National Credit Regulator withdraws approval of Credit Industry Codes of Conduct
On 30 November 2012 the National Credit Regulator (NCR)
published a Notice of Intention to Withdraw Approval of the Credit
Industry Codes of Conduct (the Notice)1.
In the Notice, the NCR states that a review of the various industry codes was recently undertaken. The codes in question are:
- the Code of Conduct of Credit Providers to Combat Over-Indebtedness;
- the Debt Counsellors' Code of Conduct for Debt Review; and
- the Payment Distribution Agencies' Code of Conduct for Debt Review
(collectively, the Codes).
The Notice states that the NCR's review has determined that the Debt Counsellors' Code of Conduct for Debt Review, among other things, lacked accountability with regards to implementation, monitoring and reporting; was unconstitutional; and conferred excessive jurisdiction on the Credit Ombud.
In relation to the Code of Conduct of Credit Providers to Combat Over-Indebtedness, the Notice claims that investigations have uncovered evidence of significant reckless lending by credit providers, which was contrary to their commitments as enshrined in the Code and the National Credit Act (NCA)2.
The Notice furthermore states that the NCR has determined that the National Debt Mediation Association has failed to report annually to the NCR as required by the Code of Conduct of Credit Providers to Combat Over-Indebtedness; and that the Payment Distribution Agencies Code of Conduct for Debt Review contains similar provisions to those set out above, which are contrary to the NCA.
The Notice states that, in light of the above, the NCR intends to withdraw its approval of the Codes as well as its recognition of the National Debt Mediation Association, Debt Counsellors Association of South Africa, Association of Payment Distribution Agencies and the Credit Ombud, in terms of any role they perform under the relevant Codes.
Interested parties were invited to comment on the intentions of the NCR as set out in the Notice on or before 13 December 2012.
The Chief Executive Officer of the NCR, Ms Nomsa Motshegare, has indicated that the reason for the step is that larger credit providers have caused over-indebtedness among consumers. She has also commented that despite a sustained increase in defaults, unsecured lending continues to grow rapidly in South Africa.
The notification by the NCR that it intends to withdraw its support and recognition of the Codes is widely regarded by the credit industry as a precursor of further action by the NCR against industry players.
Click here to view the Government Gazette Notice.
Constitutional Court confirms unconstitutionality of section 89(5)(c) of the NCA
On 10 December 2012, in the case of The National Credit
Regulator v Filippus Albertus Opperman and Others3, the
Constitutional Court upheld a judgment by the Western Cape High
Court to the effect that section 89(5)(c) of the NCA is
inconsistent with the right to property enshrined in section 25(1)
of the Constitution.
Section 89(5)(c) provides that a credit provider forfeits its right to recover money lent to a consumer if it is not a registered credit provider in terms of the NCA. The NCA imposes an obligation on a credit provider to register as such if it is the credit provider of over 100 credit agreements or if it has granted credit in excess of ZAR 500 000, failing which any credit agreements concluded by such an unregistered person are unlawful and void.
The case arose after Filippus Opperman, who was not a registered credit provider, lent Jacobus Boonzaaier ZAR 7 million in 2009. When Boonzaaier admitted he could not repay the debt, Opperman applied for the sequestration of Boonzaaier's estate.
The Western Cape High Court found that the provision permits the arbitrary deprivation of property, contrary to section 25(1) of the Constitution, because it denies the credit provider any claim against the consumer for the repayment of money, without leaving a discretion to a court to decide otherwise.
The NCR and the Minister of Trade and Industry both opposed the confirmation of the High Court order of invalidity.
The majority of the Constitutional Court, in a judgment by Van der Westhuizen J (with whom Mogoeng CJ, Moseneke DCJ, Khampepe J, Nkabinde J and Skweyiya J concurred), found the provision to be a punitive measure to protect consumers against unregistered credit providers. The provision compels a court to declare the agreement void and order that the unregistered credit provider's right to claim restitution based on unjustified enrichment of the consumer, be cancelled or forfeited to the state; with no discretion to a court to keep the restitution claim intact.
The Constitutional Court held that by removing the unregistered credit provider's restitution claim, it deprives him of property. It further held that the reason provided for this deprivation was not sufficient and the means used to achieve the purpose of the provision was disproportionate. The Constitutional Court accordingly concluded that the provision results in arbitrary deprivation of property in breach of section 25(1) of the Constitution; and that the deprivation was not a reasonable and justifiable limitation of the right as there are less restrictive means to achieve the purpose of the provision.
To view the media summary relating to this judgment, click here.
1 The Notice was published in Government Gazette No. 35909 of 30 November 2012.
2 34 of 2005.
3  ZACC 29.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.