PDA’s Struggle to Meet Obligations of National Credit Amendment Act
Recent changes to the National Credit Act have been largely heralded as of great benefit to consumers. Several changes increased protection for consumers and streamlined certain aspects of the debt review process. Included in the new amendments is the registering of Payment Distribution Agencies. These are firms who help consumers with distribution of funds to their credit providers according to the monthly plan as laid out by the Debt Counsellor and their debt restructuring Court Order.
These plans last many years and require that varying amounts are paid each month. While consumers have the right to manage this aspect of their debt review themselves the risk of getting the payment amounts wrong or paying them at the wrong time is massive. Another challenge facing consumers is tracking all their payments and calculating the balances left since most creditors have refused to provide monthly statements (truth is their computers just cant handle the changes and work out the figures all wrong so they don’t want to send out wrong statements and get into trouble). The NCAA2014 also introduced a specific set of fees that could be changed by PDAs.
Recently the changes to the NCA obligated the various PDAs to make payments of received funds within a short time period. The challenge is then that the PDA could make the payment before it actually “clears” and then may be out of pocket if the payment doesn’t clear. They would end up paying out funds which never came in or where their has been a reversal. Recovering these funds would be a real challenge and require a big expense in time, manpower and money. PDASA, the association of PDAs, have been trying to resolve the issue in regard to certain types of payments with the NCR and DTI.
In a recent letter to the industry one of the PDAs has now issued this letter of concern (below) listing this issue and the recent changes to certain fees regarding Aedo transactions.
Dear Debt Counsellor
NOTICE OF A POSSIBLE RISK TO DEBT COUNSELLORS
Further to our communication below dated 31 March 2015, please be advised that we are obliged to inform the Industry that there is a serious risk facing Debt Counsellors relating to the two issues that were
communicated below, namely the obligation on PDA’s to distribute monies collected to Credit Providers within 5 days of receipt of the funds, as well as the Schedule of Fees for PDA’s.
These matters have been taken up with the NCR and the DTI and we must report that no solution has been found or agreed to as of date.
It is indeed our obligation to inform you of the risks that you as a Debt Counsellor may face, which we have done, but we feel obligated to repeat the message so that you are well informed. The matter could in fact lead to the closure of some or many Debt Counsellors since collections via this channel could be withdrawn, the quantum of which for those using this channel is estimated to be in the order of R300million per month (R3.6 billion per annum).
PDA’s are obliged, in terms of the NCAA 2014, to distribute funds within 5 days of receipt of the funds, but this is not possible in the case of Debit Orders and Naedo because of the PASA Clearing Rules which allows for Disputes / Reversals. If the Credit Provider has been paid at the time of the Dispute/Reversal, then this is a direct loss for the PDA, which is not affordable.
One will appreciate the severity of the situation.
Consequently, we must caution that PDA’s could be obligated to close this channel without further warning! This could of course have very serious consequences for Debt Counsellors and unfortunately, there will be no fallback or relief. Furthermore, the PDA’s must point out that Debt Counsellors using the Aedo (Authenticated Collections – card present) channel for collection could face a serious pricing risk since the vendor of this service, Nupay have had to reprice this service effective 1 July 2015 since one of the market participants namely Capitec, have uncapped fees which has affected their own pricing. Capitec have a large market share in respect of Debt Review transactional accounts and consequently, we do not see Aedo being viable in the future in terms of Debt Review matters, especially in view of the PDA pricing in terms of NCAA 2014.
We value your very vocal support over this period and we thank each and every one of our very valued Debt Counsellor clients for their vote of support and confidence during this time – a hearty thank you
It seems that the PDAs are trying to resolve the situation but some changes in how they do business may lie ahead as they attempt to adjust to the changes brought about by the NCAA.