Tanya's Article On Consumer On ADR

2016 (1) SA Merc LJ 21
CONSUMER PROTECTION AND

ALTERNATIVE DISPUTE RESOLUTION
TANYA WOKER*
Professor of Law, University of KwaZulu-Natal (Durban)
I INTRODUCTION
Consumers in South Africa are said to be amongst the most protected in
the world.1 Since the introduction of the National Credit Act2 (NCA)
and the Consumer Protection Act3 (CPA) the issue of consumer rights
has certainly come to the fore in South Africa. The CPA in particular
contains a Bill of Rights for consumers4 and many previously accepted
marketing and advertising practices are now outlawed or heavily
regulated. It is generally accepted, in theory at least, that it is no longer
business as usual in the South African consumer market.5 A critical
aspect of consumer protection is ensuring that when consumer rights
have been violated, consumers are able to obtain redress.
It is internationally recognised that consumer protection legislation
and access to justice are closely linked and the improvement of access to
justice is one of the ‘over-arching [sic] goals of consumer protection
legislation’.6 The NCA and CPA have introduced new avenues for
consumers to access redress as they can now refer their complaints to the
National Credit Regulator (Regulator),7 the Consumer Commission
* BA LLB LLM (Natal) PhD (Rhodes).

1
Numerous articles which appeared at the time the Consumer Protection Act 68 of 2008
was first published hailed the legislation as introducing a new era of protection for consumers
in South Africa. See, for example, Stokes ‘A good decade for South African consumers’,
available at http://www.fanews.co.za/article/talked-about-features/25/straight-talk/1146/a-
good-decade-for-south-african-consumers/11458, accessed on 26 January 2016.
2
Act 34 of 2005.
3
Act 68 of 2008.
4
Chapter 2 ‘Fundamental Consumer Rights’. See also Jacobs, Stoop & Van Niekerk
‘Fundamental consumer rights under the Consumer Protection Act 68 of 2008: A critical
overview and analysis’ (2010) 13(3) PELJ 302.
5
Reddy & Rampersad ‘Ethical business practices: the Consumer Protection Act and
socio-economic transformation in South Africa’ (2012) 6(25) African Journal of Business
Management 7403, available at http://www.academicjournals.org/AJBM, accessed on 17 July
2015.
6
Rickett & Telfer ‘Consumer access to justice, an introduction’ in Rickett & Telfer (eds),
International Perspectives on Consumers’ Access to Justice (Cambridge 2003) 1.
7
Established in terms of s 12 of the NCA.
21
© Juta and Company (Pty) Ltd
22 (2016) 28 SA MERC LJ
(Commission)8 and the National Consumer Tribunal (Tribunal).9

However, the legislature never envisaged that these entities would be
solely responsible for addressing the needs of consumers. This would be
completely unrealistic as the CPA, in particular, is a comprehensive
statute which covers virtually every type of business activity in South
Africa, from taxi-driving to legal practice; from the fitness industry to
hairdressing salons.10 Neither the Commission nor the Regulator could
possibly have the resources or the expertise to deal with each and every
complaint referred to their offices.11 When the Commission was first
established in 2011, it was flooded with consumer complaints and it
attempted to deal with these complaints itself. This led to a huge backlog
and increased consumer frustration.12 The Commission has acknowl-
edged that this strategy was unworkable and it now recommends that
8
Established in terms of s 85 of the CPA. For a discussion of the roles of the Commission
and the Tribunal, see Magaqa ‘The NCC and the NCT walk the long road to consumer
protection’ (2015) 27(1) SA Merc LJ 32.
9
The Tribunal has been established in terms of s 26 of the NCA. See ch 2 Part B where its
functions and powers are set out. Its mandate was increased when the CPA came into
operation. Both the NCA and the CPA introduce the concept of ‘prohibited conduct’.
Prohibited conduct is defined as any act or omission in contravention of the NCA or CPA (see
s 1 of the NCA and s 1 of the CPA — the definition sections). When a supplier is engaging in
such conduct, the matter can be referred to the Tribunal for a hearing and the Tribunal is
empowered to impose an administrative penalty of R1 million or 10 per cent of annual
turnover (s 151 of the NCA).
10
In terms of the Financial Services Laws General Amendment Act 45 of 2013, which came
into operation on 28 February 2014, the long-term and short-term insurance industry, the
pension fund industry, collective investment schemes and securities are exempt from the
operation of the CPA. This is because many of the provisions of the CPA cannot be applied
appropriately in the financial sector and because there is a need for even greater protection for
consumers in this sector. The government is in the process of amending legislation applicable
to this sector and is introducing the ‘twin peaks’ model of regulation together with a campaign
referred to as the ‘treating customers fairly’ campaign. The National Treasury presented a
public workshop in Johannesburg on 17 March 2015 entitled ‘Treating customers fairly in the
financial sector: A draft market conduct policy framework for South Africa’. The power point
presentation is available at http://www.treasury.gov.za/twinpeaks/2015%20Draft%20
Market%20Conduct%20Policy%20Framework%20public%20workshop%20presentations%
2020150303.pdf, accessed on 19 October 2015.
11
This is not a uniquely South African problem. Government consumer protection
agencies the world over frequently report that they cannot, on their own, resolve all consumer
complaints.
12
On 24 January 2012 the Commission reported to the portfolio committee of the
Department of Trade and Industry (DTI) that in 2011 it had received on average 15 132
complaints per month and that approximately 20 000 calls were not even picked up because of
a lack of capacity to deal with the calls (see http://www.dti.gov.za, accessed on 1 July 2014).

CONSUMER PROTECTION AND ALTERNATIVE DISPUTE RESOLUTION 23
aggrieved consumers try other avenues for resolving disputes before

approaching it.13
In order to more effectively deal with access to redress, both the NCA
and the CPA promote alternative dispute resolution (ADR) and busi-
ness self-regulation through the adoption of voluntary codes of practice.
A number of different ADR entities such as ADR agents, ombuds with
jurisdiction and industry ombuds are given specific recognition. The
purpose of this article is to discuss the role which ADR can play in
overcoming the challenges that consumers face when attempting to
resolve their disputes. The article will also assess some of the obstacles
that remain and make some suggestions for reform.
II CHALLENGES TO OBTAINING REDRESS

In many societies consumers face enormous challenges when it comes to
accessing their rights. In South Africa, because of its history of inequal-
ity, these challenges are particularly acute. Former South African
President Thabo Mbeki described South Africa as having two econo-
mies.14 On the one hand there are modern, first-world industrial,
mining, agricultural, financial and services sectors and on the other, a
third-world economy, in both urban and rural areas, where the majority
of poor, mainly black, people live.15
Consumer protection legislation was introduced primarily to protect
the interests of the poor, the vulnerable and the less literate.16 In the
policy document setting out the reasons why it was necessary to
introduce consumer protection legislation, the drafters highlighted in
particular the difficulties consumers faced when it came to accessing
justice.17 This included having to approach the normal civil courts if
13
See ‘About the NCC’, available at http://www.thencc.gov.za/content/about-ncc,
accessed on 26 January 2016 and the Commission’s Annual Report 2013–2014 12. The
Commission’s annual reports are available at http://www.thencc.gov.za/content/annual-
reports.
14
Mbeki ‘Two worlds: Two economies’ (2004) 28(2) South African Labour Bulletin 10–11.
15
It must be noted that economists and social scientists have challenged the notion that
there are two separate economies and argue instead that one is highly dependent on the other.
See, for example, Cousins ‘Agrarian reform and the ‘‘two economies’’: Transforming South
Africa’s countryside’ in Ntsebeza & Hall (eds) The Land Question in South Africa: The
Challenge of Transformation and Redistribution (HSRC 2007) 220 and Bond ‘South Africa:
Two economies — or one system of superexploitation’ (2007) 37 Africanus: Journal of
Development Studies 1. A discussion of this debate is beyond the scope of this article; suffice to
say that the notion of two distinct economies living side by side in South Africa serves to paint
a useful picture of what life is like in South Africa.
16
This is a specific aim of the CPA (see s 3(b)).
17
DTI, Draft Green Paper on Consumer Policy Framework GN 1957 in GG 26774 of 9
September 2004 at 40.

24 (2016) 28 SA MERC LJ
suppliers fail to deal with legitimate complaints.18 Even when claims are
sufficiently large to be of some serious concern to consumers, approach-
ing the civil courts is notoriously expensive.19 Litigation is also very
intimidating and most consumers have no idea about how to launch
civil proceedings. Consumers who do take the time to complain often
find that their complaints are ignored and they do not know who to turn
to next.20
According to media and other reports these problems continue to
plague South African consumers.21 An important factor about con-
sumer protection is that consumers have to claim their rights — they do
not just happen. So despite the fact that both the NCA and the CPA have
been in operation for a number of years, it remains a challenge in South
Africa to ensure that consumers are in a position to claim their rights.22
For relatively well-educated consumers, the prospect is daunting, but for
the vast majority of consumers, there is, at present, very little hope: such
as the domestic worker earning R2 900 per month who purchases a
number of items from a furniture store for R7 700 but who ends up with
18
See Woker the National Credit Act and the Consumer Protection Act’ (2010) 31(2)
Obiter 217.
19
See Business Practice Committee, Consumer Codes (Report No 15) GN R444 in GG
13988 of 18 May 1992 at 35 and Van Heerden & Barnard ‘Redress for consumers in terms of
the Consumer Protection Act 68 of 2008: A comparative discussion’(2011) 6(3) Journal of
International Commercial Law and Technology 131 at 132.
20
Business Practice Committee Report No 15 at 35.
21
Knowler, an independent and well-known consumer journalist in South Africa who
writes for a number of different newspapers, regularly reports on frustrated consumers and
the difficulties they face when attempting to obtain redress. See, for example, Knowler
‘Protected? No, consumers are on their own’, available at http://www.iol.co.za/news/southa-
frica/protected-no-consumers-are-on-their-own, accessed on 8 July 2014. In this article
Knowler explains that when consumers complain, they are often told that the CPA does not
apply or that the CPA does not apply here (that is, in this shop). Attempts to refer matters to
the relevant authorities are equally unsuccessful. It seems that many suppliers are continuing
as if the CPA does not exist. See also Graham ‘Consumer Protection Act proving to be
toothless’, available at http://www.housecheck.co.za/consumer-protection-act-proving-to-
be-toothless/, accessed on 21 January 2016; Kalliatakis ‘The nanny state rescues banks, but
you’re on your own’ Business Report 26 August 2014 at 16; Nombembe, Deklerk & Collins
‘Garnishee victims: Their stories’ Sunday Times 19 July 2015 at 7.
22
On 22 July 2014 the Tribunal dealt with an application brought by the Regulator for the
de-registration of a micro lender (NCR v Comprehensive Financial Services CC Witbank
(NCT/13518/2014/57(1)) [2014] ZANCT 30 (20 August 2014) SAFLII, available at http://
www.saflii.org/za/cases/ZANCT/2014/30.html). From the documents submitted to the Tri-
bunal it was clear that many of this micro lender’s practices were in contravention of the NCA
and that it was simply continuing to operate as it had operated under the laws which were
repealed in 2007. In particular the lender was charging consumers interest rates in excess of 30
per cent per month and consumers were signing blank ‘consent to judgment’ forms. The
micro lender did not oppose the application.

a debt of R26 000 because of added costs and unspecified interest,23 or

the miner who has paid R11 600 for a loan of R1 000 and yet still owes
R3 084.24 Unless such consumers have access to justice, to a large extent
the rights contained in the NCA and the CPA will remain meaningless
for the vast majority of South African consumers.
Another problem is that consumers often receive poor advice which
exacerbates their suffering. A radio report in 2014 was about a consumer
23
See Korte ‘Fleeced! How Ellerines and African Bank misled a customer into debt’ 24 July
2014, available at http://www.groundup.org.za/article/fleeced-how-ellerines-and-african-
bank-misled-customer-debt_2036/, accessed on 21 January 2016.
24
Rees ‘Platinum miner repays R11 690 on R1 000 loan: Debt collection lawyers feast on
delinquent debtors in Rustenberg platinum belt’ Moneyweb 16 September 2012, available at
http://www.moneyweb.co.za/archive/platinum-miner-repays-r11690-on-r1000-loan/,
accessed on 21 January 2016. The labour unrest in Marikana has been attributed to the fact
that mine workers are so over-indebted that in many instances their take-home pay is
non-existent as it has been attached to satisfy debt. This unrest started some five years after the
introduction of the NCA, an important aim of which was to stop reckless lending and illegal
debt collection practices. See Davis ‘Marikana: The debt-hole that fuelled the fire’ Daily
Maverick 12 October 2012, available at http://www.dailymaverick.co.za, accessed on 8 July
2014. Many credit providers continue to use illegal methods to ensure that they are repaid
their loans. See Rhode ‘Swimming with sharks: South Africans’ trillion rand debt problem’,
Think Africa Press 8 November 2013, available at http://www.thinkafricapress.com, accessed
on 8 July 2014. Rees, in his article ‘Financially illiterate miners’ debt shocker’ (Moneyweb 1
October 2012, available at http://www.moneyweb.co.za, accessed on 8 July 2014), reported on
the systematic abuse of the ‘financially illiterate’ by credit providers and collection attorneys.
Most of the miners cannot read or write and had absolutely no idea of what they were getting
involved in when they signed credit agreements. There also appears to have been widespread
abuse of the garnishee system which includes the collusion of corrupt court officials (Rees
‘Garnishee fraud debacle widens’ Moneyweb Special Investigations 6 November 2012, available
at http://www.moneyweb.co.za, accessed on 8 July 2014). Garnishee order is the common
(incorrect) term given to emoluments attachment orders which are court orders that compel
employers to deduct amounts from employees’ wages until debts are cleared. Emoluments
attachment orders are granted in terms of s 65J of the Magistrates’ Courts Act 32 of 1944.
There is no restriction on the number of garnishee orders which can be attached to a salary,
hence the reason why some employees are left with no take-home pay at all. There is a process
which has to be followed before a garnishee order can be obtained; however, many consumers
are unaware of this process and often sign blank documents which can be filled in at a later
stage indicating that the consumer has consented to judgment being taken against him. Once
an order is delivered to an employer the employer is obliged to deduct the amount stated on
the order. See, for example, NCT v Comprehensive Financial Services CC Witbank where
consumers signed blank forms when taking out micro loans. See also University of Pretoria
Law Clinic The Incidence of and the Undesirable Practices Relating to Garnishee Orders in South
Africa (October 2008 Report). The government is in the process of investigating these
practices with a view to amending the Magistrates’ Court Act 32 of 1944. Measures which are
presently under investigation to curb this practice include ensuring that only magistrates can
issue emolument attachment orders and not clerks of the court. See also University of
Stellenbosch Legal Aid Clinic & others v Minister of Justice and Correctional Services & others
2015 (5) SA 221 (WCC) where the Western Cape High Court declared certain sections of the
Magistrates’ Court Act relating to emoluments attachment orders to be unconstitutional. The
court also severely criticised the debt-collecting practices of a firm of attorneys. This case was
brought by the University of Stellenbosch’s Legal Aid Clinic against 13 credit providers and a
law firm on behalf of 15 very poor farm workers.

26 (2016) 28 SA MERC LJ
who approached someone for advice and was told to consult with the
business which sold him the goods which he had purchased on credit
and which he could not afford as his child had died and he needed to
bury her. He wanted a ‘payment holiday’25 from these debts so that he
could pay off the funeral expenses. He did consult the business and after
satisfactorily (in his view) resolving the matter he found his goods were
repossessed and sold by the credit provider and months later his salary
was subjected to an emoluments attachment order.26 He found that his
debt had increased substantially because of all the added costs involved
in the debt-collection process27 and he no longer had the goods although
he had fully intended to resume paying for them once he had satisfied his
other debts.28
This example demonstrates that it is critically important that when
consumers are advised about their rights, they receive proper advice.
Ill-considered advice could lead to even further problems for consumers
and, in circumstances where consumers have purchased goods on credit,
crippling debts. It is against this background that the role of ADR is now
considered.
III ALTERNATIVE DISPUTE RESOLUTION

The purpose of ADR is to provide a bridge between no action at all and
expensive and complicated court procedures. ADR encompasses a range
of different techniques and processes that can be used to enhance access
to justice.29 The method chosen will often depend on the complexity of
25
This is a term sometimes used by debtors when they are unable to pay their debts. See, for
example, Debt Busters ‘Don’t miss a payment if you’re in debt counselling’, available at
http//:www.debtbusters.co.za, accessed on 8 August 2014.
26
Reported on Speak Out, an SABC consumer watch radio programme (1 July 2014).
27
For justifiable reasons, there has been substantial concern about the cost of credit and
this is now regulated by the NCA. It is still very high but not as high as it was before the
introduction of the NCA. However, an issue which needs to be tackled is the issue of the costs
of debt collection. Collection costs are capped in the Debt Collectors Act 114 of 1998, but
attorneys also do debt collection and their fees are not capped. Consumers often get locked
into a never-ending cycle of debt because they default for a short period on their loans which
then gets handed over to attorneys for collection. The costs involved in this process are the
ones which turn a manageable debt into a nightmare. This issue was raised by the portfolio
committee of the DTI when the amendments to the NCA were considered in January 2014.
28
See also the difficulties faced by the consumer who bought a defective second-hand
motor vehicle under a credit agreement with a financial institution in MFC (a division of
Nedbank Ltd) v Botha (6981/13) [2013] ZAWCHC 107 (15 August 2013) SAFLII, available at
http://www.saflii.org/za/cases/ZAWCHC/2013/107.html.
29
The Study Centre for Consumer Law — Centre for European Economic Law Final
Report An analysis and evaluation of alternative means of consumer redress other than redress
through ordinary judicial proceedings (EU Report) (Belgium 17 January 2007) 36.

the matter and many jurisdictions, including the European Union (EU),
America, Australia, Canada and New Zealand, provide a mix of ADR
mechanisms.30 This means that it is difficult to arrive at a precise
definition. In 2005 the European Commission commissioned a study
into alternative means of consumer redress other than through ordinary
judicial proceedings. The final report cautions against becoming pre-
occupied with trying to find precise definitions for concepts such as
ADR, mediation and arbitration. Instead the focus should be on
processes that are accessible and actually used by consumers.31 From the
perspective of consumers, they are not concerned with labels but rather
with outcomes and are simply looking for solutions to their problems.
Sometimes it is just a matter of being heard. A simple example is
consumers who believe that they have a general right to a ‘cooling off’
period. Consumers are often frustrated when they suffer ‘buyer’s
remorse’, and suppliers refuse to accept returned goods because the
goods are not defective.32 The Ombudsman for Short Term Insurance
points out that consumers often file complaints because of economic
stress and not because they believe they have been unfairly treated.33
When an independent person informs consumers that they do not have
a legal right to a remedy this is often the end of the matter. However, if
there is a legal claim then consumers (and often suppliers too) want the
problem resolved quickly, efficiently and in the most cost-effective
manner.
A consideration of the NCA and the CPA indicates that the legislation
is aimed at resolving consumer disputes at an early stage and long before
30
In South Africa ombuds in the financial services sector have their jurisdiction limited to a
certain degree, because it is believed that above that limit the matter is probably too
complicated and needs to be dealt with by a court of law. This has led to consumers in some
instances abandoning their claims because they cannot afford to litigate. See, for example,
Barnes and Risk Insurance Consultants CC Case No FAIS 6793/10–11/GP1 (2 November 2011)
a matter dealt with by the Financial Advisory and Intermediary Services (FAIS) Ombud, the
ombud appointed under the Financial Advisory and Intermediary Services (FAIS) Act 37
of 2002. The FAIS ombud’s jurisdiction is limited to R800 000 (see http://www.
faisombud.co.za).
31
EU Report 38. For example, the Ombudsman for Banking Services has taken to social
media in order to reach out to consumers. The ombud has a presence on Facebook and
Twitter and regularly answers questions from consumers. See Ombudsman for Banking
Services, Annual Report 2014 at 9, available at http://www.obssa.co.za/index.php/
publications, accessed on 20 October 2015.
32
See, for example, Knowler ‘CPA is clear: Only defective goods can be returned’ IOL Blogs
5 December 2012, available at http://www.iol.co.za/blogs/wendy-knowler-s-consumer-
watch–1.1608/cpa-si-clear-only-defective-goods-can-be-returned–1.1436425#.VapvFXkw_
ug, accessed on 17 July 2015.
33
Ombudsman for Short Term Insurance, Annual Report 2014 at 8, available at http://
www.osti.co.za/annual-reports.html, accessed on 20 October 2015.

28 (2016) 28 SA MERC LJ
matters reach the civil courts. For example, in terms of s 69(d) of the
CPA, the section of that Act which deals with the different avenues to
consumer redress, consumers should only turn to the civil courts when
they have exhausted all their other remedies. This raises the question
whether consumers may decide not to follow the various routes and opt
to go straight to court. In cases involving motor vehicles for example,
which are expensive assets, consumers may prefer to go straight to
court.34 A number of academics have dealt with interpretational chal-
lenges to the legislation and so it is not intended that these issues be dealt
with here.35 Suffice to say that, given the challenges which consumers
face when having to rely on the civil courts, consumers will only receive
access to redress, and hence justice, if these other routes to redress,
including ADR, operate effectively.36
The NCA and the CPA do not define ADR but they do provide very
broad definitions of what constitutes an ADR agent. In terms of the
NCA, this is a person who provides services to assist in the resolution of
consumer credit disputes through conciliation, mediation or arbitra-
tion.37 Under the CPA the definition is a little more specific in that it
includes an ombud with jurisdiction and an industry ombud accredited
by the Minister of Trade and Industry (Minister) in terms of s 82(6) as
well as any person who provides services to assist with consumer
34
In a number of recent cases involving motor vehicles consumers appear to have
approached the civil courts directly without involving the motor vehicle ombudsman. See, for
example, MFC (a division of Nedbank Ltd) and Vousvoukis v Queen Ace CC t/a Ace Motors
(3878/2013) [2015] ZAECGHC 64 (19 June 2015) SAFLII, available at http://www.saflii.org/
za/cases/ZAECGHC/2015/64.html.
35
Naude ‘Enforcement procedures in respect of the consumer’s right to fair, reasonable
and just contract terms under the Consumer Protection Act in comparative perspective’
(2010) 127(3) SALJ 515; Van Heerden & Barnard (2011) 6(3) Journal of International
Commercial Law and Technology 131; Mupangavanhu ‘An analysis of the Dispute Settlement
Mechanism under the Consumer Protection Act 68 of 2008’ (2012) 15(5) PELJ 319. See
generally Van Eeden Consumer Protection Law in South Africa (LexisNexis 2013) and Naude &
Eiselen (eds) Commentary on the Consumer Protection Act (Juta 2015). Two consumers who
were injured after purchasing defective ladders from Builders Warehouse have lodged claims
against the supplier for about R18 million under the CPA. One of the issues is that the parties
had not followed the procedure set out in s 69 before approaching the civil courts. A decision
in this matter will provide much needed clarity. See Schroeder ‘Pair injured in ladder fall sues
for R18m’ IOL News 7 February 2015, available at http://www.iol.co.za/news/crime-courts/
pair-injured-in-ladder-fall-sues-for-R18m–1.1814569#.VaosDnkw_ug, accessed on 20
March 2015.
36
The Ombudsman for Banking Services, Clive Pillay, in a presentation of the Ombud’s
2013 Annual Report which indicated that R23 million had been recovered for consumers in
2013 (up from R16.4 million in 2012 and R9.9 million in 2009) stated that in his view not one
of the consumers which his office had assisted would have had the means to take their disputes
to the civil courts.
37
Section 1 of the NCA.

disputes.38 Ombuds with jurisdiction are however referred to in the

NCA under the section which deals with ADR. Section 134 which is
headed ‘Alternative dispute resolution’ provides that as an alternative to
filing a complaint with the Regulator a person may refer a matter to an
ombud with jurisdiction, a consumer court or an alternative ADR agent.
The section further provides that that if there is a dispute between a
credit provider and a consumer that could be the subject of an
application to the Tribunal, other than a dispute which is being
investigated by the Regulator, the dispute must be referred to ADR first
if the parties are unable to resolve the dispute themselves. The wording
of the section (through the use of the word ‘must’) makes it clear that
consumers cannot apply directly to the Tribunal unless they have first
tried to resolve the matter through ADR which includes an ombud with
jurisdiction, a consumer court or an alternative ADR agent. From all of
this it can be deduced that ADR agents include the following:
• ADR agents other than ombuds and consumer courts;
• ombuds with jurisdiction;
• industry ombuds; and
• consumer courts.
Although debt counsellors have a very specific role under the NCA, it is
suggested that they should also be considered as ADR agents under both
the NCA and the CPA and so they are also included as part of the list of
ADR agents. This is discussed further below.
(a) ADR agents other than ombuds and consumer courts

As can be seen from the definitions in the NCA and the CPA there is a broad
category of ADR agents which would apply to any person who provides
assistance to consumers in an attempt to resolve disputes. Neither Act
provides any details regarding who or what qualifies as an ADR agent that
operates as an alternative to an ombud with jurisdiction, an industry ombud
or a consumer court. Until recently ADR agents have not been required to
register with any regulatory authority. Therefore any person or entity who
provides advice to consumers and who attempts to resolve consumer disputes
could potentially be regarded as an ADR agent. Obvious entities which, it is
suggested, would qualify include Black Sash,39 university law clinics40 and Pro
38
Section 1 of the CPA.
39
This is a human rights organisation that advocates for social justice in South Africa and
provides free paralegal advice to poor and vulnerable consumers.
40
See for example the important role which the University of Stellenbosch Law Clinic
played in the recent case of University of Stellenbosch Legal Aid Clinic where the clinic
represented poor farm workers.

30 (2016) 28 SA MERC LJ
Bono.41 The NCA has however been amended and since 13 March 2015 those
who conduct ADR under the NCA will have to be registered with the
Regulator and will have to comply with certain conditions.42
The requirement of registration is probably to ensure that ADR agents
are sufficiently trained and have certain skills before they attempt to give
consumers advice. Given the problems which consumers could experi-
ence when receiving poor advice, this development should perhaps be
welcomed. However there will be difficulties because the broad defini-
tions contained in the legislation could embrace any number of persons
or entities that assist consumers. Moreover the EU Report, mentioned
above, cautions against trying to arrive at a precise definition for ADR.
So it will not always be easy to establish upfront that an entity or person
is in fact acting as an ADR agent under the NCA — a church
organisation or small community group for example.43 In order to
ensure access to redress, such organisations should be encouraged to
provide their services. This is what South African society needs, but they
will have to exercise caution because if they assist consumers without
being registered, a complaint could be laid with the Regulator. Attempt-
ing to resolve a dispute without being registered with the Regulator will
constitute prohibited conduct under the NCA and such organisations
may face an investigation, a hearing before the Tribunal and the
possibility of an administrative fine. Even just the possibility of such
proceedings may cause many small entities to withdraw from assisting
consumers.
In addition, registered ADR agents (under the NCA) are required to
pay an initial registration fee of R20 000 and annual renewal fees of
R20 000.44 This may have a severe impact on the finances of non-
41
This is an NGO which provides pro bono legal services to poor people.
42
National Credit Amendment Act 19 of 2014 (NCA Amendment Act). The Act came into
operation on 13 March 2015. Section 134 has been amended to include s 134A which provides
that the Regulator must register and accredit ADR agents. Once registered the Regulator may
apply to the Tribunal for that registration to be cancelled if the ADR agent fails to comply with
any condition of its registration and accreditation or if it contravenes the Act.
43
It could even be argued that a person such as Knowler, the consumer journalist, is an
ADR agent because she frequently has a part to play in the resolution of consumer disputes.
44
The Minister may impose registration fees on any person or entity seeking registration
under the NCA. The regulations require payment distribution agents and ADR agents to pay
initial registration fees as well as annual renewal fees (see Schedule 2 of the Regulations to the
NCA as amended under GN R202 in GG 38557 of 13 March 2015).

governmental organisations which are prepared to offer such services.45

There is a strong possibility that such organisations will decline to deal
with issues which are governed by the NCA or they will be forced to
charge fees. This will certainly impact on the ability of poor and
vulnerable people to access their rights.
The CPA does not have the same registration requirements and yet it
also refers extensively to ADR agents. As these agents are not required to
apply for registration, it must be assumed that any person or entity is
entitled to set themselves up as an ADR agent. That being the case, any
industry body which has been established to self-regulate a particular
industry or sector may continue to operate under the CPA as an ADR
agent even though it has not applied for recognition in terms of s 82.
Such entity will have jurisdiction over its members and its code will be
applicable to its members only.46
(i) Self-regulation
Self-regulation occurs when a particular industry assumes responsibility
for regulating itself by setting its own rules and introducing its own form
of dispute resolution.47 In order for self-regulation to operate effectively
there must be an industry body which develops a code of conduct for the
industry and which has the capacity to monitor and enforce compli-
ance.48 For a time in South Africa, there was a trend toward moving away
from government intervention and allowing for more self-regulation
45
It is interesting to note that the renewal fee for a gambling licence is only R80 000 per
annum despite the profits made by gambling establishments and the renewal fee for a liquor
license for an outlet that has a turnover of R1 billion is R15 000. See DTI ‘Legislation and
Business Regulation: Application Procedure, Forms and Fees’, available at https://
www.thedti.gov.za/business_regulation/nla_application_procedures.jsp, accessed on 22
January 2016. It seems therefore that a fee of R20 000 is hugely disproportionate.
46
For example, the self-regulatory authority, the Wireless Application Service Providers
Association (WASPA) (see note 52 below) has indicated that it does not intend to apply for
recognition for its code because once its code is recognised it will have to apply to the Minister
in order to amend its code. WASPA needs to be able to keep up with developments in the
mobile services sector and having to apply to the Minister will seriously hamper its ability to
keep up-to-date with developments in technology. These comments were made by a WASPA
representative at a seminar on ADR hosted by the Tribunal (Johannesburg, March 2013).
47
This is one of the alternatives to traditional regulation (sometimes referred to as
command and control regulation) recommended by the Organisation for Economic
Co-operation and Development (OECD). See OECD Report Alternatives to Traditional
Regulation (2002), available at http://www.oecd.org/gov/regulatory-policy/42245468.pdf,
accessed on 15 July 2015. The mission of the OECD is to promote policies that will improve
the economic and social well-being of people around the world. It provides a forum where
governments can work together to share experiences and seek solutions to common
problems.
48
Banner ‘Alternatives to state-imposed regulation’ a discussion paper produced for the
INTOSAI Working Group on the Audit of Privatisation, Economic Regulation and Public Private

32 (2016) 28 SA MERC LJ
and there are a number of industries that have relied extensively on

self-regulation. One of the more successful self-regulatory entities is the
Advertising Standards Authority (ASA) which regulates the advertising
industry in South Africa.49 Self-regulation in the financial services sector
has also proved to be effective through its system of ombudsmen. These
ombuds are now specifically recognised in the legislation and so they are
discussed in more detail below.
The advantage of relying on self-regulation is that business can
respond quickly and efficiently to problems. Codes of conduct are much
more flexible than regulation by statute and can be readily amended.50
When industries are involved in regulating themselves, they are able to
respond to complaints and to identify solutions by utilising resources
and expertise to which government does not have access. Responsibility
for enforcing the code lies with people who have expertise in the field
and who are aware of what constitutes fair and reasonable conduct.51
Self-regulation in South Africa has proved to be particularly effective in
the mobile service industry where the technology requires expert
understanding and is changing rapidly.52 It is extremely difficult for
government regulators and the law to keep up with developments in this
industry.53
When industries are governed by self-regulatory codes businesses are
expected to abide by the spirit of the code rather than the letter of the
law. In the financial services sector for example, ombuds, who were for
Partnerships (2002), available at http://www.nao.org.uk/intosai/wgap/9thmeeting/9thuk.pdf,

accessed on 21 July 2014. See also the OECD Report.
49
The ‘Advertising Code of Practice’ is the guiding document of the ASA and is based on
the International Code of Advertising Practice. See generally http://www.asasa.org.za.
50
Office of Fair Trading A General Duty to Trade Fairly: A discussion paper (1986) 13 and
Business Practice Committee Report No 15 at 47.
51
Business Practices Committee Report No 15 at 47 and Rijkens & Miracle, European
Regulation of Advertising (North-Holland 1986) 40.
52
WASPA was formed in 2004 in order to regulate mobile-based value-added services
providers which are known as WASPS. It has over 250 members. Although membership of the
Association is voluntary, Vodacom, MTN and Cell C require WASPS to be members of
WASPA before they will provide them with services. WASPA has a Code of Conduct and
Advertising which includes a complaints handling process. WASPA belongs to the Interna-
tional Audiotext Regulators Association. Information regarding WASPA can be found at
http://www.waspa.org.za.
53
Complaints to WASPA are handled by an independent secretariat and adjudicated upon
by independent ICT lawyers. It also has an emergency panel of three WASPA adjudicators
who may sit immediately to shut down services pending a formal adjudication where there is
evidence of immediate and ongoing consumer harm. Sanctions include punitive fines,
suspensions, refunds to consumers and expulsion. WASPA also has two media monitors who
check advertising daily and test all services on a daily basis in order to ensure that service
providers are complying with its rules (see http://www.waspa.org.za).

many years purely self-regulatory (voluntary) organisations,54 rely on

both equitable and legal principles to arrive at a fair decision.55 In 2005
Judge Nienaber, the then Long Term Insurance Ombudman, wrote:
‘Our approach is to reach a result that is fair to both parties and if we
have to break the shackles of the restrictive approach postulated by the
courts we do so’.56
There are however a number of disadvantages to self-regulation, the
main one being that the process can be hijacked by industry so as to
promote its own interests and to avoid government regulation.57 The
perception that self-regulation is biased in favour of industry is further
enhanced when industry funds the self-regulatory body through levies.58
In addition, industry bodies are often under-funded and they do not
have capacity to promote their activities.59 Consumers are then unaware
that there is such a body to which they can complain. Another difficulty
with self-regulation is the ability of the body to enforce an effective
sanction. In many instances an errant business will resign from the
self-regulatory body or it will simply ignore the sanction. One of the
reasons why the ASA in the advertising industry has been successful is
because the principal sanction agreed to by the industry, namely the
54
Discussed further below.
55
This is in fact mandated by the Financial Services Ombud Schemes (FSOS) Act 37 of
2004 which requires that all ombuds in the financial services sector apply principles of equity
in resolving complaints where appropriate (s 10(e)(iv)). An example is a case where a
claimant failed to claim for her daughter’s death within the mandatory 12-month period after
an accident. The insurance company repudiated the claim. The complainant explained that
she had been hospitalised with severe depression for a long period of time after her daughter’s
death which was the reason why she had failed to lodge her claim. Taking into consideration
the circumstances of the case and principles of equity, the ombud made a provisional
determination that the claim should be paid. The insurer accepted this provisional determina-
tion. See CR336, available at www.ombud.co/za/useful-information/topics-cases/106-equity/
44-equity, accessed on 23 July 2014.
56
FA News August 2005 at 34.
57
See generally Boddewyn Global Perspectives on Advertising Self-regulation (Quorum
Books 1992) 7; Barnes & Blackeney Advertising Regulation (Law Books Co 1982) 23; Cranston
Consumers and the Law (Butterworths 1984) 59. The weaknesses associated with self-
regulation were dealt with in a number of investigations conducted by the Consumer Affairs
Committee (Cafcom), the predecessor to the Tribunal. See in particular the Cafcom’s
investigation into inertia selling, also known as negative option marketing (Consumer Affairs
Committee ‘Report in terms of section 10(1) of the Consumer Affairs (Unfair Business
Practices) Act: Inertia Selling’ under GN 1758 in GG 26700 of 18 August 2004). Inertia selling
has now been outlawed by both the NCA (s 74) and the CPA (s 31).
58
But this is, however, one of the advantages of self-regulation because government does
not have to carry the cost of regulation.
59
See Finmark Trust Report Landscape for Consumer Recourse in South Africa’s Financial
Services Sector (2007). Lack of consumer awareness of ombuds in the financial services sector
was highlighted in this report (at 17 and 43).

34 (2016) 28 SA MERC LJ
withholding of advertising time and space, is a very powerful sanction.60

Other industries do not have such a sanction and so this, together with
the other difficulties highlighted above, meant that government regula-
tors have over time become increasingly concerned that self-regulation
on its own is insufficient to protect the public interest.61 Hence the
demand for self-regulation to be subject to some form of external
supervision and control to ensure that the disadvantages of self-
regulation are minimised whilst the advantages are preserved. The
solution is to provide self-regulation with statutory backing which is
known as co-regulation or enforced self-regulation.
(ii) Co-regulation
Co-regulation exists when an industry is primarily responsible for
developing and administering its own system of regulation but with
government support.62 The Better Regulation Task Force in the United
Kingdom defines co-regulation as involving ‘some form of legal under-
pinning and can therefore be described as self-regulation with a
legislative backstop’.63
A system of co-regulation has been adopted in South Africa in the
financial services sector with the previously self-regulatory ombuds now
receiving statutory backing in terms of the Financial Services Ombud
Schemes (FSOS) Act 37 of 2004. The CPA also provides for a system of
co-regulation. A variety of different ombuds in a number of different
sectors are now starting to emerge.64 Some of these ombuds, particularly
60
WASPA has a similar type of sanction which contributes to its effectiveness.
61
This is an issue which has been canvassed extensively in the financial services sector. See
in particular Finmark Trust Report. During the public hearings before the portfolio
committee into the amendments to the NCA (January 2014) one official for the DTI
confirmed that the DTI continued to be in favour of self-regulation when it worked and that
government did not intend to interfere with systems which were working. However in
February 2014 when the hearings resumed, this approach appeared to be contradicted by
another DTI official who, in dealing with the introduction of regulations which would apply
to the banking sector, stated: ‘Self-regulation never works and therefore we would like the
minister to prescribe through regulations and those regulations must be binding.’ Ensor
‘Bank’s debt assessment plan rejected’ Financial Mail 5 February 2014, available at http://
www.bdlive.co.za/business/financial/2014/02/05/banks-debt-assessment-plan-rejected,
accessed on 8 September 2014. Perhaps this view only applied to the banking sector and not to
self-regulation generally as the hearings focused on the amendments to the NCA.
62
Banner (2002); Baldwin & Cave Understanding Regulation (OUP 1999) 133; Senden ‘Soft
law, self-regulation and co-regulation in European law: where do they meet?’ (2005) 9(1)
EJCL 1.
63
Better Regulation Task Force ‘Routes to better regulation: A guide to alternatives to
classic regulation’ (2005) 26 quoted in the OECD Report, para 152.
64
Such as the Tax Ombudsman and the Consumer Goods and Services Ombud. For a list
of ombudsmen in South Africa see www.ombudsmen.co.za.

in the financial services sector, have proved to be highly effective and,

although the system is by no means perfect, it is suggested that, at
present, they are certainly the best option which consumers have of
obtaining redress. Unfortunately, however, these ombuds tend to be
accessible only to those consumers who are in Gauteng65 or who have
access to technology so that they can file complaints online.66
(b) Ombuds67
Traditionally, an ombud is an institution which oversees the administra-
tive arm of government.68 As governments have grown in size and have
become responsible for providing all manner of different services they
have intruded more and more into the lives of their citizens. A
consequence is that consumers have become increasingly exposed to
maladministration, abuse of authority and official insensitivity.69 The
ombud is a viable alternative to deal with complaints which involve, in
the bigger scheme of things, relatively minor issues or small amounts of
money or issues for which there is no remedy in law, such as administra-
tive officials who are simply failing to do their jobs or dragging their feet.
These are issues which do not fit into regular legal moulds but which are
none the less very real for the individuals involved.70
In South Africa the Public Protector, presently Thuli Madonsela, is
such an ombud.71 The Public Protector is well-known in South Africa
for a number of high-profile investigations, which have received sub-
65
Gauteng is the smallest province in South Africa but it is highly urbanised and the largest
city in South Africa (Johannesburg) and its administrative capital (Pretoria) are situated
there.
66
All the ombuds in the financial services sector are based in Gauteng except for the Long
Term Insurance Ombudsman who is based in Cape Town.
67
The correct term is ombudsman which is derived from the Old Norse word ‘umbodhs-
madhr’ which means ‘trusty manager’. It is has been incorrectly assumed that the ending
‘man’ refers to a male person hence the South African legislature adopted the word ombud as
a term which is gender neutral. However the ending has nothing to do with gender and there
are many highly regarded ombuds who are women.
68
British Columbia Development Corporation v Friedmann [1984] 2 SCR 447. See also Reif,
‘Introduction’ in Reif (ed) The International Ombudsman Anthology (Martinus Nijhoff
Publishers 1999) xxiii. The African Ombudsman and Mediators Association defines an
ombud as ‘an independent, impartial public official with authority and responsibility to
receive, investigate or informally address complaints ... and, when appropriate, make findings
and recommendations, and publish reports’. Information regarding the African Ombudsman
and Mediators Association can be found at http://aoma.ukzn.ac.za. See also Melville ‘Has
ombudsmania reached South Africa? The burgeoning role of ombudsmen in commercial
dispute resolution’ (2010) 22(1) SA Merc LJ 50.
69
Hill The Model Ombudsman (Princeton University Press 1976) 4–8.
70
British Columbia Development Corporation, quoting from Wade Administrative Law 5 ed
(OUP 1982) 73–74.
71
The Public Protector is appointed in terms of the Public Protector Act 23 of 1994.

36 (2016) 28 SA MERC LJ
stantial media coverage.72 What is not so well-known is that the office

deals with a host of issues affecting individual consumers who encounter
uncaring, disinterested or incompetent government officials on a day-
to-day basis.73 These include complaints about welfare grants and other
socio-economic rights, service failure, housing issues, incorrect billing
and simply treating people poorly.74 In 2012 the Public Protector
reported that the office had received 20 000 complaints, 16 000 of which
were resolved through mediation. Only 15 complaints resulted in a
formal investigation.75 Many of these complaints also fall under the CPA
because government (including municipalities) is regarded as a supplier
in terms of the Act.76 This means that government departments that fail
to meet the standards imposed by the CPA are engaging in prohibited
conduct and so could face an investigation by the Commission and the
penalties which can be imposed by the Tribunal.77 Consumers who
72
See, for example, ‘Secure in comfort’ Report No 25 of 2013/14. This is the report which
was issued by the Public Protector following an investigation into allegations of impropriety
and unethical conduct relating to the installation and implementation of security measures by
the Department of Public Works at the private residence of President Jacob Zuma at Nkandla
in the KwaZulu-Natal Province. The report is available at http://www.publicprotector.org/
library%5Cinvestigation_report%5C2013–14%5CFinal%20Report%2019%20March%202014
%20.pdf, accessed on 22 January 2016.
73
See Madonsela ‘The ombudsman’s role in promoting ethical governance and integrity in
the public sector: lessons for the Public Protector South Africa’ (address to the international
Ombudsman Institute Conference 14–16 November 2012, available at www.theioi.org/
WellingtonConference_17.working session C_ThuliMadonselapaper.pdf, accessed on
5 August 2014.
74
Madonsela 8.
75
Madonsela 8.
76
See the definition of supplier in s 1 of the CPA. One of the first cases heard by the
Tribunal involved the City of Johannesburg and its billing practices. See City of Johannesburg v
National Consumer Commission (NCT/2667/2011/101(1)(P), NCT/2081/2011/101(1)(P))
[2012] ZANCT 6 (30 March 2012) SAFLII, available at http://www.saflii.org/za/cases/
ZANCT/2012/6.html. The Tribunal dismissed the case on procedural grounds.
77
Item 2(3)(b) of Schedule 2 (Transitional Provisions) of the CPA provides that the
Minister can defer the application of the Act to local municipalities. The Minister did this for
medium- and low-capacity municipalities. See GN 221 in GG 34116 of 14 March 2011 and
GN 898 in GG 34724 of 31 October 2011. The purpose of this exemption was to grant
municipalities additional time to prepare administrative systems which are necessary to
ensure that municipalities could meet their obligations in terms of the Act efficiently and
effectively. This exception was set aside in March 2013 by the court in Afriforum v Minister of
Trade and Industry & others 2013 (4) SA 63 (GNP). The Minister did not set out exactly which
municipalities were excluded but had just issued a blanket exemption. The court held that the
Minister ‘cannot defer, without particularity, rights as fundamental as consumer rights from
the citizenry living within a particular municipality’ (para 46). The Minister was ordered to
publish a new notice by 31 July 2013 listing each individual municipality which should be
exempted.

suffer damages as a result of poor service or the supply of defective

products should also be able to pursue any remedies provided for in the
CPA.78
The model of an ombud to resolve disputes was adopted by the
private sector in some European and commonwealth countries in the
1970s.79 From there the concept has spread around the world.80 At
present the International Ombudsman Association which is based in the
United States of America has over 500 members from 16 countries. In
2014, 350 delegates attended the annual conference.81
Melville identifies the following essential characteristics for an ombud
scheme to have credibility: it must be able to operate independently; it
must be adequately resourced in order to achieve its objectives; its offices
must be accessible and its existence must be known to those who may
wish to make use of its services.82 It is a common mistake to assume that
an ombud is supposed to be a consumer advocate and that the role
involves fighting for consumer rights.83 Ombuds who find against
consumers in favour of suppliers are often criticised for being biased
towards the suppliers. This is a common criticism faced by the ombuds
in South Africa in the financial services sector. Contrary to this belief, an
ombud is an independent adjudicator who must act fairly at all times,
including being fair to suppliers. If they lose this independence and
become consumer advocates they will lose credibility. Hence it is not the
role of the ombud to initiate complaints on behalf of consumers but
instead consumers must take their complaints to the ombud. Ombuds
can however report issues of systemic abuse to an appropriate authority
for investigation.84 So, for example, the Ombudsman for Banking
Services or the Credit Ombud may report general concerns relating to
the NCA to the Regulator.
One of the major benefits of an ombud scheme is that it can tailor its
78
Sections 53–61 of the CPA deal with the right to fair value, good quality and safety and
provide consumers with certain remedies.
79
Melville (2010) 22(1) SA Merc LJ 50 at 51.
80
81
Information about the International Ombudsman Association can be found at http://
www.ombudsassociation.org.
82
83
See, for example, Ombudsman Association ‘Role of an ombudsman’ available at
http://www.ombudsmanassociation.org/about-the-role-of-an-ombudsman.php, accessed
on 20 October 2015, where the association points out that ombuds are neutral arbiters and
not advocates or consumer champions.
84
For example, in its terms of reference, the Credit Ombud states that it may report to
relevant industry bodies on matters which may be of interest to them, as contemplated in
s 10(1)(e)(v) of the FSOS Act. The Credit Ombud’s terms of reference are available at
http://www.creditombud.org.za.

38 (2016) 28 SA MERC LJ
procedures to suit the particular circumstances of each case. Rowe

explains that ombuds do not deliver ‘due process’ in the sense of a court
system. They encourage practices that are fair and just and respectful.
They work to foster whatever responsible process is ‘due under the
circumstances’.85 Ombuds do not have the power to enforce their
decisions, rather they work using persuasion and mediation.86 This is the
classic approach of self-regulation which encourages business to buy
into the process and not to be antagonistic. Statutory regulation on the
other hand stresses compulsion, litigation and penalisation which leads
to friction between the parties.
In South Africa, ombuds are already well-established in the financial
services sector and play a very effective role in resolving consumer
disputes, and their role has been given statutory recognition in both the
NCA and CPA, as indicated above. The legislation refers to both ombuds
with jurisdiction and accredited industry ombuds.
(i) Ombuds with jurisdiction

The definition of an ombud with jurisdiction in both the NCA and the
CPA recognises two kinds of ombuds with jurisdiction. These are
statutory ombuds, which are ombuds appointed for an industry by
statute (such as the Financial Advisory and Intermediary Services (FAIS)
Ombud87 and the Pension Fund Adjudicator88), and ombuds for
financial institutions as defined in the FSOS Act. In terms of the FSOS
Act, financial institutions include banks, long term insurers, short term
insurers, collective investments schemes and pension fund organisa-
tions. Some of these industries have had self-regulatory schemes
(referred to as voluntary ombudsman) and codes of conduct governing
their industries for many years.89 The FSOS Act provides that no
financial institution may participate in a scheme or require or invite any
85
Rowe ‘The ombudsman’s role in a dispute resolution system’ (1991) 7(4) Negotiation
Journal 353 at 356.
86
Rowe (1991) 7(4) Negotiation Journal 353 at 356.
87
The FAIS Ombud deals with complaints about the conduct of financial service providers.
The FAIS Act regulates the conduct of financial service providers and was introduced after the
Masterbond investment disaster in South Africa. See further Woker, ‘Property-syndication
investment v property scam: who decides? A critical examination of the regulation of public
property syndication schemes in South Africa’ (2013) 34(2) Obiter 233. The FAIS Act requires
that financial service providers give appropriate, honest and fair advice that is in the
consumer’s best interest. They must do so with skill, care and diligence.
88
The Pension Fund Adjudicator is appointed in terms of the Pension Funds Act 24 of
1956.
89
The long term insurance industry appointed a voluntary ombudsman in 1985; the short
term insurance industry in 1989 and the banking sector in 1997.

client to submit a complaint in terms of any such scheme unless the

scheme is recognised in terms of the Act or the financial institution has
been exempted from compliance with the Act.90
The FSOS Act lays down minimum standards for such schemes91 and
it promotes co-ordination between the activities of recognised schemes
and the activities of the Pension Fund Adjudicator and the FAIS
Ombud.92 The financial industries which have voluntary ombuds have
all applied and been granted recognition in terms of the FSOS Act.93
These include the long term and short term insurance industries, the
banking sector, the credit information industry,94 and the Johannesburg
Stock Exchange.
The legislature has published the Financial Sector Regulation Bill for
public comment.95 This is the first of a number of bills which are being
introduced to give effect to the government’s intention to implement a
‘twin peaks’ model of financial regulation in South Africa.96 The
intention is to make the financial sector safer in South Africa and to
90
Section 18(1).
91
Section 10 sets out the requirements for recognition of ombud schemes. Provided
schemes comply with these minimum standards they are free to compile their own association
agreements and codes of conduct. Voluntary ombuds in the financial sector must apply to the
FSOS Council for recognition (s 11 of the FSOS Act) and the Council has the power to refuse
or revoke recognition. Ombuds must also apply for consent from the Council when they alter
the way in which they operate.
92
Preamble to the FSOS Act.
93
National Treasury ‘Twin peaks in South Africa: Response and explanatory document:
Accompanying the second draft of the Financial Sector Regulation Bill (December 2014) 44,
available at http://www.treasury.gov.za/public%20comments/FSR2014%2012%2012%20
Response%20document.pdf, accessed on 20 October 2015.
94
This industry is the credit bureau industry. Credit bureaus collect information regarding
the credit-worthiness of consumers which they then provide to credit providers and others.
The Credit Ombud deals with complaints regarding credit bureaus and credit grantors in the
non-banking sector and complaints related to debt counsellors and payment distribution
agencies. In October 2013 the Credit Ombud signed a memorandum of understanding with
the Regulator in which the two organisations undertook to have a much closer and more
mutually beneficial relationship. The aim was to improve the co-ordination of complaint
referrals and to share statistical data in order to develop a solid understanding of the nature of
complaints and issues affecting the credit market (Credit Ombud, Annual Report 2013 at 9).
These events have however been overtaken by the NCA Amendment Act. Both the Banking
and Credit Ombuds assist consumers in the resolution of consumer credit disputes. It seems
therefore that despite the fact that they are recognised in terms of the FSOS Act they will also
have to be registered with the Regulator and they will have to pay the required annual fees. The
Regulator will be able to impose conditions of registration on these two ombuds (see s 134B).
The NCA refers to the situation where the ADR agent is also licensed by another regulator
authority and requires that there should be co-operation between the Regulator and the other
regulatory authority, which in this case would be the FSOS Council.
95
The first version of the Bill was published in December 2013 and the second version was
published in December 2014.
96
National Treasury (December 2014) 4.

40 (2016) 28 SA MERC LJ
provide for a comprehensive framework for regulating the financial

sector.97 In addition to creating two regulators (one to deal with
financial stability and the other to deal with market conduct, hence the
concept of twin peaks) the Financial Sector Regulation Bill also strength-
ens the ombud schemes. It is recognised that the ombud system is a
powerful mechanism in the hands of consumers.98 A number of models
for the ombuds have been considered as there was pressure to introduce
a single structure with a chief statutory (super) ombud who would then
appoint sectoral ombuds to deal with specific areas. This would have
resulted in the voluntary schemes being abolished and all ombuds would
be appointed only in terms of legislation. Concerns regarding whether
the voluntary ombud schemes are truly independent were brought to the
fore in 2011 when allegations were made that industry representatives
had attempted to influence the decisions of the short term insurance
ombud and, because he had refused to give in to their pressure, he was
not re-appointed as the ombud when his term expired.99 The Minister of
Finance requested the FSOS Council to conduct an investigation into
these allegations.100
In addition to concerns about the independence of the voluntary
ombuds, research had demonstrated that there were a number of other
concerns, including:101
• a lack of knowledge or awareness of the ombud schemes amongst
consumers;
• confusion and complexities surrounding the jurisdictional bound-
aries of the various ombuds in the financial sector;
• a need for greater co-operation between the various ombuds;
• forum shopping, that is, consumers dissatisfied with the decision of
one ombud turning to another ombud, hoping for a different
decision;
97
National Treasury (December 2014) 4.
98
Media statement issued by the National Treasury quoted in Credit Ombud, Annual
Report 2013 at 12.
99
Cameron ‘Probe into whether insurers hampered ombud’s work’ Personal Finance
4 March 2012, available at http://www.iol.co.za/business/personal-finance/probe-into-
whether-insurers-hampered-ombud-s-work–1.1247783?ot=insma, accessed on 31 July 2014.
100
The FSOS Council conducted an investigation and its report was handed to the Minister
of Finance. The report was not published.
101
Research included the Finmark Trust Report which identified certain shortcomings in
the present structure; research into possible changes to the financial ombudsman structure in
South Africa undertaken by a senior legal consultant of the Financial Services Board (FSB) in
2008/2009; a policy paper on reform of the financial services ombud scheme landscape by the
chief counsel of the FSB in 2011; and a review of the financial ombudsman structure in South
Africa by the former Ombudsman for Short Term Insurance in 2012.

• administrative inefficiencies; and

• governance challenges.
After consultation with various stakeholders, including the FSOS Coun-
cil and the existing ombuds, it was decided that the present model, with
its reliance primarily on voluntary schemes, should be retained because
it is functioning well, it is cost-effective and there is buy-in from
institutions into the voluntary schemes.102 The voluntary ombuds rarely
have to resort to determinations and recommendations from them are
generally accepted by their members.103 Details regarding how a future
model for ombuds schemes will operate have not yet been finalised,
however the intention is to broaden the role of the FSOS Council so that
it will have the power to approve the appointment or removal of an
ombud and set norms and standards for ombud schemes specifically to
preserve the independence of such schemes.104
(ii) Accredited industry ombuds

In terms of s 82 of the CPA, the Commission, acting on its own or in
response to a proposal from persons conducting business within a
particular industry, may recommend a proposed industry code to the
Minister. The code must first be published for public comment and
persons conducting business within the relevant sector and relevant
accredited consumer protection groups105 must be consulted.106 The
102
The 2014 Annual Reports for the four voluntary ombuds in the financial services sector
document that these ombuds between them dealt with 36 000 consumer disputes which
involved the repayment of millions of rands to consumers. Most complaints took less than six
months to resolve. In the case of the Credit and Banking Ombuds most disputes were resolved
within two months.
103
An ombud will make a formal determination if the dispute is not resolved by agreement
between the parties after a recommendation has been made by the ombud. Formal
determinations are only necessary maybe two or three times per year. The vast majority of
cases are finalised when ombuds make a recommendation. If the parties accept the
recommendation there is no need for the matter to proceed to a formal determination. In
2014, for example, the Ombudsman for Short Term Insurance had to resort to a formal
determination on only three occasions. The members of the ombud schemes agree that they
will abide by determinations and will not take matters on appeal to the civil courts. There is an
internal appeal mechanism which members can rely upon but the appeal finding is binding on
members. The Ombudsman for Short Term Insurance reported in 2014 that no-one (neither
consumer nor industry member) had made use of their appeal mechanism which had been
introduced in 2013 (Annual Report 2014 at 8).
104
One such norm is to ensure that although industry members are represented on the
governance board of each scheme, consumer representatives and independent members
outnumber the industry members. The boards are also chaired by non-industry members.
105
An accredited consumer group is a consumer protection group that has been accredited
by the Commission in terms of s 78 of the CPA.
106
Section 82(3).

42 (2016) 28 SA MERC LJ
proposed code must also be consistent with the purposes and policies of
the Act.107 If the code provides for a scheme of ADR and the Commis-
sion considers that the scheme is adequately situated and equipped to
provide ADR services comparable to those generally provided in terms
of any public regulation, the Commission when recommending that
code to the Minister may also recommend that the scheme be accredited
as an accredited industry ombud.108 This code then becomes the
recognised standard for the industry and disputes relating to the
industry will be referred to that ombud for resolution.
One issue which requires clarification is whether, once an industry
ombud is established, all businesses within that industry will be required
to become members of the ombud scheme. The CPA states that matters
will be referred to an industry ombud if the supplier is subject to the
jurisdiction of such ombud (own emphasis).109 It is argued therefore that
suppliers cannot be compelled to join an ombud’s scheme. This may
also have significant financial consequences especially for small suppli-
ers.110 If the supplier is not subject to the jurisdiction of the ombud, then
the Commission itself, a consumer court or another ADR agent may deal
with the matter. The industry code will, however, be the standard to
which the supplier must comply regardless of membership as the CPA
states that a supplier must not, in the ordinary course of business,
contravene an applicable industry code.111 It is further suggested that it
will be preferable for businesses to belong to an industry ombud scheme
and to have disputes adjudicated on by an ombud who has been
appointed because he or she is an expert in that particular field. The
Commission may not have the same expertise and so will not necessarily
understand the specific needs of a particular industry and what is
regarded as acceptable practice.
An example of an industry ombud that has recently been established is
the Consumer Goods and Services Ombud which deals with consumer
complaints within the consumer goods and services industry including
107
Section 82(4).
108
Section 82(6).
109
Section 70(1)(b).
110
It is noted however that both the Consumer Goods and Services Ombud and the Motor
Industry Ombudsman for South Africa are of the view that it is now compulsory for all service
providers within their respective industries to become members of the their schemes. See
Consumer Goods and Services Ombud ‘Participants’, available at http://www.cgso.org.za/
participation, accessed on 20 October 2015 and Motor Industry Ombudsman of South Africa
(MIOSA) ‘Alert’, available at http://www.moisa.co.za, accessed on 20 October 2015, where
the MIOSA states that levies payable to the MIOSA are now a legal requirement for the
automotive industry.
111
Section 82(8).

the retail, manufacturing and wholesale sectors.112 It is expected that this

office will substantially relieve the load on the Commission. The
appointment of the ombud was fully supported by the Consumer Goods
Council and its members.113 The Code for Consumer Goods and
Services has been approved by the Minister in accordance with s 82 of
the CPA and came into operation on 29 March 2015.114
(iii) Consumer courts

The role of these courts is rather confusing because they are not courts in
the true sense. The CPA provides in the definition section that the word
‘court’ does not include a consumer court.115 This, it is suggested, must
be very confusing for consumers because they would expect such courts
to have the same powers as the civil courts which is clearly not the case.
Consumer courts can only operate within the ambit of the powers given
to them by their founding legislation.
In terms of the Constitution of South Africa,116 consumer protection
matters are matters of concurrent jurisdiction.117 Therefore each prov-
ince has the power to enact its own consumer protection legislation.
Some provinces have adopted provincial legislation which mirrors the
now-repealed National Consumer Affairs (Unfair Business Practices)
Act.118 To date no province has fully adopted the CPA. Gauteng,
Limpopo and Mpumalanga still rely on the old legislation but they have
produced draft legislation and intend to align their provincial legislation
with the CPA.119 Limpopo has published its legislation120 and is in the
112
The present ombud is Neville Melville who is a former Ombudsman for Banking
Services. See Consumer Goods Council press release ‘Advocate Neville Melville appointed as
the consumer goods and services ombudsman’ available at http://www.cgsa.co.za/press-
office/press-release, accessed on 5 August 2014.
113
The Consumer Goods Council was established in 2002. It has more than 12 000
members from the retail, wholesale and manufacturing sectors. Members include Premier
Foods, Pioneer Foods, Massmart, Pick n Pay, the JD Group, Shoprite, Nestlé, Lewis Stores,
Unilever, Spar, Woolworths and Rainbow Chicken (CGCSA, Annual Report 2012).
114
Another example of an industry ombud which has been recognised in terms of s 82 is
the Motor Industry Ombudsman for South Africa. This ombud deals with complaints against
manufacturers, importers and dealers of motor vehicles and has been assisting the Commis-
sion with disputes since 2013.
115
Section 1 of the CPA.
116
Constitution of the Republic of South Africa, 1996.
117
Schedule 4.
118
Act 71 of 1988. This legislation was the predecessor to the CPA and was repealed when
the CPA came into operation.
119
Information regarding the provinces was obtained by contacting individuals associated
with the various consumer affairs offices in the provinces on 22 October 2015. Individual
office contact details can be found at http://www.southafrica.info/services/consumer/
consumer.htm#.ViejIP_ovIU.
120
Limpopo Consumer Protection Bill 2289 of 13 December 2013.

44 (2016) 28 SA MERC LJ
process of developing the regulations. The process appears to be at a

fairly advanced stage as far as the other two provinces are concerned.
The Free State and Western Cape121 have functioning courts (referred to
as a tribunal in the Western Cape) but they are functioning under the old
legislation. KwaZulu-Natal has adopted new legislation122 which also
contains certain consumer rights123 but these rights are much simpler in
form and are not aligned with the rights set out in the CPA. The KZN
tribunal is not yet established.124
The Eastern Cape and the North West are operating under the old
legislation and there are no courts in place. Drafters have put together a
policy document and proposed legislation for the Eastern Cape but these
documents have not been made available to the general public and
where this process stands at this point in time is uncertain. The intention
of the drafters is to align the legislation with the CPA. The Northern
Cape has established a new entity that operates as an agency of
government. This Consumer Agency was established under their new
Act125 which is not aligned to the CPA. They are however reconsidering
their position.
It is important for the provinces to align their legislation with the CPA
because having different legislation in different provinces will cause
confusion, especially in circumstances where suppliers operate in a
number of different provinces. This problem was highlighted by
Stephen Newman in his presentation at the Private Law and Social
Justice Conference held in Port Elizabeth in August 2014.126 He
explained that in the Eastern Cape many consumers work in other
provinces such as Gauteng or the Western Cape. When they return
home they often bring goods purchased elsewhere with them for their
families. When the goods turn out to be defective, it is very difficult for
the families to obtain redress in the Eastern Cape even when the
suppliers have outlets in the province. There are also jurisdictional issues
between provincial authorities and often consumers are left confused
and helpless. According to Newman, the provincial authorities have
121
Information regarding the Office of the Consumer Protector (Western Cape) can be
found at https://www.westerncape.gov.za/your_gov/25.
122
The KwaZulu-Natal Consumer Protection (KZN) Act 4 of 2013.
123
Section 23.
124
The KZN Act also refers to a consumer tribunal and not a court. See s 1 of the KZN Act
for the definition of a consumer tribunal.
125
Northern Cape Consumer Protection Act 1 of 2012.
126
Newman ‘The application and enforcement of the Consumer Protection Act: Some
preliminary problems’, paper presented at the NMMU conference, Port Elizabeth, on 19
August 2014.

been working on a protocol to resolve this issue; alternatively, legislative

amendments may be proposed.
The success of the legislation rests to a large extent on the provinces
having properly functioning consumer authorities as this is probably the
best means of ensuring that consumer protection extends into the rural
areas of South Africa where the most vulnerable of consumers live. It is
also important for provincial authorities to work closely with the
national authorities and for the national authorities to take the lead
when issues of jurisdiction arise. In terms of the legislation, when a
matter has been referred to a consumer court following an investigation
by the Commission or the Regulator, an order of the court will have the
same force and effect as if it were made by the Tribunal.127 An order of
the Tribunal may be served, executed or enforced as if it were an order of
the High Court.128
(iv) Debt counsellors

Debt counsellors have a very important role to play in terms of the NCA
in assisting consumers who are over-indebted. Indeed it is submitted
that whether or not the NCA is deemed a success in the long term will
depend largely on the effective functioning of debt counsellors.
The function of debt counsellors is to assist over-indebted and
debt-stressed consumers to repay their debts by negotiating with their
creditors and making debt re-arrangement proposals.129 These counsel-
lors also assist with budget advice, monitor consumer payments and
127
Section 140(7) of the NCA and s 73(6) of the CPA.
128
Section 152 of the NCA. A major difficulty with the old legislation was that it did not
provide for the enforcement of any judgment handed down by the Cafcom which was
established under the Consumer Affairs (Unfair Business Practices) Act or the provincial
consumer courts. It was a criminal offence for a respondent to ignore a ministerial order
issued after an investigation by the Cafcom but this would entail that the matter be referred to
the criminal authorities. Persuading these authorities that this was a serious criminal matter
was an uphill battle and in most instances the matter went no further. The Cafcom regularly
referred matters to the SAPS (the penalty was a fine of R200 000 or five years’ imprisonment
or both) but there are no reported decisions of a prosecution following such a referral.
129
The functions of a debt counsellor are set out in s 86 of the NCA. In December 2013 it
was reported that since 2007, approximately 402 000 consumers had applied for debt
counselling, and over R10 billion had been paid over to credit providers by consumers who
were in the debt-counselling process. At the time of reporting it was estimated that 110 000
consumers were under debt counselling and that every month about R255 million was being
collected from consumers and paid over to their credit providers. See Ardre ‘10 things about
debt counselling’ Personal Finance 3 March 2013, available at http://www.iol.co.za/business/
personal-finance/10-things-about-debt-counselling- 11616111#.U9oRuMt07iu, accessed on
30 May 2014.

46 (2016) 28 SA MERC LJ
provide after-care services for consumers.130 Debt counsellors, who

often deal with very poor and vulnerable consumers, are required to be
registered with the National Credit Regulator.131 They are also required
to undergo specialised training. Consumers who are in debt often have a
range of other problems which led to their financial difficulties. For
example, the goods which they purchased were damaged or defective or
were not delivered at all, or the consumer was bullied into signing a
service contract which he does not want, such as a gym contract. Hence
the consumer stopped paying — a natural human reaction even if
unwise. This leads to judgment being taken by the supplier (often on a
default basis) and an emoluments attachment order. This is what
happened to Bulelani Mehlomakhulu, the thirteenth applicant in Uni-
versity of Stellenbosch Law Clinic who purchased a DVD player from
Joshua Doore.132 After returning the DVD player for the third time
because it was not working he decided to stop paying for it. He was quite
happy to pay for the DVD player if it was working but he never received a
working one.133 He then discovered that R670 was being deducted from
his salary of R3 600 per month.134 When he complained he was told to go
to Kimberly to dispute the emoluments attachment order even though
he lived in Stellenbosch.135
Given the reason why a debtor such as Mehlomakhulu got into debt in
the first place, it does not make sense for debt counsellors to attempt to
resolve the debt problems without tackling the other issues, such as
defective goods or unconscionable marketing practices, as well. In order
to be truly effective debt counsellors need comprehensive training
involving consumer protection as a whole.136
130
Information regarding debt counselling is provided by the Regulator on its website
http://www.nct.org.za. Debt counsellors must however ensure that they do not provide
financial advice as dealt with in the FAIS Act as a financial advisor providing such advice must
be registered with the Financial Services Board (FSB).
131
Section 44 of the NCA.
132
Mehlomakhulu supporting affidavit filed in University of Stellenbosch Law Clinic para 5.
133
Mehlomakhulu para 6.
134
On this salary he has to support a wife and three children (Mehlomakhulu para 4).
135
Mehlomakhulu para 12.
136
At a workshop held in Johannesburg by the NCR and the Tribunal to seek ways of
enhancing access to justice for consumers, debt counsellors responded very positively to this
suggestion (March 2014). A number of them explained that consumers approached them
with a number of issues which were governed by both the CPA and the NCA. They had
difficulty identifying which matters fell under which legislation and were out of their depth
when it came to dealing with the CPA. This was frustrating both for them and their
consumers. They also did not know whom to refer consumers to if they could not help them.

IV CONCLUDING REMARKS
The purpose of this article has been to highlight the role which ADR can
play in helping consumers achieve access to justice, a fundamental aim
of consumer protection legislation. Throughout the article I have
identified problems which have continued to plague consumers and the
authorities notwithstanding the introduction of substantial consumer
protection legislation in South Africa. In summary it is suggested that
the following should be addressed urgently:
(i) The requirement that ADR agents pay a registration fee should be
reconsidered, or at least exemptions must be granted in suitable
instances.137 Otherwise, there is a strong possibility that non-profit
organisations will withdraw from dealing with matters that fall
under the NCA. This could not possibly have been the intention of
the legislature.
(ii) There is an urgent need for the establishment of consumer courts in
the provinces and for the provinces to align their legislation with
national legislation. Without properly functioning consumer
courts there is little hope of extending consumer protection to the
rural areas. This calls for strong political will on the part of
provinces.
(iii) The introduction of further ombuds for a variety of different
industries should be pursued. Although not a perfect system and
despite that there will always be those who are of the view that
ombuds are simply a means of avoiding government regulation
and control, the ombuds in the financial services sector and the
Public Protector have shown that this can be an effective and
economical means of ensuring access to redress for consumers.
This is often the only hope which consumers have in the event of a
dispute because consumers invariably do not have the resources to
take matters further. However, this does require that there is a
strong ombudsman who is esteemed in the industry and his or her
determinations or recommendations are respected.
(iv) Debt counsellors who perform an essential function under the
NCA should be accepted as ADR agents under the CPA and should
receive the appropriate training.
(v) There is a need for the various entities involved in consumer
protection to develop memoranda of understanding and to work
together. Consumers do not necessarily know who to turn to and
will often turn to the entity that is most in the public eye. If that
137
This can be done in terms of s 51(2) of the NCA.

48 (2016) 28 SA MERC LJ
entity does not deal with a particular issue, it should know which
entity is able to assist and it should take active steps to refer
consumers to the relevant ADR agent. Working together could also
prevent the problem of forum shopping as aggrieved consumers
may move from one entity to another seeking a favourable result.
(vi) Consumer education must always be at the top of the list of
necessary interventions. As stated at the outset, consumers have to
claim their rights and without the necessary education they will not
know how to enforce these rights, or even that they have them.
There is no doubt that South Africa has some impressive consumer
protection legislation in place. However, it remains a challenge to ensure
that that all consumers (and not just the relatively sophisticated who
reside in urban areas and have access to technology) are able to enforce
their rights in a meaningful and cost-effective manner.

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2016 (1) SA Merc LJ 21

CONSUMER PROTECTION AND

* BA LLB LLM (Natal) PhD (Rhodes).

(Commission)8 and the National Consumer Tribunal (Tribunal).9

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aggrieved consumers try other avenues for resolving disputes before

II CHALLENGES TO OBTAINING REDRESS

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a debt of R26 000 because of added costs and unspeciﬁed interest,23 or

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III ALTERNATIVE DISPUTE RESOLUTION

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disputes.38 Ombuds with jurisdiction are however referred to in the

(a) ADR agents other than ombuds and consumer courts

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governmental organisations which are prepared to offer such services.45

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and there are a number of industries that have relied extensively on

Partnerships (2002), available at http://www.nao.org.uk/intosai/wgap/9thmeeting/9thuk.pdf,

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many years purely self-regulatory (voluntary) organisations,54 rely on

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withholding of advertising time and space, is a very powerful sanction.60

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in the ﬁnancial services sector, have proved to be highly effective and,

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stantial media coverage.72 What is not so well-known is that the ofﬁce

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suffer damages as a result of poor service or the supply of defective

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procedures to suit the particular circumstances of each case. Rowe

(i) Ombuds with jurisdiction

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client to submit a complaint in terms of any such scheme unless the

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provide for a comprehensive framework for regulating the ﬁnancial

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• administrative inefﬁciencies; and

(ii) Accredited industry ombuds

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the retail, manufacturing and wholesale sectors.112 It is expected that this

(iii) Consumer courts

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process of developing the regulations. The process appears to be at a

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been working on a protocol to resolve this issue; alternatively, legislative

(iv) Debt counsellors

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provide after-care services for consumers.130 Debt counsellors, who

© Juta and Company (Pty) Ltd

© Juta and Company (Pty) Ltd

© Juta and Company (Pty) Ltd

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