Debt review codes under fire

Dec 02 2012 11:09
City Press - Maya Fisher-French
debt, money

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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.

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2017-12-17 06:02


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