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FINANCE: New Debt Counselling Rules Make Debt Process More Effective

 





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In an effort to address bottlenecks in the debt review process, the National Credit Regulator (NCR) established a task team on debt counselling in October 2009. The task team has now concluded its work and made a number of recommendations to the NCR which have been accepted.

One of the recommendations of the task team was the establishment of a Debt Review Advisory Committee (DRAC), consisting of industry representatives. The mandate of this committee is broadly to develop, implement and monitor the effectiveness of the debt review process on an ongoing basis. It also oversees the implementation of codes of conduct for credit providers, debt counsellors and payment distribution agencies in order to regulate their conduct. Other responsibilities include ensuring the integrity of the proposals made by debt counsellors, overseeing the accreditation of the debt counselling software systems and overseeing the implementation of industry-agreed rules of debt restructuring in order to facilitate more consensual resolution of debt review cases.

The NCR recently appointed Dr. David Lewis, ex-chairperson of the Competition Tribunal to chair the committee. His role is to help the committee identify matters that hamper the effective implementation of debt counselling and find solutions to overcome them.

“Progress is being made in virtually all areas,” comments Gabriel Davel, CEO of the NCR. “Industry codes of conduct have now been finalised and we believe these will go a long way towards addressing backlogs and improving co-operation between players to finalise debt counselling matters. This will further assist consumers experiencing financial distress due to over-indebtedness.”

More than 200,000 consumers have applied for debt review since 2007. An estimated 110,000 cases are under “active” debt review, with an average of 7,000 consumers applying for debt counselling each month. So far an estimated 20,000 cases have been resolved through the courts; with a further 26,000 cases still on the roll. “There is a great need for consensual agreements to be reached to ensure that fewer matters go to court on a contested basis thus causing backlogs in the courts which are already experiencing challenges,” says Davel.

At the Sunnyside Park Hotel in Parktown the committee earlier this week officially released the codes of conduct. The ultimate aim of the codes is to implement a range of voluntary measures that complement the provisions of the NCA in respect of the statutory Debt Review Process to ensure that as many as possible debt review cases are resolved.

The codes of conduct seek to streamline the debt counselling process by standardising the content of debt proposals and payment plans; establishing an Ombud scheme to resolve disputes; and providing clear guidelines for debt counsellors to determine whether consumers are able to afford to take on more debt. Credit providers who abide by the codes commit to addressing operational issues that have hampered the debt counselling process in the past.

“The technology and systems employed by debt counsellors, banks and payment distribution agencies play a critical role in the success of the debt counselling system,” added Davel. “The success of the interventions proposed by the task team depends on the extent to which debt counselling software vendors are able to enhance and update their software and ensure that the systems operate with integrity.”

In support of this, the NCR has embarked on a process to accredit debt counselling systems. Draft Accreditation Standards for system vendors have been developed and these will be finalised before the end of this year. It is envisaged that the first accreditation audits on these systems will take place from January 2011.

“By implementing these measures along with the codes of conduct, the committee aims to foster trust and cooperation between debt counsellors and credit providers to ensure the debt counselling process runs more smoothly,” says Davel.

Consumer complaints about debt counsellors or credit providers who do not abide by the codes can be referred for mediation to the Credit Ombud who has received approval from the Financial Services Ombud Scheme Council to extend its jurisdiction to mediate on issues relating to debt review.


 
 
 
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