PMG



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Disclaimers

This document is the proprietary and exclusive property of Capital Software Holdings (Pty) Ltd (“hereinafter referred to as CAPITAL”), except as otherwise indicated. No part of this document, in whole or in part, may be reproduced, stored, transmitted, or used for design purposes without the prior written permission of CAPITAL.

While CAPITAL has no reason to believe that there are any errors or omissions in the information contained in this document, CAPITAL does not represent or warrant that the document is free from error, and does not assume, and expressly disclaims, any liability to any person for any loss or damage caused by errors or omissions in the document, whether such errors or omissions result from negligence, accident or any other cause.

Document History

|Version |Document Type |Issued By |Issue Date |Comments |

|1.0 |Capital Software Document |Jacques de Wet, Managing |2013 |Confidential |

| | |Director | | |

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Introduction

With reference to the National Credit Amendment Bill [B47-2013] and the explanatory summary of the Bill published in the Government Gazette No 36916 of 9 October 2013, find herewith the submission on the part of Capital Computer Bureau (Pty) Ltd (Trading As Capital Software) (Registration Number 1968/000104/07) (hereinafter referred to as CAPITAL):

Section 44A: Registration of payment distribution agents

With specific reference to the insertion of section 44A in Act 34 of 2005: Registration of payment distribution agents:

It is most certainly laudable that with the insertion of section 44A, the Act is no longer “silent” regarding the registration of PDA’s.

However, it would seem that the Act remains disconcertingly and glaringly “silent” and / or vague about the objective criteria for the registration and regulation of PDA’s.

Whilst the Act often makes appropriate reference to important, related and supporting legislation such as the Banks Act when deemed relevant, it would seem that the framework established within section 44A in Act 34 of 2005 makes no attempt to reference the National Payment System Act, 1998 (Act No. 78 of 1998 - the NPS Act) nor any reference to Directives 1 and 2 of 2007 nor any reference to the registration criteria and regulation of so-called Third Party Payment Processors (TPPP) and System Operators (SO).

Background:

Criteria for registration and regulation of PDA’s:

It remains a universal truth that vagueness is cause for misunderstanding, misinterpretation, contradiction, anomalies and possible abuse. It therefore remains cause for substantial concern that little or no objective criteria are established in Section 44A for both the registration and regulation of PDA’s. In this regard, it is suggested that the language of section 44A remains incomplete and ambiguous.

Furthermore, it would also seem that no clear and unambiguous provision has been provided for the following:

• The current practice whereby a debt counselor may distribute funds for and on behalf of the consumer, provided that the NCR is made aware of this practice:

o It is common cause that the NCR has expressly and specifically insisted and promoted the utilization of the PDA’s. Debt Counsellors may be de-registered in the event that they fail to do so. Understandably, the NCR has through conditions of registration elected to prohibit the distribution of funds by debt counselors. However, no clear and unambiguous provision is provided for the debt counselor who has sufficient capacity and capability and has potentially engaged the services of reputable Third Party Payment Processors (TPPP’s) to make payments on behalf of consumers.

• The current practice whereby a consumer may distribute his / her own funds, provided that the NCR is made aware of this practice:

o As mentioned above, it is common cause that the NCR has expressly and specifically insisted and promoted the utilization of the PDA’s. Debt Counsellors may be de-registered in the event that they fail to insist that the consumer (their client) utilize the services of a PDA. However, no clear and unambiguous provision is provided for the consumer who has elected to make his / her payments personally or alternatively engage the services of a reputable Third Party Payment Processors (TPPP’s) to make payments on his / her behalf.

Excessive cost charged by PDA’s:

It is unequivocal and beyond question that PDA’s present an additional, substantial and onerous cost to the over-indebted consumer.

Based on certain elementary assumptions, a brief calculation (as illustrated further herein below) will indicate that literally billions of rands could have been allocated to the early settlement of debt.

For consumers already over-indebted and stressed, this simplified analysis questions the rationale as well as the ethical foundation for insisting that Debt Counselors utilize expensive PDA’s as part of their conditions of registration.

Considering the impact of these excessive costs charged by the current PDA’s on the over-indebted and stressed consumer, it is respectfully submitted that competitive pricing as may be determined by the market will reduce the anomalies introduced in the past by way of regulation.

The questionable service levels achieved by the PDA’s:

The lack of service delivery on the part of the PDA’s has been cause for substantial concern in the industry. Despite numerous and repeated attempts on the part of the NCR to remedy the failure of the PDA’s in this regard, the PDA’s have consistently and repeatedly failed to address the concerns and required service levels of industry participants.

Once again, considering the impact of these unacceptable levels of service on the over-indebted and stressed consumer, it is respectfully submitted that broader competition as may be determined by the market will increase competition and choice for the consumer and therefore significantly increase service levels.

Risk relating to non-payment by the PDA’s:

There is substantial risk that if the PDA fails to pay the credit provider, the consumer will be in a worse position. Recent precedence has confirmed this fact.

As will be further explained herein below, it is most important to note that the Payments Industry is highly regulated and well managed.

The South African Reserve Bank (SARB) has stated unequivocally that the regulatory framework provided by the National Payment System Act together with the associated Directives must ensure that there is no systemic risk introduced in the National Payment System, that confidence in the National Payment System is promoted, that access for all participants is both equal and fair, and finally that participants are both regulated and managed.

Personal Background

Jacques De Wet is an advocate of the Supreme Court of South Africa, a member of the Standing Committee for the Review of the National Payment System (NPS) Act at the South African Reserve Bank (SARB), Chairman of the Commercial Independent Bureau Association (CIBA), a member of the Payment System Stakeholder Forum (PSSF) at the Payment Association of South Africa (PASA), with more than 25 years experience in the payments industry and transactional banking.

National Payment System (NPS) Act

In terms of section 10(1)(c) of the South African Reserve Bank Act, 1989 (Act No. 90 of 1989 - the SARB Act), the South African Reserve Bank (the Bank) is required to perform such functions, implement such rules and procedures and, in general, take such steps as may be necessary to establish, conduct, monitor, regulate and supervise payment, clearing or settlement systems.

Furthermore, the National Payment System Act, 1998 (Act No. 78 of 1998 - the NPS Act) provides for the management, administration, operation, regulation and supervision of payment, clearing and settlement systems in the Republic of South Africa, and for connected matters.

The National Payment System (NPS) encompasses the entire payment process from payer to beneficiary and includes settlement between banks. The process includes all the tools, systems, mechanisms, institutions, agreements, procedures, rules or laws applied or utilised to effect payment. The NPS enables the circulation of money, that is, it enables transacting parties to exchange value.

In terms of the NPS Act, the Bank may from time to time, after consultation with the payment system management body, issue directives to any person regarding a payment system or the application of the provisions of the NPS Act (section 12).

The Bank has accordingly issued Directives 1 and 2 of 2007 in order to regulate so-called Third Party Payment Processors (TPPP) and System Operators (SO).

Third Party Payment Processor (TPPP) & System Operator (SO)

Capital Computer Bureau (Pty) Ltd (Reg No: 1968/000104/07), trading as Capital Software, is a Third Party Payments Processor (TPPP) and Systems Operator (SO), regulated by the National Payments Systems (NPS) Department of the South African Reserve Bank (SARB) in terms of the National Payment System (NPS) Act (see Resbank.co.za) sponsored by ABSA Bank and registered at the Payments Association of South Africa (PASA) (see .za).

It is the submission of CAPITAL that the payments industry is well regulated and managed. Furthermore, there are a large number of participants in the payments industry (see .za) providing for a competitive and well regulated industry. The requirements and standards for participation in the National Payment System are well documented, clearly specified, adequately legislated, highly regulated and well managed in terms of the National Payment System Act as supplemented with Directives 1 and 2 of 2007.

Many of the registered TPPP’s and SO’s are long, well-established businesses with credible and impeccable track records that process substantial volumes of payment transactions with a high degree of automation and the commensurate accuracy, employing staff with the necessary legal and financial skills and competencies required to deliver transactional banking services of this nature.

Competition and Cost Savings for Consumers

The various participants in the payment industry have a wealth of individual and collective experience. Furthermore, the payment industry is competitive in nature.

Therefore, the payment industry processes high volumes of payment transactions with a high degree of automation resulting in substantial cost savings for consumers. Literally millions upon millions of payment transactions are processed each month at low cost (including payments to creditors on behalf of distressed debtors under review).  

CAPITAL has on numerous occasions attempted to engage appropriate parties and bodies regarding the substantial cost savings available in this regard for consumers.

It is inexplicable and cause for consternation that debtors are expected to pay substantially inflated prices for the distribution of payments to creditors, whilst existing, certified, approved and tested payment technologies can deliver the same (if not better) services at massively reduced prices (for example, R5 per payment to a maximum of R50 per debtor per month excluding VAT and bank charges).

This will substantially reduce the cost paid by distressed debtors for the distribution of their payments to creditors.  

It has been the experience of CAPITAL that in certain circumstances debtors’ pay as much as R500 per month for payment distribution services from the current PDA’s.

Certain elementary assumptions and calculations indicate that over the course of the past several years, literally billions upon billions of rands paid by debtors to the PDA’s could have been re-allocated for the early settlement of outstanding debt (for example: 300,000 debtors x R400 saving per month x 60 months = R7,2 billion).

Proposed, Suggested Amendments

Currently available payment gateway technologies from registered and certified Third Party Payment Processors (TPPP’s) and System Operators (SO) can distribute payments to creditors on behalf of debtors in a cost-effective and efficient manner.

These technologies and solutions are well regulated by the payments industry in terms of the regulatory framework referred to above.

Considering the considerable expertise available within the payments industry, it has always been inexplicable and cause for great consternation that there has been no engagement with existing, certified and approved TPPP’s and SO’s for the distribution of payments on behalf of distressed debtors.

We are supportive of the underlying principles of the National Credit Act. However, we are also specifically supportive of utilizing the current, regulatory framework as established in terms of the National Payment System Act.

We are of the view that this will introduce greater competition, reduce costs for the consumer, increase efficiencies by ensuring timeous and accurate payment distribution to creditors, introduce greater freedom of choice for consumers, ensure fair and equal participation for all participants and stakeholders, and positively engage consumers in their underlying legal obligation to creditors.

In other words, it is our view that the utilization of currently available payment services will substantially reduce the cost paid by distressed debtors associated with the distribution of payments, allowing for the savings to be re-allocated to the settlement of outstanding debt, thereby assisting distressed debtors in the early settlement of their commitments to creditors.  

Furthermore, in our view it is not necessary for the further regulation of the payment services industry in terms of the National Credit Act since it is adequately and comprehensively regulated within the framework of the National Payment System Act and Directives 1 and 2 of 2007.

Therefore, our suggested and proposed amendments and recommendations may be summarized as follows:

1. Amend the National Credit Act to reference the appropriate and accompanying legislation in the payment industry, namely the National Payment System Act as supplemented by Directives 1 and 2 of 2007; and

2. Require the distribution of payments to be facilitated and processed by parties who are appropriately registered, sponsored, regulated and audited in terms of the regulatory framework in the payments industry, namely the National Payment System Act, supplemented by Directives 1 and 2 of 2007, and as further regulated and managed by the Payment Association of South Africa (PASA) (i.e. require the annual re-registration at PASA as a Third Party Payment Processor and / or System Operator); and

3. Implement processes to specifically reduce the cost per payment to acceptable industry standards (e.g. R5 per payment and / or R50 per debtor per month); and

4. Require a number of years experience in the payment industry (e.g. three to five years) as a measure of the capability, capacity and experience required in order to process and perform large volume payment distribution services on a timeous and accurate basis.

5. Ensure equal and fair access for all current and prospective participants and stakeholders (as specifically provided for in terms of the National Payment System (NPS) Act and the Directives of 2007).

6. Investigate and audit the PDA’s with a view to implement the above processes equally, fairly and more broadly amongst all participants in the payment industry in order to achieve the following objectives:

a. Level the playing field; and

b. Equal and fair access with no barriers to entry (as envisaged in the NPS Act); and

c. Introduce competition; and

d. Increase control and management via the payment industry; and

e. Most importantly, massively reduce costs for over-indebted and stressed consumers (thereby savings billions of rands that can be re-allocated to the early settlement of debt).

In conclusion, we would welcome an opportunity to make an oral submission should the committee deem it beneficial.

Supporting Documentation

• General Notices 559 of 2013 of the Department of Trade and Industry, Draft National Credit Act Policy Review Framework: Invitation for the Public to comment on the draft National Credit Act Policy Review Framework, as published in the Government Gazette No 36504 dated 29 May 2013; and

• General Notices 560 of 2013 of the Department of Trade and Industry, Draft National Credit Act Policy Review Framework: Invitation for the Public to comment on the draft National Credit Act Policy Review Framework, as published in the Government Gazette No 36505 dated 29 May 2013; and

• National Credit Act 34 of 2005; and

• National Payment System Act 78 of 1998; and

• Directives 1 and 2 of 2007

Corporate Information

Please do not hesitate to contact me via email on jdewet@ or on 082-416-9351 or 012-653-9114 should you require anything further.

Please note that all pricing is subject to volumes and confirmation.

For information on Capital Computer Bureau (Pty) Limited and its products and services, please visit

For additional information, please contact Capital Computer Bureau (Pty) Limited.

1 Edward Avenue

Hennopspark

Centurion

0046

P.O. Box 7693

Hennopsmeer

Centurion

0046

Gauteng

South Africa

Tel: +27 (0)12 653 9100

Fax: +27 (0)12 653 0019

E-mail: jacquesd@

Company Registration Number: 1968/000104/07

VAT Registration Number: 4330111073

Bankers: Absa Bank Limited, Brooklyn Branch, Pretoria, South Africa

Auditors: Griesel Nel, Centurion, Pretoria, South Africa

Attorneys: Fairbridge Aderne & Lawton Inc, Johannesburg, South Africa

PASA registered System Operators and Third Party Payments Processor

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