Recommendations by the Debt Counselling Task Team Print

November 2010

The National Credit Regulator (NCR) set up a Task Team in October 2009 to identify the blockages in the debt review process under the National Credit Act and make recommendations to address the problems identified after consulting all major stakeholders.

The Task Team is chaired by Advocate Neville Melville and comprises of Paul Slot, Johan de Ridder and Rob Easton-Berry. The team is assisted by Marlene Heymans (NCR), Mareesa Kreuser (University of Pretoria Law Clinic) and Sue Hatton (consultant to the banking industry). The Task Team consulted with Gabriel Davel and Peter Setou, of NCR, on an ongoing basis. 1.3 Over the course of the past six months, the Task Team has had detailed engagements with a broad range of affected parties. This includes discussions with payment agencies, debt counsellors, banks, retailers, micro lenders, other credit providers, magistrates and a range of industry specialists.

Statistical overview

Based upon the NCR’s statistics, the current position in debt counselling is as follows:

  • 1, 733 debt counsellors are registered with the NCR
  • 184,000 consumers have applied for debt counselling since the implementation of the NCA, with an average of 7,500 new applications being received per month
  • Only about 10% of the new applications are being resolved through the courts
  • There has been a significant increase in the monthly payments by consumers under debt counselling over the last six months, from R11,05 million in June 2008 to R192 million for the month of June 2010
  • Default rates of around 48% are being reported by the large credit providers with the balance of affected contracts performing at around 60% of required contractually required performance
  • A very low number of applications are resolved consensually

Key conclusions

The Task Team concluded that the backlogs in the debt review process at present are being caused by a complex set of factors related to:

  • Severe capacity constraints in the judicial system.
  • Process weaknesses;
  • Inadequate operational compliance by credit providers and debt counsellors as well as lack of co-operation between them;
  • Possible abuse of the process by consumers.

Recommendations

Flowing from the conclusions reached, the Task Team proposes:

  • That a National Debt Review Committee consisting of representation from credit providers, debt counsellors and payment distribution agents be established under an independent chairperson, with a mandate to develop, implement and monitor working arrangements for the debt review process an ongoing basis, subject to the supervision of the NCR;
  • That codes of conduct for the three key stakeholders be developed and implemented as soon as possible;
  • That a set of enhanced debt review process guidelines addressing the process breakdowns identified by the Task Team be adopted and implemented;
  • That a set of eligibility, affordability and reckless lending assessment guidelines for debt counsellors be issued by the National Debt Review Committee;
  • That a set of debt counsellor system standards and functional requirements be implemented under the auspices of the proposed National Debt Review Committee;
  • That a set of general principles with which all debt re-arrangement rule sets applied by debt counsellors must comply be established under the auspices of the National Debt Review Committee;
  • That the Payments Association of South Africa and the relevant Payments Clearing House be requested remove the nominal monetary limit (R5000) on Non-authenticated and authenticated debit orders for Payment Distribution Agents only, in order to improve the recovery rates on debit order instructions for payment arrangements under the debt review process;
  • That the National Debt Review Committee be required to formulate a set of debt restructuring rules that takes the proposals of the Task Team into account and is broadly accepted by credit providers.