Research highlights debt-counselling obstructions

Peter Setou, senior manager: education and strategy at NCR, says the debt counselling process disappointingly has been obstructed by uncertainty and inconsistencies in procedures among the various parties participating in the process and on interpretation of some of the key sections of the National Credit Act (NCA) and its regulations.

“There are too many instances of debt restructuring not being successfully achieved. Applications for restructuring are not being smoothly and quickly processed and finalised by the courts. An obstructed debt review process can have severe consequences for the consumer (in the form of house or vehicle repossessions), for the lenders themselves, and for the broader SA credit industry,” he states.

Setou says that the NCR commissioned a research project, conducted by the University of Pretoria Law Clinic. The study would then make proposals to improve the debt review process and identify where the NCA and its regulations require amendment.

Study results

In examining the practices of credit providers/lenders, the study considers the level of their co-operation with debt counsellors and the extent and degree to which they are reneging on agreements reached. It also looks at several areas where there is non-compliance with the NCA.

• COB - Some lenders take too long to issue a certificate of outstanding balance (COB) of debt. The requirement is five days but research shows this to be around ten days on average, although this has come down from 20 days. Some are not responding to COB requests or some COB certificates contained incorrect and incomplete information. Some credit providers fail to furnish copies of credit agreements when requested by the debt counsellor or consumer.
• Restructuring proposals - Many credit providers are not responding to debt restructuring proposals, others take too long to respond and some even respond negatively by making ridiculous offers for consumers' debts. Many credit providers' objections to restructuring proposals are based on legal technicalities relating to court geographic or monetary jurisdiction. In general, they are exploiting certain shortcomings in the NCA to obstruct the debt review process. This has meant debt counsellors have been compelled to refer debt review matters to court without sending restructuring proposals for consideration and approval to credit providers.
• Other unacceptable practices - inappropriate set-off of consumer assets against specific debts, and failing to stop debit orders when requested. Continuing to enforce repayment of debts while the consumer is formally under debt counselling, terminating a debt review process that has already commenced, or taking legal action against a consumer after a debt restructuring application has been lodged in the courts. The various product lines and divisions within a single credit provider do not communicate with each other, giving rise to inconsistencies.
• Other problems - incorrect or inappropriate interest rate reductions being used in their restructuring counter proposals; incorrect or unavailable documentary proof and affidavits; and obstructively excluding vehicle financing agreements from restructuring proposals, by claiming these are rental rather than finance agreements.

The debt counsellors themselves were also at fault in some instances.

• Timeousness - the NCA requirement is that a debt counsellor must make a determination as to over-indebtedness within 60 business days of receipt of the consumer's application for debt review. Several were found to be well outside this time limit, with the majority citing non co-operation of credit providers as the reason.
• Lack of education, experience and competence by debt counsellors were identified, leading to ill-informed debt restructuring proposals for consumers. There were cases of unacceptable proposals, and even no proposals, being sent to credit providers.

Recommendations - practices & procedures

• Improved training of debt counsellors and credit provider staff;
• Improved communication between debt counsellors and credit providers;
• Standardising of formulas/software used by debt counsellors in evaluating indebtedness and the format of their restructuring proposals;
• Establishment of a special Ombudsman office catering for debt review related matters, in order to streamline complaints and offer specialised dispute resolution. (The NCR is presently responsible for all complaints lodged against credit providers and debt counsellors.)

Recommendations - legislative and regulatory amendments

• Education, experience and competency requirements for debt counsellors;
• Certificate of Balance request should be standardised and included in NCA Regulations;
• Powers of the courts in cases where consumers are determined to be over-indebted;
• Improved Form 16 (the form completed by the consumer at time of debt review application), which will assist debt counsellors to obtain sufficient and more detailed information;
• Burden and recovery of debt counselling costs, with credit providers also possibly bearing some of these;

Other recommendations

• Court processes
• Referrals to court when consensus on restructuring cannot be met
• Declarations of reckless credit and the consequential discharge of a consumer's debt
• Correct processes when one of the parties withdraws from the debt review process
• Cases when the consumer himself applies to court for relief from disabilities resulting from debt-rearrangement.

Setou concludes that this research makes an invaluable contribution in resolving the current challenges experienced in the debt counselling process. “Debt review is an extremely effective debt relief measure and the NCR is committed to ensuring its optimal operation,” he concludes.