Changes To Debt Counsellors Fees Coming
CIF Meet To Discuss Debt Counsellor Fees
The NCR run CIF are meeting to review proposed changes to the fees charged for debt counselling services
The National Credit Regulator (NCR) run a forum called the Credit Industry Forum (CIF) where they have certain industry parties submit and discuss issues that are not clarified in the National Credit Act (NCA).
One of these topics is how much should people pay for professional Debt Counsellors’ services. The NCA is quiet on the subject (other than to mention that consumers can be asked to pay R50 for handing in their application (and should get a receipt).
In an effort to create uniformity across the industry, the NCR have on a number of occasions over the years issued guidelines on what they feel would be appropriate to charge.
Though not legally binding, the NCR encourage Debt Counsellors to follow these fee guidelines. At the same time, the guidelines have a disclaimer to say they cannot be held liable if Debt Counsellors do so and there are limitations on the power of these guidelines.
CIF Meet To Discuss New Fees
At present, the NCR’s Credit Industry Forum are meeting to discuss an updated fee structure for debt counselling services.
In a very positive move, the NCR has invited members of the legal fraternity to weigh in on the guideline where it tries to regulate when attorneys get paid and how much they are allowed to charge to help consumers.
‘the…Credit Industry Forum are meeting to discuss an updated fee structure for debt counselling services’
In the past, attorneys have not adhered to the guideline which says that attorneys would only get paid after the court order is resolved. Others have pointed out that it would not be right for a Debt Counsellor to ever use a phrase such as ‘legal fees’ in a rate sheet unless they were themselves an attorney.
Using Fees To Drive Behaviour In The Past
Money is a big motivating factor. The current fee guidelines drive the most attention to consumers (and work done on their behalf) toward the first 4 to 8 weeks of the process. This is because this is where the Debt Counsellor earns the majority of their fees (and the majority of the initial work is done).
This is similar to how the loans industry is set up. The fee structure also encourages taking on more and more clients to cover costs and earn fees.
The NCR have in the past tried to use the way their fee guideline is set out to try and drive certain behaviour by Debt Counsellors. For example, They saw that Debt Counsellors were not regularly being asked by consumers to do any reckless credit investigations.
Since it is incredibly expensive to fight about at court as well as very time and energy consuming Debt Counsellors tended to avoid these matters unless the consumer specifically asked them to look into it (which is what the Act says needs to happen before a Debt Counsellor can do so).
The NCR issued guidelines (based on a 2009 Task Team report) that require that every account in debt review be closely examined for reckless credit – including making sure affordability assessments were done, consumers received and understood quotations and contracts. Most Debt Counsellors (as well as credit providers) have largely ignored this part of the task team report and guideline since it is very laborious and can potentially bring the entire process to a grinding halt. Even the NCR has been silent on this aspect of the Task Team report in the past.
‘reckless credit investigations were seldom being done. So, the NCR decided to use a past fee guideline to drive adjusted behaviour’
The bottom line was that reckless credit investigations were seldom being done. So, the NCR decided to use a past fee guideline to drive adjusted behaviour. They introduced a R1500 fee that could be allocated towards reckless credit investigations.
As a result many Debt Counsellors (particularly the larger ones) immediately began to investigate reckless credit and charge the fee.
‘As a result, many Debt Counsellors… immediately began to investigate reckless credit and charge the fee’
It was a great success. The change to the fee structure changed the behaviour of the Debt Counsellors as they prompted their clients to ask them to investigate for reckless credit matters.
Changes Can Bring Challenges
As a result, of the inclusion of a new reckless credit fee into the fee guideline, more and more reckless credit allegations immediately began to surface.
Since each matter can potentially cost the credit provider up to R1 million in fines, for each matter, the credit providers (one bank in particular) put a lot of pressure on the NCR to backtrack on these fees.
READ MORE: NCR Backtrack on Reckless Lending Fee
This they did by putting out a circular saying they wanted to retract the fee (which was not well met) and by trying to communicate with Debt Counsellors and ask them not to charge this fee all the time.
In recent drafts of fee guidelines, the NCR is now talking about these fees only being charged if a reckless matter is potentially identified. The fee would not cover the extensive time taken for an investigation but only if a problem is eventually found.
Since it is normally true that investigating reckless credit (and preparing documents for the court to look at in regard to reckless credit) on a single account doubles the entire workload of a Debt Counsellor, the fee (currently still R1500) is a token payment and not designed to cover time and expense.
Also not covered are the many thousands of extra rand in legal costs involved as credit providers fight tooth and nail to avoid any R1 million fines and knocks to share prices. These have to be paid on top of the usual fees. Often they can be recovered from the credit provider but it is not guaranteed.
Will The NCR Try Use A New Fee Guideline To Drive New Behaviour?
It remains to be seen if the NCR will once again try to use the fee structure to try drive new behaviour by Debt Counsellors. This is instead of (or in addition to) using enforcement to try and correct any Debt Counsellors who are in breach of the National Credit Act.
Will there be possible negative consequences of changing the fee structure? It is possible. This is why it helps to get input from as many sources as possible before issuing any new guidelines.
Once the CIF has had a chance to review and comment on a possible fee guideline, the NCR will compile it and then put it out for comment from the industry (particularly those who are not informed of what is happening at CIF). Traditionally they should the issue the new guideline (with few, if any, changes).
Debtfree Magazine will endeavour to share further information about this in the future.