What Debt Relief Provisions Might Be Included In Amendments to the NCA?
As South Africa falls deeper and deeper into economic hard times, more and more consumers are becoming debt stressed. Those who don’t yet have access to credit want it but struggle to qualify and those with credit are falling behind on payments. Country wide the fascination with using other peoples money to get stuff now and pay later continues and consumers are placing pressure on politicians to assist with over indebtedness.
Looming elections also places additional pressure on politicians to be visibly seen assisting financially troubled consumers. There is no doubt SA’s love for credit is coming back to bite it and consumers in a downturn economic recess (which world wide has been going on for years now) are feeling growing pressure just to afford food and lodging, never mind pay back their debt.
The National Credit Act (already amended once) greatly helped South Africa avoid some of the worst of the worlds recent financial meltdown. However, as the period of financial pressure continues the effects are becoming more and more evident locally. Consideration of serious debt relief measures has been introduced with the goal of amending the NCA to allow for new ways for over indebted consumers to deal with debt.
The NCA in 2007 introduced the concept of debt counselling and this process has helped hundreds of thousands of consumers gain relief from their debts (consumers who are dedicated to the process benefit fully). When amended the NCA made provision for consumers to benefit from the services of Payment Distribution Agencies (who help move money around for consumers in debt review) and get help with fights over credit accounts via Alternative Dispute Resolution Agents. The amendments also allowed the National Consumer Tribunal to assist more people with more matters.
‘You may wonder however what these amendments might be and what may lay ahead’
Now the DTI and Portfolio Committee on Trade and Industry have been empowered to start working on further amendments to the NCA. The matter is in the pre draft stage and at present the items raised are more “big picture” concepts but point to the way ahead. You may wonder however what these amendments might be and what may lay ahead (nobody likes change and making adjustments to your business and way of thinking can be tricky but the law is the law and all parties need to comply).
Let’s Consider Some Of The Information Presented To Parliament (Part 1)
A past study into helping consumers under debt review seemed to indicate that helping people who pay back less than R2500 a month toward their debt actually costs the Debt Counsellor money. The Debt Counsellor loses money over time assisting such consumers. The DTI and Portfolio Committee are concerned that Debt Counsellors may be turning low income consumers away instead of helping them in order to stay profitable and in business. These vulnerable consumer need debt relief and could greatly benefit from debt review.
The Portfolio Committee reported to Parliament that debt relief through debt review works and should be the main form of debt relief for those with regular income. Discussing the topic of low income consumers with debt problems they reported:
The Debt Review process does not provide the much needed debt relief to lower income consumers. Debt Counsellors are reluctant to assist low income consumers primarily due to financial issues, as the current fee structure provides no incentive for assisting such consumers. It is proposed that, the Debt Review process should be incentivised to encourage Debt Counsellors to assist more low income over-indebted consumers. The fee structure should be revised to support the inclusion of low income consumers and create an appetite for Debt Counsellors to assist them. It has been proposed that a subsidy should be re-introduced by the NCR for this purpose. The re-introduction of a subsidy is supported and Parliament should consider sanctioning the re-introduction of the subsidy for this purpose
In the past, the NCR used to subsidise an amount of R750 for Debt Counsellors who helped consumers with their situation (it took some time to receive the subsidy and a number of forms were involved). The provision fell away at some point (too much work? abused? not used enough? money needed for other expenses). Now the Portfolio Committee would like to see it put back into place with a threshold (and subsidy amount) to be determined. This would certainly assist the NCR carve out additional space for themselves in the coming Twin Peaks regulatory model as they assisted with this function.
Judge, Jury & Executioner
The NCR have asked for additional powers in the Amendments and the Portfolio Committee report:
The NCR submitted to the DTI that its administrative powers should be extended to allow it to amongst others, impose remedial sanctions for contraventions to the NCA, without referrals to NCT, in order to effectively enforce the NCA
They say that
The NCA does not empower the NCR to impose remedial sanctions such as fines, after completion of their investigations. Referral to the NCT for this purpose renders the NCR ineffective in enforcing the NCA;
Though the thought of the NCR being able to instigate and investigation, then rule on it’s own investigation and then issue fines itself without referring the matter to a third party (as they have to do at present with the NCT) might petrify Credit Providers and Debt Counsellors alike it seems that the DTI minister is not concerned about issuing total power (in theory and very early draft) to the Regulator. The Portfolio Committee report:
The NCR submitted to the [DTI] that its administrative powers should be extended to allow it to amongst others, impose remedial sanctions for contraventions to the NCA, without referrals to NCT, in order to effectively enforce the NCA. •
The National Consumer Tribunal (NCT) submits that the Chairperson should have the discretion to allocate simple matters to a single Tribunal member as opposed to a panel of three members, amongst other suggestions, to improve efficiency within the NCT. •
The NCR and NCT proposals have been approved by the Minister, to assist the Committee to achieve the aims of the Committee Bill.
Any such powers would have to be drafted and clarified, commented on and considered before they became a reality and no doubt there will be a lot of comments but if the NCR got their way they would no longer be beholden to the NCT to hear matters they have investigated. This then begs the question of what the NCT will be doing but the matter is in it’s infancy and thus will be further clarified. However the intention is clear, the NCR would like to be able to take over some of the current functions of the NCT. How this will fit into Twin Peaks regulation would also have to be determined.
Use of DCRS
Credit Providers came up with an online system which makes concessions to consumers automatically and proposals done through the system have to be auto accepted by credit providers (at least in theory). The NCR, DTI and Portfolio Committee like the idea and would like to see use of the system adopted by all. Some credit providers and Debt Counsellors do not particularly like the system and don’t use it. Other Debt Counsellors have found that not all consumers can benefit from the system since it does not make enough concessions to allow for settling the debt (or makes no provision for writing off debt at a particular point or induplum). Problems with the system rules and the slow way changes are made have hampered it’s adoption. There are many issues surrounding the system. The system is also under promoted and no clear organisation and help centre or sales reps work to make the system accessible to all. This may all change in the near future. The Portfolio Committee have recommended to Parliament that the system become obligatory in some way:
The DCRS concession rules are not effectively and widely used by all Debt Counsellors and Credit Providers to the benefit of over-indebted consumers. The NCA should require mandatory application of the DCRS by all Credit Providers and Debt Counsellors; • The Debt Review system does not accommodate low income consumers. There should be an effective debt counselling framework which provides an incentive for Debt Counsellors to provide assistance, through Debt Review, to low income consumers;
If this is included into the Act then use of the DCRS system (once it was expanded and fixed) would be mandatory for all credit providers including small credit providers who lend their friends money for profit and all Debt Counsellors. They would all be required to obey the law. Questions remain about management of the system, amending the calculations etc. Would the concessions and “rules” be issued as a regulation? It is unclear. Ironically, use of DCRS by the industry seems to currently be failing at the very same time that Parliament might just be getting on the DCRS wagon. Fortunately for those with concerns about the system clarity on Section 103(5) will be a big part of the potential amendments (see part 2).