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Johannesburg - Last week the National Credit Regulator (NCR)
issued a circular to the credit industry stating its intention to withdraw the
credit industry codes of conduct which govern the debt counselling process.
This move has come as a shock to the industry and there are
concerns over what this means for consumers undergoing debt counselling.
Before the codes where introduced in 2010 the debt
counselling process was, to put it mildly, in a mess.
Credit providers and debt counsellors could not reach
consensus and the courts were backlogged with tens of thousands of cases.
It was taking up to 18 months for consumers to finalise
their debt review through the courts.
Debt counsellors complained that credit providers were
acting in bad faith by taking legal action against their clients when the
courts could not resolve the issue within 60 days.
Credit providers said counsellors were recommending
unrealistic payment plans, in some cases there were recommendations to pay the
loan back over 100 years.
The NRC under then chief executive officer Gabriel Davel
called for a task team to create a set of rules to which the industry would
adhere.
Given input from various parties and over a two-year
process, the codes of conduct were created.
The codes set down rules of engagement and also created debt
repayment guidelines that would see people out of debt review within five
years.
For consumers who could not meet those set of rules, the
debt counsellor could negotiate separately with credit providers.
The impact on consumers was significant and today around 74%
of cases are resolved through the debt counselling rules system which equates
to 27 750 applications in the past two years.
Although a magistrate still needs to give approval, it is
far easier when everyone is in agreement.
By its own admission, the NCR agrees that the codes have had
a significant impact on the debt counselling process.
A study by University of Pretoria commissioned by the NCR
found that “industry guidelines impacted positively on the debt review industry
with notable improvements in consensual debt resolution”.
There are still many issues around debt counselling. About
70% of complaints that are heard by the Credit Ombud relate to debt counselling
practices, but the codes of conduct have streamlined processes and brought
credit providers and debt counsellors to the table.
In issuing its circular the NCR has brought a great deal of
uncertainty to the market and in the words of former NCR CEO Gabriel Davel: “It
is a pity, as it creates huge uncertainly and creates risk, in particular for
consumers applying for debt counselling.
“It threatens to undo 5 years of progress.”
The NCR now appears to have taken a step back and stated in
an interview with City Press that this is simply a recommendation and they will
first hear from all interested parties.
“The NCR is in a process of reviewing the codes, it is not a
final decision, just a notice of intension to withdraw codes,” says Kedilatile
Malakalaka, the Acting Manager: Debt Counselling Department at the NCR.
Cas Coovadia, Managing Director, The Banking Association
South Africa said: “BASA is totally opposed to the withdrawal of the codes. We
have no problem engaging the NCR on any issues they might have with the codes
and jointly considering a review, if needed.”
Hopefully common sense will prevail and all parties will sit together and address the issues around the codes without unilaterally removing them.
