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To pay, or not to pay?
Consumers could use debt
counselling as an excuse
for not meeting their
payment obligations, the
national credit
regulator (NCR) says.
"Such behaviour is
creating significant
risk to mortgage banks
in particular and could
promote a culture of
non-payment, even
amongst high income
consumers," NCR chief
executive
Gabriel Davel
said in a statement.
This followed the release of an interim report by the NCR task team
chaired by advocate
Neville Melville, the
previous Banking
Ombudsman. "In December
2009 the national credit
regulator established a
Task Team on debt
counselling to provide
solutions to the
bottlenecks in the debt
review process," Davel
said. The task team
engaged with all the
different stakeholders,
from mainstream banks
and retailers to debt
counsellors.
"While the team found that debt counselling played an important role in
assisting consumers
during the financial
crisis, it highlighted a
number of challenges
which affect the
efficient functioning of
the system," Davel said.
The task team developed
a number of proposals
which it believed could
make a significant
improvement in resolving
the backlogs.
Based on the NCR’s statistics at the end of March 2010, 1642 debt
counsellors were
registered with the NCR
and over 160,000
consumers had applied
for debt counselling,
Davel said. The monthly
payments to creditors by
people under debt
counselling exceeded
R160 million. This had
increased significantly
over the past months,
from only R11m in June
2008, he said. Through
its consultations with
different stakeholders,
the task team identified
a number of problems.
These included delays in the finalisation of debt counselling hearings
in the magistrates
courts, mostly as a
result of uncertainty on
the interpretation of
the relevant sections of
the national credit act.
There had also been delays and non-compliance by debt counsellors as
well as delays by credit
providers, often caused
by weaknesses in the
policies and procedures
for dealing with debt
counsellors. According
to the report, problems
related to the receipt
and distribution of
payments by consumers
had also arisen.
"The task team 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,"
Davel said. It might
also have helped to
curtail repossessions
and in preventing a
decline in the housing
market, he said. The
report noted that a
recent survey found that
more than 79 percent of
consumers were happy
with the outcome of the
debt counselling
process.
"This is an encouraging sign," Melville said.
"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."
The task team proposed
that credit providers
improve their policies
and procedures.
There should be greater co-operation between different business units in
restructuring debt and
improved administration
to ensure that credit
providers did not delay
the conclusion of cases.
Debt counsellors needed to be more consistent in performing
affordability
assessments.
The report recommended that they introduce standards to ensure that
realistic debt
restructuring proposals
were developed.
"The task team 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," Melville
said.
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