Regulator at odds with credit industry

The National Credit Regulator (NCR) has announced its intention to withdraw its “approval” of various codes of conduct – codes that govern how debt counsellors and payment distribution agencies operate, as well as the credit provider industry’s code of conduct to combat over-indebtedness.

News of the NCR’s intentions has dealt a blow to the credibility of the organisations concerned. They are the office of the Credit Ombud, the National Debt Mediation Association (NDMA), the Debt Counsellors Association of South Africa (DCASA) and the Payment Distribution Association of South Africa (PDASA).

The announcement follows a review by the regulator of these organisations’ codes of conduct.

In addition to stating its intention to withdraw approval of the codes, the regulator has also announced it intends withdrawing its recognition of the Credit Ombud, the NDMA, DCASA and the PDASA – but only in respect of any role they play in terms of the respective codes of conduct.

The Credit Ombud is a non-statutory, voluntary office, and the NDMA is a body set up by the credit provider industry to provide debt mediation in terms of the Credit Industry Code of Conduct to Combat Over-indebtedness.

This code makes provision for eligible over-indebted consumers to benefit from interest and fee reductions, as well as extensions to the terms of credit agreements. The Debt Counsellors’ Code of Conduct for Debt Review binds debt counsellors to following the statutory debt review process.

The regulator says the credit industry’s code “has failed to achieve the purpose for which it was intended – to combat over-indebtedness”.

The NCR says its research shows:

* A sustained increase in the level of impairment of both consumers’ credit standing and account payments;

* That 47 percent of credit-active consumers (9.22 million people) are credit-impaired, meaning they have at least one account three or more months in arrears; and

* That approximately 6 400 consumers apply each month for debt counselling.

The regulator also noted “the rapid growth in unsecured lending, in a highly credit-impaired environment, and evidence of significant reckless lending by credit providers, contrary to their commitments as enshrined in the credit industry code and the National Credit Act (NCA)”.

DCASA is a body of about 235 debt counsellors who represent about 90 percent of consumers in debt counselling.

The regulator says the debt counsellors’ code is unconstitutional in that it requires debt counsellors to affiliate to DCASA, and it lacks accountability to the NCR.

It also “confers excessive jurisdiction on the Credit Ombud, contrary to provisions of the Act”.

Representatives of the organisations concerned declined to comment but were understood to have been in emergency meetings with the NCR yesterday.

In a media release entitled “NCR bites industry”, debt counsellor Deborah Solomon said yesterday that “the mismatch between sky-high debt and these codes speaks to credit providers’ lack of enforcement of their code and the NCA”.

Debt counsellors who are not members of DCASA welcomed the NCR’s announcement. Solomon says the regulator had “applied the law with vigour, so as not to create sham protection”.

Solomon recently led a successful appeal to the NCR to force credit providers to comply with the NCA by suspending their planned Voluntary Debt Mediation Solution, which she described as “debt rehabilitation minus some NCA consumer safeguards”.

In her complaint to the NCR, Solomon questioned the credit industry code of conduct and how it came into existence, as well as the relationships between parties in the debt review arena.

“The average consumer entering debt review has 10 credit agreements,” Solomon says. Five unsecured credit agreements constitutes reckless lending.

Servicing debt is impossible for many families, because unsecured loans attract interest charges of up to 32 percent, way above the interest on a home loan. This is the reason banks have “ramped up highly profitable unsecured lending”.