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[2016] ZAGPPHC 332
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Micro Finance South Africa v Minister of Trade and Industry and Another (16746/2016) [2016] ZAGPPHC 332 (5 May 2016)
HIGH COURT OF SOUTH
AFRICA
(GAUTENG PROVINCIAL
DIVISION, PRETORIA)
Reportable:
electronic reporting
Of
interest to other judges: No
Revised.
5/5/2016
Case
No. 16746/2016
In
the matter between:
MICRO
FINANCE SOUTH
AFRICA
Applicant
and
THE MINISTER OF TRADE
AND INDUSTRY
First Respondent
THE NATIONAL CREDIT
REGULATOR
Second Respondent
Summary: Application
for an order staying the implementation of those parts of the
regulations promulgated by the Minister of Trade
and Industry under
the National Credit Act 34 of 2005 in Government Gazette No. 39379
Vol. 605 of 6 November 2015 prescribing the
maximum rates of interest
and service and initiation fees that credit providers are entitled to
charge on 'micro loans' pending
judicial review of those parts of the
regulations - Applicant's right to review the impugned decision of
the minister did not require
any reservation pendente lite.
JUDGMENT
MEYER,
J
[1]This
is an urgent application for an order staying the implementation of
those parts of the regulations published in Government
Gazette No.
39379 Vol. 605 of 6 November 2015 (the new regulations) prescribing
the maximum rates of interest and service and initiation
fees that
credit providers are entitled to charge on 'micro loans' (a credit
agreement of less than RS 000.00 and repayable within
six months or
less) pending judicial review of those parts of the regulations in
terms of part B of the notice of motion.
[2]
The applicant, Micro Finance South Africa, is a representative body
of credit providers operating in the micro finance industry.
The
applicant has 487 corporate entity members which conduct business at
approximately 1190 branches in South Africa. The applicant
represents
about 30% of the micro finance industry. Several of the largest micro
lenders - Bayport Financial Services, Wonga Finance
SA (Pty) Ltd and
Barko Financial Services (Pty) Ltd - are not members of the
applicant. The company secretary of the second respondent,
the
National Credit Regulator that was established in terms of s 12 of
the NCA (the regulator), states that '. . . commercial banks
hold by
far the greatest majority on average 84% of all unsecured loan
agreements entered into, and on average 85% of short term
loans,
between the fourth quarter of 2012 and the fourth quarter of 2015. In
terms of short term loans there has been declining
presence of the
banks in favour of other credit providers, however as at fourth
quarter of 2015 other credit providers only still
hold one-third of
the credit extended in terms of such short term loan agreements.'
[3]
The first respondent, the Minister of Trade and Industry (the
minister), promulgated the new regulations under the National
Credit
Act 34 of 2005 (the NCA). He is appointed as a cabinet minister in
terms of s 91 of the Constitution of the Republic of
South Africa
with the mandate, inter alia, to exercise the executive authority
over the Department of Trade and Industry. The regulator
is in terms
of s 13 of the NCA responsible for conducting research and proposing
policy to the minister on matters affecting the
consumer credit
industry, including proposals on legislative, regulatory and policy
initiatives that would improve access to credit
for '. . .
historically disadvantaged persons, low income persons and
communities and remote, isolated or low density populations
and
communities.' The regulator, in terms of s 18 of the NCA, is enjoined
to give advice, make recommendations and report to the
minister on
matters relating to consumer protection and related consumer credit
products, market practices, and so forth.
[4]
The NCA was assented to on 10 March 2006 and its commencement date
was 1 June 2006. Part C of the NCA, which is pertinent to
the present
application, only commenced on 1 June 2007. Section 171 of the NCA
empowers the minister to '[m]ake any regulations
expressly authorised
or contemplated elsewhere in this Act, in accordance with sub-section
(2).' Section 105 of the NCA affords
the minister a discretion, in
consultation with the regulator, to prescribe methods for calculating
maximum interest rates and
maximum fees. Should the minister exercise
this discretion, s 105 compels him or her to take certain factors
into account.
[5]
The minister promulgated regulations relating to part C of the NCA on
31 May 2006 (the old regulations). A maximum interest
rate of 5% per
month was prescribed for short term credit transactions (micro loans)
(reg 42), a maximum initiation fee of R150
per credit agreement,
plus, 10% of the amount of the agreement in excess of R1 000 but
never to exceed R1, 000 (reg 42), and a
maximum monthly service fee
of R50 (reg 44).
[6]
The draft new regulations were published for comment on 25 June 2015.
The regulator commissioned Price Waterhouse Coopers to
conduct a
sensitivity study across the credit industry. Once the draft
regulations were published the minister had to ensure that
they
complied with policy standards, which included amongst others
consulting with the relevant and interested stakeholders such
as
non-governmental organisations, local authorities, representatives of
the credit industry and civil society and experts who
provide advice
on technical issues.
[7]
The notice inviting public comments to the draft Regulations on
Review of Limitations on Fees and Interest Rates was published
in
Government Gazette No. 38911 on 25 June 2015 under Notice 655 of
2015. About 25 submissions were received from various interested
parties. The applicant too has always been involved in the process of
reviewing the regulations. According to the minister the
issues
raised by the applicant in these proceedings were the same issues
that were raised in its submissions and all those issues
were
considered. Even with the newly obtained expert reports, the minister
states that the applicant has ' . . . not come up with
any matter
that was not considered prior to the promulgation of the new
regulations.' The Department of Trade and Industry also
conducted
consultative meetings with a wide range of credit providers and other
interested parties. Comments were also invited
from various consumer
groups and academics. The 'ground swell', according to the
company secretary of the regulator, '. .
. was in support of the
regulations, rather than in opposition thereto.' The
minister also states that it is only the
applicant who is taking
issue with the new regulations. All the other industry stakeholders
have not challenged the new regulations.
[8]
The minister states that some of the submissions received and in
favour of the credit providers were that low interest rates
would
lead to a situation where it is not economically viable for credit
providers to extend loans to high risk consumers and effectively
excluding lower income earners who depend on and are able to access
short term and unsecured credit; would result in the demise
of
regulated small and medium sized credit providers and risk pushing
them into the unregulated underground market; job losses
in the small
and medium sized credit providers' space. Some of the submissions
received and in favour of the credit receivers included
the need to
strike a balance of the rights of consumers and those of credit
providers; consumers were wedged in a debt cycle payable
to
micro-financiers due to the high interest rates payable; credit
standing of consumers, including adverse judgments and administrative
orders and adverse credit listings; the number of consumers with
impaired records and their inability to access credit; the inability
or difficulty in extinguishing debt due to high fees and interest
rates; the adverse effects of over indebtedness on families and
on
the well-being of children; matters relating to reckless lending;
lack of affordability assessment by some of the credit providers;
and
methods of debt collection.
[9]
The minister further states as follows:
‘…
I
considered, amongst others, the factors referred to above, all
submissions made by stakeholders, the need to make credit available
to persons who are historically disadvantaged, low income earners,
those from remote or isolated communities, the conditions prevailing
in the credit market including the cost of credit in relation to the
consumer credit market and the social impact on low income
credit
consumers. In applying my mind to the review I took into account
different sectors within the credit industry. I established
different
maximums for credit agreements within each sub-sector of the consumer
credit market. I prescribed the methods consistent
with the cost of
credit as envisaged in section 101(3) of the Act for the allocation
of service fees between the provision of credit
and the provision of
related financial services in circumstances in which a credit
provider offers multiple financial services
under a single agreement.
I also considered the maximum rate of interest and maximum fees
applicable to each sub-sector of the
consumer credit market. These
factors are demonstrated in the new regulations as contained in the
schedule. Most importantly, these
have been conveyed to the general
public and an expectation that they will become effective on 6 May
2016 has been created.'
[10]
Once the comments had been received and analysed, the draft
regulations were reviewed and on 21 October 2015 the minister
authorised the publication of the final Regulations on Review of
Limitations on Fees and interest Rates. These final regulations
were
published on 6 November 2015. The minister states that a reduction of
7.9% was proposed in the published draft regulations
which would have
resulted in the interest rates for unsecured credit transactions
being reduced from 32.65% to 24.78%. But once
the input had been
received 'the team' (comprising of officials from the Department of
Trade and Industry, the regulator and the
minister) agreed that a
reasonable reduction for unsecured credit transactions would be from
32.65% to 27.75%. It was, according
to the minster, agreed that a
moderate reduction of 5.65% instead of the 7.9% was reasonable and
balanced both the interests of
the credit providers and those of the
credit consumers.
[11]
In terms of the new regulations the maximum prescribed interest rate
on short term transactions is 5% per month on the
first loan and
3% per month on subsequent loans within a calender year. The
maximum initiation fee prescribed for these credit
transactions is
R165 per credit agreement plus 10% of the amount in excess of R1 000
but never to exceed R1 050. The maximum
monthly service fee
prescribed is R60.
[12]
The minister is of the view '. . . that the new regulations are
balanced enough to address the needs of all those who are involved
in
the credit industry.' According to him in enacting the regulations he
' . . . took into account all relevant considerations,
adequate
consultations were held and [his] decision . . . is rational
and consistent with the constitutional imperatives.'
There is,
according to the minister, '. . . a pressing need on the State to
ensure that its citizens are not subjected to exorbitant
credit fees
and interest rates.'
[13]
The general view expressed by members of the Trade and Industry
Portfolio Committee at its meeting on 10 February 2016 was
that the
interest rates prescribed in terms of the new regulations '. . . are
still too high.' The director of credit law and policy
of the
Department of Trade and Industry, Mr Siphamandla Kumkani, in response
to the committee members' view that interest rates
should be lowered
further than those prescribed in terms of the new regulations,
described the maximum rates as 'work in progress'
and said:
'We
had to perform a balancing act to ensure that businesses don't close
and jobs aren't lost. We've agreed [with industry] on a
phased-in
approach, but the aim is to bring rates down.'
The
company secretary of the second respondent states '. . . that the
cost of credit in South Africa remains extremely high, contributing
substantially to the over-indebtedness of consumer households.' The
Credit Bureau Monitor Report, 1st Quarter, March 2015 reflects
that
the Credit Bureau holds records of
approximately 23.11 million active
consumers
of which 12.7 million are classified in good standing and 10.41
million consumers have impaired records.
[14]
The applicant contends in these proceedings that prior to the
promulgation of the new regulations on 6 November 2015, a period
of
no less than nine years had passed without them being reviewed. This,
according to the applicant, had given rise to an untenable
situation.
As a result of inflation and certain other additional expenses (such
as payment streams) the members of the applicant
had found it
increasingly difficult to conduct business. When the new regulations
were finally promulgated, so the applicant contends,
the entire
industry was of the hope that these new regulations would remedy a
situation and effectively provide a new lease of
life for the micro
finance industry. However, states the applicant, upon closer scrutiny
it became apparent that in issuing the
new regulations the minister
and the regulator had failed to take into account the effect that
these new fees and interest rates
would have on the providers of
micro loans; failed to conduct proper market research in order to
determine if the new fees and
interest rates as prescribed would be
beneficial to the market as a whole; and failed to consider the views
of the members of the
applicant or any of the micro financiers in the
industry. The net effect of the new regulations, so the applicant
contends, is
effectively to bring the entire micro loan industry to
its knees and make it impossible to conduct business, let alone a
profitable
business. The applicant contends that legitimate micro
financiers will no longer be in business and the public will be
forced to
obtain finance from unregulated and unregistered sources;
thereby increasing the prospects of them being exploited to their
detriment.
[15]
The applicant presented the opinions of three expert witnesses. They
are Dr Penelope Hawkins, an economist who specializes
in the field of
credit provision; Mr Rob Jeffrey, an economist with Econometrix, who
has prior to the promulgation of the regulations
and at the stage
when public comment was invited, provided a comprehensive report on
the effect and impact that the proposed regulations
stand to have on
the credit industry; and Mr Robert Cameron-Ellis, a forensic
chartered accountant, who has undertaken an exercise
over a sample of
the members of the applicant to calculate the effect on the
businesses of the applicants' members.
[16]
In conclusion Dr Hawkins expresses the opinion that '[b]ased on the
analysis provided . . . it is difficult not to come to
one of two
conclusions; either, the limitations have been imposed without due
regard to all the matters relevant and pertinent
to the sustainable
and efficient functioning of the credit market or, the limitations
have been imposed at such a level to effectively
prevent providers
from offering such loans.' Mr Jeffrey inter alia expresses the
opinion that the new regulations will reduce access
to credit for low
income and rural credit consumers; focus on the high income
individuals with secure employment and income; raise
the cost
structure of small credit providers; raise the break even point on
lines and increase the economic size of loans; lead
to a move from
low margin products to high margin products; foster potentially
unnecessary higher margins - associated product
offerings to boost
returns; reduce competition amongst registered micro lending
operators at the lower end of the market; increase
the power of large
banking institutions; and stimulate growth in the illegal or
unregulated markets. The expert report of Mr Cameron-Ellis
is based
upon financial figures that were given to him by 196 member branches
of the applicant, which were held by 11 corporate
entities. (I have
mentioned that the applicant's members comprised of 487 corporate
entities with approximately 487 branches.)
He concluded that once the
new regulations are implemented, only two of the 11 corporate
entities will earn an acceptable return.
[17]
An applicant that claims an interim interdict must establish (a) a
prima facie right even if it is open to some doubt; (b)
a reasonable
apprehension of irreparable and imminent harm to the right if an
interdict is not granted; (c) the balance of convenience
must favour
the grant of the interdict; and (d) the applicant must have no other
remedy. (See
Setlogelo v Setlogelo
1914 AD 221.)
In
National
Treasury and Others v Opposition to Urban Tolling Alliance and others
2012 (6) SA 223
(CC), Moseneke DCJ said the following:
'[44]
The common-law annotation to the Setlogelo test is that courts grant
temporary restraining orders against the exercise of
statutory power
only in exceptional cases and when a strong case for that relief has
been made out. Beyond the common law, separation
of powers is an even
more vital tenet of our constitutional democracy. This means that the
Constitution requires courts to ensure
that all branches of
government act within the law. However, courts in turn must refrain
from entering the exclusive terrain of
the executive and the
legislative branches of government unless the intrusion is mandated
by the Constitution itself.
[45]
It seems to me that it is unnecessary to fashion a new test for the
grant of an interim interdict. The Setlogelo test, as adapted
by case
law, continues to be a handy and ready guide to the bench and
practitioners alike in the granting of interdicts in busy
magistrates' courts and high courts. However, now the test must be
applied cognisant of the normative scheme and democratic principles
that underpin our Constitution. This means that when a court
considers whether to grant an interim interdict it must do so in a
way that promotes the objects, spirit and purport of the
Constitution.
[46]
Two ready examples come to mind. If the right asserted in a claim for
an interim interdict is sourced from the Constitution
it would be
redundant to enquire whether that right exists. Similarly, when a
court weighs up where the balance of convenience
rests, it may not
fail to consider the probable impact of the restraining order on the
constitutional and statutory powers and
duties of the state
functionary or organ of state against which the interim order is
sought.
[47]
The balance of convenience enquiry must now carefully probe whether
and to which extent the restraining order will probably
intrude into
the exclusive terrain of another branch of government. The
enquiry must, alongside other relevant harm, have
proper regard to
what may be called separation of powers harm. A court must keep in
mind that a temporary restraint against the
exercise of statutory
power well ahead of the final adjudication of a claimant's case may
be granted only in the clearest of cases
and after a careful
consideration of separation of powers harm. It is neither prudent nor
necessary to define 'clearest of cases'.
However, one important
consideration would be whether the harm apprehended by the claimant
amounts to a breach of one or more fundamental
rights warranted by
the Bill of Rights. This is not such a case.
[48]
At the outset the high court had to decide whether the applicants had
established a prima facie right, although open to some
doubt. It
examined the grounds of review and was persuaded that they bore
prospects of success and that therefore the applicants
had
established a prima facie right to have the decisions reviewed and
set aside. Two comments are warranted. First, we heard full
argument
on the merits on the grounds of review. I am unable to say without
more that they bear any prospects of success. That
decision I leave
to the review court.
[49]
Second, there is a conceptual difficulty with the high court's
holding that the applicants have shown 'a prima facie . . .
right to
have the decision reviewed and set aside as formulated in prayers 1
and 2'. The right to approach a court to review and
set aside a
decision, in the past, and even more so now, resides in everyone. The
Constitution makes it plain that '(e)veryone
has the right to
administrative action that is lawful, reasonable and procedurally
fair' and in turn PAJA regulates the review
of administrative action.
[50]
Under the Setlogelo test the prima facie right a claimant must
establish is not merely the right to approach a court in order
to
review an administrative decision. It is a right to which, if not
protected by an interdict, irreparable harm would ensue. An
interdict
is meant to prevent future conduct and not decisions already made.
Quite apart from the right to review and to set aside
impugned
decisions, the applicants should have demonstrated a prima facie
right that is threatened by an impending or imminent
irreparable
harm. The right to review the impugned decisions did not require any
preservation pendente lite.'
[18]
The applicant contends that it has made out a strong prima facie
right on the papers as they presently stand, and thus, the
less the
need for the balance of convenience to favour it. I disagree. I am
reluctant in the present urgent proceedings to resolve
whether a
prima facie right has been proven. The record of the proceedings
sought to be reviewed does not presently form part of
the urgent
application before me. However, the minister's response and that of
the regulator (despite the applicant's criticism
of their respective
responses) as well as the fact that the expert report of Mr
Cameron-Ellis is based upon financial figures that
were given to him
by only 11 corporate entities out of the applicant's 487 corporate
entity members and, moreover, without the
applicant presenting
confirmatory affidavits from the corporate entities or the branches
to verify the accuracy of the financial
figures, leads me to the
conclusion, at best for the applicant, that it has established a
prima facie right open to some doubt.
An expert is not entitled, any
more than any other witness, to give hearsay evidence as to any fact,
and all facts on which the
expert witness relies must ordinarily be
established during the trial (and in this instance on the
affidavits), except those facts
which the expert draws as a
conclusion by reason of his or her expertise from other facts which
have been admitted by the other
party or established by admissible
evidence. (See:
Coopers (South Africa)
(Pty) Ltd v Deutsche
Gesellschaft tar Schadlingsbekamp-fung MBH
1976 (3) SA 352
(A) at
p 371G;
Reckitt
&
Colman
SA
(Pty) Ltd v
S C
Johnson
& Son SA
(Pty) Ltd
1993 (2) SA 307
(A) at p
315E);
Lomadawn Investments (Pty) Ltd v Minister van Landbou
1977
(3) SA 618
(T) at p 623;
Holtzhauzen v Roodt
1997 (4) SA 766
(W) at p 772). My acceptance that the applicant has established a
prima facie right open to some doubt is not a definitive decision
on
the question. That decision is best left to the review court.
[19]
I am of the view that the balance of convenience is dispositive of
the urgent relief which the applicant presently seeks under
part A of
the notice of motion. In weighing any harm to be endured by the
applicant's members if interim relief is not granted,
as against the
harm the minister, the regulator, other credit granters and credit
receivers will bear if the interdict is granted
I am not satisfied
that the balance of convenience favours the granting of a temporary
interdict.
[20]
The applicant has not established that awaiting the determination of
the review application would result in the demise of any
one of its
members. There was a long delay in the applicant launching the
present application. The new regulations were promulgated
on 6
November 2015 to come into effect on 6 May 2016. The present
application was only launched on 1 March 2016. Lengthy periods
of
delay in launching the application have not been adequately
explained. The urgent part of the application (part A) was only
heard
on Tuesday, 3 May 2016 and judgment is to be handed down on Thursday,
5 May 2016 before the coming into effect of the new
regulations on
Friday, 6 May 2016. The new regulations have accordingly been in the
public domain for a period of six months and
their implementation is
due in a day's time. The company secretary of the regulator states
that '[e]very credit provider will be
in the throes of amending their
systems to implement the new interest rates at considerable costs.'
The minister states that other
stakeholders, the banks, ' . . . have
reported the extent of progress in preparation for the implementation
of the new regulations.
They have programmed their systems and have
aligned them in terms of the revised fees and regulations.'
Furthermore, only 11 of
the applicant's 487 corporate entity members
furnished relevant financial information to the applicant's expert,
Mr Cameron-Ellis,
to support the applicant's averments of the adverse
effects of the new regulations. The implementation of the regulations
is not
opposed by the entire micro lending industry. On the contrary,
in the words of the company secretary of the regulator, '[t]he ground
swell was in support of the regulations rather than in opposition
thereto.'
[21]
The minister and the regulator will suffer what the Constitutional
Court in the
Opposition to Urban Tolling Alliance
case
referred to as 'separation of powers harm' if the interim relief is
granted. This has not been established to be an exceptional
case for
the grant of a temporary restraining order against the exercise of
the minister's statutory power nor did it make out
a strong case for
that relief. The minister promulgated the new regulations in the
exercise of his statutory power. They should
come into effect on 6
May 2016 as promulgated and remain in force unless and until this
court set them aside in the review under
part B of the applicant's
notice of motion. The applicant's right to review the minister's
impugned decision does not on the facts
before me require any
reservation pendente lite.
[22]
My conclusion renders it unnecessary to consider the other questions
raised in these proceedings, such as the other requirements
for an
interim interdict, urgency and non-joinder of interested parties. But
two matters require mention: First, this application
comprises 1 053
pages, but counsel, through their thorough and most helpful heads of
argument, assisted me in preparing for the
hearing of the application
during the course of the long weekend that immediately preceded the
hearing and it enabled the hearing
to be finalized within a day,
leaving me with a day to write this judgment. Second, I consider the
expeditious final determination
of the review part (part B) of this
application to be in the public interest. The parties will be
well-advised to approach the
Honourable Deputy Judge President of
this division to arrange for case management of that part of the
application and for the allocation
of a preferential date for the
hearing thereof.
[23]
In the result the following order is made:
Part
A of the Notice of Motion is dismissed with costs, including the
costs of two counsel for the first respondent and one senior
counsel
for the second respondent.
_________________________
P.A MEYER
JUDGE
OF THE HIGH COURT
Date
of hearing:
3 May 2016
Date
of judgment:
5 May 2016
Counsel
for the applicant:
R Michau SC (assisted by
J Hershensohn)
Instructed
by:
Lewies Attorneys, Menlo Park, Pretoria
Counsel
for 1st respondent:
TV Norman SC (assisted by P Jara)
Instructed
by:
State Attorney, Pretoria
Counsel
for the 2nd respondent: PL Carstensen SC
Instructed
by:
Edward Nathan Sonnenbergs, Sandton
Clo
Salome
Le Roux Attorneys, Menlo Park, Pretoria