Research Study on the Debt Counselling Process Print

November 2009

The Reasons for Conducting the Research

The objective of the research study was to find out why debt restructuring is not being achieved successfully and why debt restructuring applications are not being finalised by the Magistrates’ Courts. In addition, the research study was also conducted to identify the parties responsible for delaying or preventing the finalisation of the cases and also to identify which approach these parties followed.

Moreover, the research study investigated the extent to which credit providers are going back on their words in terms of the agreements reached and if they are complying with requests to issue debt counsellors with a certificate of outstanding balance. It also investigated the degree to which banks are cooperating with debt counsellors to furnish them or consumers with copies of credit agreements.

Other aspects that were dealt with includes money set-offs, failure by banks to stop debit orders, incidences of enforcement whilst consumers were under debt counselling, termination and legal action after the lodging of an application in the Magistrate’s Court. The attitudes of major credit providers, with special attention to banks, and their responses on debt review cases brought before the Magistrate’s Court were also investigated during this research study.

The Findings of the Research

The findings indicate that the length of time it takes to complete the debt review process, as a whole, has a severe impact on the South African consumer. South Africa's credit providers are taking too long to issue the balance of outstanding debt and the debt counselling process is being obstructed.

The research team found that one of the main causes leading to the non-functioning of the debt counselling process, flows from a breach of the work stream agreement between credit providers and debt counsellors regarding the court procedure. In some instances this appears to be the result of a deliberate retaliation in response to what is perceived by some debt counsellors as a lack of good faith by credit providers.

Debt counsellors are also found to be at fault in some instances. The research found evidence of non-cooperation and non-compliance with the National Credit Act (NCA), credit regulations and work stream by debt counsellors. This appears to be the result of a lack of knowledge, leading to ill-informed debt restructuring proposals for consumers.

Perceptions of the Debt Counselling Process

Perceptions of and experiences with credit providers regarding their compliance with the NCA, industry agreements and service levels were also investigated and supported by quantitative and qualitative research.

A total of 300 consumer applications for debt counselling, ranging from the last quarter of 2007 to the first quarter of 2009, were obtained randomly from seven debt counsellors that was used in the research.

The above consumers have entered into 3 288 credit agreements in total.

Please see the table below with a breakdown of the above for each industry.

Demographics of the credit industry

Industry Number of Agreements Percentage of Total
Major Banks 1724 52.43%
Retailers 670 20.38%
Other Credit Providers 476 14.48%
Micro Lenders 230 7.00%
Service Providers 141 4.29%
Others (Private Loans) 47 1.43%

According to the research, Major Banks hold the majority of the credit agreements at 52.43%.

Please see the table below with a breakdown of the frequency of credit extended according to the different types of credit products:

Demographics According to Credit Type / Product

Credit Type Frequency Percent
Retail 886 26.95%
Credit Card 675 20.53%
Personal Loan 562 17.09%
Vehicle Financing 241 7.33%
Micro Loan 230 7.00%
Over Draft 201 6.11%
Other Debts 179 5.44%
Home Loan 167 5.08%
Service 141 4.29%
TV License 6 0.18%

According to the research retail type credit products holds the majority of credit agreements at 26.95%, followed by credit cards and personal loans.

Confidence in the Debt Counselling Process

64 debt counsellors representing 10.46% of registered debt counsellors in South Africa were interviewed to indicate their confidence in the debt counselling process. This research was based on subjective opinions.

Graph Image

In the figure above the red line indicates the upper confidence limit, the green line indicates the lower confidence limit and the blue dot represents the average response time. The debt counsellors found the banks and retailers to have the most confidence in the debt counselling process, followed by credit providers, micro lenders and lastly services. Despite this, 78% of the debt counsellors expressed frustration at the unwillingness or inability of banks to stop payments per debit order when requested to do so. 62% of debt counsellors indicated that they experienced problems with credit providers using money set-off methods. It was implied by the debt counsellors that credit providers are using ‘loopholes’ in the NCA to their benefit so that the debt review cases can not be heard on its true merits. This conduct often leaves the bona fide consumer in more debt than before.

Peter Setou, a senior manager at the NCR, said this had disappointingly obstructed the debt counselling process. According to Setou, this could also have severe consequences for the lenders and for the industry. Setou said: "This has led to uncertainty and inconsistencies in procedures among the various parties participating in the process." "They sometimes terminate a debt review process that has already commenced, or take legal action against a consumer after a debt restructuring application has been lodged in the court."

The National Credit Act requires that all consumers and credit providers act in good faith. According to the research study credit providers that are acting in bad faith was recorded at 61% and in good faith at 39%., as well as a 35% recording of bad faith on the part of consumers.

In spite of the challenges experienced in the debt counselling process the vast majority (91%) of debt counsellors still regard the process to be an effective debt relief measure.

The major obstacles identified in the research are indicated in the graph below:
Main Obstacles Graph Image

As indicated in the above graph, 72% of credit providers have renegade on the industry agreements and prevented debt counselling proposals to be heard by courts. 53% are the result of inadequacies of the Act and Regulations in regulating the debt counselling process. 36% of consumers have not cooperated and 27% debt counsellors have not adhered to the work steam agreement.

Both credit providers and debt counsellors have been found guilty of not being able to keep within the prescribed time limits as set out in the Act and Regulations resulting in the 60 day period not being attained. From the findings it appears that a lot still needs to be done from both sides. These challenges, as identified in the research, need to be taken into consideration to effectively deal with debt restructuring in the current financial crisis.

For more information on the above article, please refer to the debt counselling process: challenges to consumers and the credit industry in general: April 2009. The University of Pretoria Law Clinic can be contacted on 021 420 4155 or visit www.up.ac.za.

For registration and enquiries on Compuscan Academy’s debt counselling training please contact us on 021 888 6000 or email This e-mail address is being protected from spambots. You need JavaScript enabled to view it . Visit our new website at www.compuscanacademy.co.za and take a look at all our existing skills programmes and courses on offer.