit in a society where we have 10 million credit active consumers who are in arrears with debt instalments. The vast majority of them have impaired credit records and are economically disempowered, and we need solutions for them.
Now if you look at how the draft bill is written, again it’s a whole lot of white noise that you can’t implement. For instance, it is isolated to individuals earning R7 500 a month. Now is that gross income, net income, family income? It doesn’t stipulate.
Then you’ve got to have realisable assets of less than R10 000 to qualify now – but what is a realisable asset? Must I sell my fridge? What happens if my fridge, new, costs R14 000, and now it’s worth market value of R8 000?
Which value do we use? I just think that people are not applying their minds, and making it simple for the man on the street to say 'Hey, I’ve been prejudiced. I can go to court and I could win'.
Don’t you think that this has been the problem within the credit industry for far too long? Nothing is concrete, we keep writing legislation, but the problem comes down to implementation.
(Laws) never seem to be implemented, and it never seems to filter down to the ordinary man in the street, who always seems to be on the edge of being denied access to information that they can understand, and access to financial justice and recourse.
When we look at what is happening at Parliament with regards to the bill, you also made a very good point, where you said that reckless lenders were to be viewed the same as a …
… a drug dealer.
Reckless lenders as the drug dealer and the consumer going back for loans over and over again, as the drug addict. What do we put our energy into? Who do we focus on? Is it better to focus on the consumer or the reckless lender?
If you want a higher success rate, it’s far easier trying to regulate the drug dealer, or the service provider or the credit provider’s behaviour than to try to change an individual’s behaviour, which requires years of counselling, impulse control, enhanced discipline, change of attitude and a change in education. Even when we do that, we’ve got a 15% success rate.
So let’s regulate the service provider. Let’s regulate the drug dealer or the pharmacy, to manage what they’re being given - their licence to provide credit - very, very responsibly. Now if you look at the definition of reckless lending in the National Credit Act, we're talking anyone who has been given a loan that they cannot afford: in other words, they are over-indebted.
If there wasn’t a change in circumstance, it means there was a lender, or the last two or three lenders that were reckless. Now the law makes it very clear, that if you are reckless, you can write off that loan – declare it void and invalid – or you can suspend the interest and fees until all other debts are paid off. Yet we have no case.
The regulator has no big, large declaratory of what is over-indebted and what isn’t.
We wrote laws that require the regulator to go get a declaratory order and clear it up in court. The man on the street has zero access to justice. He can’t say 'oh you gave me debt instalments above 40% of my net income, that means you are reckless'. Go to the court, write this off and he has access to justice.
Credit providers are also very aware of the fact that the laws are not being implemented, and therefore they are just seemingly going ahead.
This has been coming on from 2006/ 2007, when we have been fighting these fights in terms of implementation of the NCA. It is ten years down the line, and the gaps are still there. What do we do to fill those gaps?
Those gaps are even now enhanced. Our inequality is at it’s greatest it’s ever been, and the World Bank and IMF keep on saying that access to credit improves GDP. Of course it does, for the shareholders of Capitec - for the Le Rouxs and the Moutons etc, not the man on the street. It doesn’t improve and increase his wealth or her wealth.
If you look at some of the products out there, 300% to 400% per annum for credit – that’s not going to get you out of trouble, that is going to dig you further into trouble!
These loans are targeting the most vulnerable in society. It leaves a bitter taste in one’s mouth when the most vulnerable in society, who the laws are meant to protect, are now being targeted, because these laws are so lax.
If somebody thinks that they are a victim of reckless lending, what is the recourse right now? What do they do?
I’ll extend that further, that’s reckless lending. But what if you are over-indebted?
What is your remedy there as well? In terms of our insolvency laws for the individual there’s statutory debt counselling (which is fraught with abuse and high fees). In terms of reckless lending, you are in theory meant to go to the National Credit Regulator who has eased the process and cost of going to court.
We have gone to the National Credit Regulator in the past 10 years without any success. The National Consumer Tribunal can’t be accessed unless you go via the regulator. So we’ve had to pursue court cases. Our court cases on reckless lending are costing between R500 000 and R1m - and that is if you win.
If you lose, because of all the other fees you have to pay it’s double that. So the man in the street cannot do anything. He is completely disempowered. I call this economic apartheid. That’s what we have done. We have just taken society and split it. These guys are just getting 300% to 400 % returns. Look at those Capitec shareholders, they are billionaires – and the other lot have just got poorer and poorer in a debt spiral.
So the man on the street should go to the National Credit Regulator, but we also have a big corporate social responsibility program, where we do a lot of free cases for consumers. So they are more than welcome to email us at firstname.lastname@example.org - and we will, like we have done in the past, take your viewers - audit their loans and challenge where it is irregular, especially with reckless lending, which is a personal favourite.
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