The NCR Want To Change Fees
To Drive Better Consumer And Debt Counsellor Behaviour
In 2018 the NCR made a fee adjustment that slightly increased the fee cap for rich clients and changed the legal fee from always being in the 2nd month of debt review to an undefined month when the legal work on the restructuring court case was complete.
Now 5 years later, the NCR have initiated a sub committee at the Credit Industry Forum (CIF) to once review debt counselling fees. While all fees are up for discussion, of primary focus to the NCR are restructuring fees and legal fees.
The NCR say they are worried that consumers are paying high legal fees for cases that go to the National Consumer Tribunal (NCT).
They also worry that people are dropping out of debt review and want them to stay in the process.
They worry that some consumers are in debt review but claim they did not want to be.
They also have concerns that they get complaints that some Debt Counsellors are not doing all the work they are meant to.
Credit providers once decided they want to get payments by month 3 of the process and would not wait longer. So, when fees like reckless lending or larger legal fees disrupt that they become frustrated and complain to the NCR (note that in many collections processes credit providers wait for years to collect money). Credit providers find it hard to make their computers stop adding fees and interest each month. When debts then grow (on paper at least) their accounting departments get stressed.
Key issues with Fees:
Consumers find it hard to understand the current fee guidelines. They are vague and not user friendly.
Credit providers (particularly asset finance) want money now and not after a few weeks. In particular Credit Providers fixate on payments in month 3.
Debt Counsellors get paid 50% of their total fees upfront because consumers often drop out of the process even though they do everything in their power to assist these consumers. This is not related to fees.
Debt Counsellors realistically need a little more funds from each matter to stay in business due to the increased workload and inflation (last reviewed 5 years ago).
Past changes did not address new additional work that is commonly done on every single debt review matter. There are missing fees that should be added (eg. transferring, clearance certificates, new legal work, maybe even annual reviews)
Attorneys are not interested in the NCR’s opinions on their fees and trying to impose on them indirectly may not make a difference to what they require in fees.
Not knowing when legal fees will go off (as per the current fee structure) makes calculating and making proposals impractical so most people just ignore the current official fee structure timing and allocate legal fees in month 2 anyway.
VAT also plays a factor in pushing payments over into the following month.
Consumers have to pay for legal fees on every debt review due to the 2009 NCR declaratory order saying all matters must go to court.
The NCR worry some Debt Counsellors take fees but do not actually do the work and consumers then struggle to get refunded and are stuck under a debt review “flag” on the credit bureaus.
Debt Counsellors constantly feel they are not adequately consulted in the fee process. Not all Debt Counsellors are represented at CIF.
Little market research has been conducted recently in regard to how many hours it takes to do debt review or what Debt Counselling actually costs to do (on average).
The Courts do not put much stock in a non binding opinion on fees from the NCR (a guideline) since nothing has been issued by the DTIC or Minister.
Changing the Restructuring Fee
How do you stop people dropping out of debt review?
How do you force lazy Debt Counsellors to be more effective?
The NCR feel that perhaps charging the consumer the restructuring fee, split up over several months might keep consumers in debt review. They also hope it encourages Debt Counsellors to pester the clients into staying in the process so that they will get paid.
One idea was to split up the current restructuring fee (which accounts for half the fees most consumers ever pay) to be over many months (eg.5 months).
Pros: Credit providers will get a little more money sooner.
Pros: Consumers may be happier they can see payments going to their debts right away. This may help keep them in the process.
Pros: Credit providers and their collections agents might be less motivated to lie to consumers about the process “not working”
Cons: Changing when the fee is paid does not alter when all the work is done. The majority of the initial work is done in the first 60 days.
Cons: Most smaller to medium Debt Counsellors will go out of business due to cashflow issues.
Cons: Consumers who are not committed to the process will still drop out of the process and now Debt Counsellors will only receive 1/5th of what they did from these consumers before for the same amount of work.
Cons: If lazy Debt Counsellors felt unmotivated before for 50% of their fees before they may feel even less motivated for 10% in month one and may want to wait several months before doing any real work on the case. With less money on the line the consumer can only recover less money if they get bad service but will still then have the same “trapped” debt review status and not have access to more credit.
Due to a 2009 court case ruling, all debt review matters need to go to court.
Despite this the wording of the National Credit Act has never been amended from ‘may’ to ‘must’.
Having the matter set before a court protects the consumer from the credit provider starting new legal action while the restructuring is ongoing (they can actually start legal action anyway but the consumer can then ask the new court to force them to go back to the debt review court instead).
This legal process of getting a restructuring court order protects the consumer from what is known as Section 86(10) “terminations” and this protection lasts until the court order is actually achieved. Then the credit provider, ironically, can just cancel their participation in terms of NCA Section 88.3 and new legal battles have to be fought. All of this, wasted effort results in more legal fees which the consumer does not have since their finances have been restructured.
The NCR know they cannot tell Attorneys what to charge and when to charge it. Still, they want to tell Attorneys what to charge and when to charge it and so are still planning to issue a guideline about such fees once again.
So, Why Do It?
Financially stressed consumers deserve affordable, quality help. No one wants them over paying.
The NCR are concerned that consumers are being represented by attorneys at the National Consumer Tribunal (NCT) and are thus paying lots of funds. They would prefer that Debt Counsellors do this instead and charge the consumers less. This would be a saving for the consumer.
Still the wording of the National Credit Act leaves some concern about which matters can or cannot go before the Tribunal. The NCT have issued statements encouraging Debt Counsellors to make use of their services when all the credit providers quickly agree to the repayment plan (proposal).
Even where credit providers are fighting against the proposals made by NCR registered Debt Counsellors and the matter has to go to court, the NCR feel that in some circumstances the fees attorneys charge to defend such matters are too high. This can result in credit providers having to wait longer to get payments on accounts (accounts that just weeks before were getting no payments of intermittent payments anyway).
Pros: The NCR get to share their opinion on fees. Some Debt Counsellors might pressure their attorneys to follow the guideline.
Pros: Lower attorney’s fees may mean credit providers get money a little sooner.
Pros: Lower legal fees might also mean a consumer could be debt free a month or two sooner.
Cons: The NCR has no standing to issue fee guidelines to Attorneys. Attorneys already say they charge too little for such matters (even those charging higher amounts).
Cons: Cheaper legal defence generally means weaker or just plain bad legal defence. (e.g. Do you want a brain surgeon who charges R100 per surgery in his back room…suspicious… Maybe rather go for the more professional one who charges proper rates).
Cons: Legal work is currently needed because credit providers able to turn down proposals. This means the process can quickly turn legal. Changing fees does not address this credit provider behaviour.
Cons: The NCR does not want one consumers fee amount to offset another consumer’s fee amount. This means there is little incentive for Attorneys to help consumers with little money available to repay debt each month. Inadvertently this could create backwards pressure for Debt Counsellors not to help such vulnerable consumers at all.
Using Fees To Try Address Complaints
The NCR Complaints Department receives complaints from many consumers (they don’t get calls from the successful clients thanking their Debt Counsellors).
Many of these complaints relate to consumers not getting the service they expected. This can be because of poor communication, unrealistic expectations or lazy Debt Counsellor service.
Some consumers are unfortunately tricked out of debt review by nasty collections people who cause them to doubt the process. Others see adverts from big banks saying bad things about debt review and then want to change their mind.
‘Banks commonly complain if they have to wait for money to come in due to fees charged’
Banks commonly complain if they have to wait for money to come in due to fees charged.
Especially is this true with consumers who can only afford small repayment amounts. They would prefer to sue such consumers, claim insurance, sell on the debt and move on. Instead they have to wait months due to the process having to go to court. This makes the accountants unhappy.
While normally complaints of this nature by consumers would be best handled through investigation or referring to the right ombud etc changing the fees might be a way for the NCR to try force willing, well behaved Debt Counsellors to carry on doing the work they are already doing anyway but now with poor legal representation for clients and a lot more risk.
Poor performing Debt Counsellors however are not likely to be incentivised by these fee changes to change their behaviour and the NCR will still have to respond to consumer complaints about them.
Some lazy Debt Counsellors give consumers misleading information or do not disclose the all the facts about being under debt review. Surely this behaviour (not fees) should also be closely investigated, which will then decrease the number of complaints at the Regulator.
There are however some concerns.
Consumers may find that with less Debt Counsellors around (since many will just go out of business due to staggering restructuring fees) they have less choice and access to help. Lower income clients may be cut out of the process entirely due to financial viability.
It seems that if these fee changes are indeed aimed at changing the behaviour of lazy Debt Counsellors and under committed consumers who drop out of the process, sadly none of those issues are actually being fixed by making the rumoured proposed changes.
The NCR must acknowledge that a guideline is generally used by those who willingly show good faith and not by those who want to abuse the process. As the courts have pointed out on several occasions in the past, a guideline or non binding opinion is simply non binding. Thus a fee guideline will not adjust the behaviour of abusers or provide an effective means to punish them. Consumers should be urged to lay criminal cases against such individuals and the NCR should refer such matters to the appropriate Ombud or Tribunal.
Attorneys, will still demand to be paid before the work is done as they do with all their other cases.
Still, it is early days and the CIF will hopefully consider all proposals so, Debt Counsellors are encouraged to send proposals on fees (incl. missing fees) to their Debt Counsellor Associations and to the NCR for consideration at CIF.
And let’s just take a quick moment of silence to mention the PDAs whose fees still have not been reviewed even though they are now running at unsustainable levels due to disputes and a poor fee structure. Pity they don’t have a CIF Sub Committee.