NCR Guideline for Debt Counselling Fees
Though the National Credit Act and Regulations are silent on what can be charged for Debt Counselling (maybe because that would be anti competitive and anti Capitalist) there are at least two organisations that have tried to guide the industry in regard to fees which might be charged for debt review. The first was the Debt Counsellors Association of South Africa (DCASA) which issued a guideline for it’s members a number of years ago (this fee guideline fell into disuse after the matter was taken before the Competition Commission and it was found that one industry association’s guideline cannot dictate to non-members etc). Once that guideline was dismissed by Competition Commission the National Credit Regulator (NCR), in a surprising move that seemed to somewhat invalidate the ruling by the Competition Commission, issued the same guideline under their branding to the industry.
The guideline was non-enforceable and non-binding, as it was simply an opinion on what fees might be reasonable. It did, however, help guide consumers looking for help on what the NCR (and previously DCASA) found to be reasonable.
After several years and a lot of mounting pressure within the industry in the face of increased workload and inflation, the NCR revisited their fee guideline and changed some of the figures to allow for some higher caps.
Over the last few years, Debt Counsellors, who follow the guideline, have been clamouring for the NCR to change their guideline to allow for a wider and more sustainable range of fees. This month the NCR released a new fee guideline proposal and have put their opinion on the topic up for comment in the public space.
It seems that they are open to being convinced that their opinion on the topic needs to be adjusted. Let’s consider some of the aspects of the proposed fees (in a short series of articles over the week) and consider some of the challenges and or results of the proposed fee structure.
The general consensus across the board, among Debt Counsellors Debtfree managed to interview, is that the proposed fee structure format encourages helping high end consumers and ignoring or avoiding trying to help low end consumers. It is also said that the proposed fees encourages concentration on signing consumers up as opposed to seeing them successfully through the process. Calculations based on the proposed fee structure show it to be a general reduction in income for Debt Counsellors in all cases where consumers pay less than R9000 for their debts every month. This affects the sustainability of debt counselling practices. These 3 reasons seem to be the major concerns among those we spoke to.
‘the majority of counsellors have found that they can only help around 100 clients at the same time and often do a second job… to supplement their income’
The ‘Average‘ Debt Counsellor
The majority of debt Counsellors in South Africa (and there are not many) are small operations and help around 100 clients. Then there are larger firms around 10 who each service over 4000 clients at the same time. It is estimated that of those large firms the top 4 service around 10 000 clients or more at the same time. Obviously then the largest firms help the most people at the same time and thus their needs need to be considered. At the same time, the majority of counsellors have found that they can only help around 100 clients at the same time and often do a second job or have a second revenue stream to supplement their income due to the fact that the process is not very profitable as a small business. This is, in many ways, a reaction to the current fee structure. Over time around 1800 qualified Debt Counsellors have either not bothered to practice, have stopped taking on new clients or have left the industry. This then leaves around 700 practicing firms for consumers to choose from.
The Application fee is, in fact, the only fee mentioned in the National Credit Act. It is set at R50. No other fees are mentioned. For this reason, past guidelines have set this fee at R50 and left it there.
Proposed Debt Counselling Fee Structure
- Application Fee (for completion and submission of Form 16)- R50 (as prescribed int he Act) – To be paid up front and in full.
In the past, most smaller firms just forgot about this fee and trying to get people to pay to apply. They wanted clients and did not want to put what is called a bar to entry in the way of the consumer. Smart firms figured out they could add this fee in after the fact in the consumers restructured payments a little down the line (at the end of the first month).
The NCR have issued terms and conditions of registration to many new Debt Counsellors which specifically bar them from accepting payment directly from a consumer. They have said that a Debt Counsellor must get that money from a consumer via a NCR registered Payment Distribution Agency. (Please note that the registration T&Cs do not apply to consumers and they do not have to make use of a PDA throughout the process. In theory (NOT COMMON PRACTICE) then they have to make a single payment to the Debt Counsellor Via a PDA at least if the Debt Counsellor wants to get this application fee (never mind monthly after care fees – which we will discuss later)
This may be contrary to the right held out in the National Credit Act which says a Debt Counsellor must issue a consumer with a receipt when they accept payment from a consumer for such an application and thus it could be argued at the NCT or at court, if it came to that, that the NCR Terms and Conditions are fundamentally flawed in this regard or simply do not cover the NCA mentioned application fees. That said, the NCR’s recent T&Cs do not allow for taking money from a consumer while the proposed fee guideline implies you can.
Recent Debt Counsellor Terms and Conditions need to be amended to allow for receipt of payments from consumers either generally or specifically for application fees. Otherwise, a Debt Counsellor could, in a crazy set of circumstances, be deregistered by the NCT for accepting cash as per this guideline.
The Application fee (R50) is now said to cover completion and submission of the Form 16. This is something a consumer does by themselves and delivers to a Debt Counsellor so it is a bit strange that it is mentioned in the guideline which seems to indicate that this is somehow done by the Debt Counsellor. This may be an effort to cover the practice of some Counsellors of having their staff talk the consumer through such an action or to capture the information on behalf of the consumer on an electronic system.
Proposed Debt Counselling Fee Structure
Administration Fee (New Fee) for (a) a Preliminary assessment of over-indebtedness; (b) Forms 17.1 process; and (c) loading the consumer on Debt Help System – R250- paid up front and in full.
Debt Counsellors check out a consumers situation and if they appear to be over-indebted they submit the consumers matter to court or the NCT for the consumer to officially be declared “over-indebted” (please note the Debt Counsellor cannot declare someone over indebted only make such an averment which needs to be made by those with authority to do so. So a Debt Counsellor may send a matter to court and the court could find that they do not think the consumer is over indebted and reject the application – which hardly ever happens since most people are heavily over indebted these days).
‘since Debt Counsellors are desperate for new clients would they forego this fee anyway?’
This new fee seems to be an acknowledgement from the NCR that it costs time and money to have a look over a consumers matter during an initial consultation when they are looking for help. It is like how a doctor often charges a little extra for that very first visit when they get to know you and spend more time with you. Many Debt Counsellors can spend up to 3 hours with a consumer discussing their situation to help get a feel for how the consumer got into trouble and what is needed in the way of changed spending habits and dealing with debt.
Many Debt Counsellors can spend up to 3 hours (or more) with a consumer discussing their situation to help get a feel for how the consumer got into trouble and what is needed in the way of changed spending habits and dealing with debt.
The fee is said to cover the Form 17.1 process. This involves communicating with all the consumer’s credit providers and asking for information. The new fee also seems to indicate that much of this work might be done as an administrative task (not a Debt Counsellor specific function). This fee then seems to cover work for the first 5 days of the process.
The same issue is involved. Will a Debt Counsellor chase off clients by making them pay R50 + R250 upfront? It would help cut out some of the applications which are just time wasters but for the most part since Debt Counsellors are desperate for new clients would they forego this fee anyway? Would they add it in at the end of the first month? Are they allowed to add it later (delayed payment)? Are they allowed to take this fee in view of the problem mentioned above with their Terms & Conditions of registration?
The recent Debt Counsellor Terms and Conditions need to be amended to allow for receipt of payments directly from consumers, either generally or specifically for this fee.
…Continued in Part 2 (tomorrow)