Debt report out for Q1

While its task team, chaired by Adv Neville Melville, the previous Banking Ombud, found that debt counselling played an important role in assisting consumers during the financial crisis, it has highlighted a number of challenges, which affect the efficient functioning of the system.

Problems, proposals:

• delays in the finalisation of debt counselling hearings in the magistrate's courts, mostly as a result of uncertainty on the interpretation of the relevant sections of the National Credit Act (NCA);
  
• delays and non-compliance by debt counsellors;
  
• delays by credit providers, often caused by weaknesses in the policies and procedures for dealing with debt counsellors; and
  
• problems related to the receipt and distribution of payments by consumers

It noted that many of the problems relate to differences in the interpretation of the Act. This has a huge impact on the implementation of debt counselling and there is an urgent need to effect the necessary amendments to the Act.

Gabriel Davel, CEO of the NCR, warned that one of the biggest dangers is that consumers could use debt counselling as an excuse for not meeting their payment obligations. "Such behaviour is creating significant risk to mortgage banks in particular and could promote a culture of non-payment, even amongst high income consumers," he says.

The task team has developed a number of proposals, which it believes could make a significant improvement in resolving the backlogs.

• For credit providers:

  • improvements in their policies and procedures;
    
  • greater co-operation between different business units in restructuring debt;
    
  • improved administration to ensure that credit providers do not delay the conclusion of cases;

• For debt counsellors:

  • greater consistency in performing affordability assessments;
    
  • introducing standards to ensure that realistic debt restructuring proposals are developed; and

  • improving communication with both consumers and credit providers

It has found that debt counselling has assisted consumers to deal with the negative impact of the financial crisis and the resultant job losses and negative impact on incomes. It may also have helped to curtail repossessions and in preventing a decline in the housing market. It notes that a recent survey found that more than 79% of consumers were happy with the outcome of the debt counselling process.

"This is an encouraging sign. We urge all the affected parties to contribute to establishing an effective debt review process, in order to deal with the impact of the financial crisis in a responsible manner, while protecting consumers and minimising any negative impact on the financial sector," concludes Melville.