New Credit Industry Codes of Conduct: the National Credit Regulator responds

Fiona Zerbst, FAnews Online Editor

Last month, FAnews ran a story on why the new Credit Industry Codes of Conduct introduced by the National Credit Regulator (NCR) have caused a fracas in the credit industry.

(The full article can be found here.) The NCR has responded to this piece with the intention of clarifying a few points. It holds that credit providers have been engaged in reckless lending and it has been compelled to step in because the current codes are failing to combat over-indebtedness.

The industry codes have been revised so the NCR can exercise direct regulatory authority and oversight over commitments made by credit providers to combat over-indebtedness and lend responsibly.

“The NCR has seen consumer over-indebtedness rising over the past three years,” says Lesiba Mashapa, company secretary of the NCR. “Its investigations continue to uncover evidence of reckless lending by credit providers, contrary to their commitments to lend responsibly. Unsecured lending has also been on the increase despite the fact that almost half of credit active consumers have impaired credit records.”

The NCR believes the National Debt Mediation Association (NDMA), which was tasked with monitoring compliance by means of the codes to the NCA, hasn’t been doing the job it is meant to do, largely because of the conflict of interest – it is funded and controlled by credit providers.

“The NDMA hasn’t brought a single reckless lending situation to the attention of the NCR,” Mashapa says. “The monitoring of reckless lending is of course one of the key regulatory functions of the NCR.”

Complaints resolution

Mashapa says revising the industry codes will also align the complaints resolution structure set out in the codes to the National Credit Act 34 of 2005 (NCA).

The credit providers’ code of conduct conferred jurisdiction on the Credit Ombud and NDMA to receive and resolve complaints falling outside of their jurisdiction in terms of the NCA,” he says. “In this regard, the code gave these bodies jurisdiction over debt counselling complaints. The Ombud schemes and alternative resolution agents (ADRs) are recognised by the NCA and their jurisdiction is defined. The Ombud schemes have jurisdiction over complaints against credit providers, which are financial institutions as defined in the Financial Services Ombud Schemes Act, 37 of 2004 while the ADR’s jurisdiction is limited to credit providers that are not financial institutions.”

He points out that the debt counsellors’ code of conduct isn’t provided in the NCA and many debt counsellors refuse to subscribe to it. The NCR believes this code confers excessive jurisdiction to the Credit Ombud, the Debt Counsellors’ Association of South Africa (DCASA) and the NDMA.

“The so called ‘voluntary enhancements’ to the statutory debt review process were used to introduce a debt counselling scheme funded and controlled by credit providers that undermined statutory debt counselling and the NCA,” he says. He points out that the interest and fee concessions in the code are not consistently given to consumers – in fact, many credit providers charge excessive interest rates on debt rearrangement orders, or terminate debt reviews pending before the courts.

“Debt counsellors’ restructuring proposals are responded to late by credit providers, and in some cases one year after they were sent to the credit providers,” he says.

All this would suggest that the NCR’s intervention will in fact protect consumers more thoroughly.

Standard guidelines needed

“The NCR believes that an appropriate intervention would be to issue guidelines on debt counselling practices and standard documentation. These guidelines would apply to all debt counsellors and credit providers and compliance with them enforced by the NCR,” says Mashapa. “The interest and fee concessions to consumers under debt review should be considered in legislation to ensure that they are consistently given to consumers and can be enforced through the NCA.”

He also points out that debt counsellors have a constitutional right to freedom of association and cannot be compelled to belong to any association.

Editor’s thoughts: The NCR says it will engage with all debt counselling associations with regard to debt counselling issues. There is an opportunity to address legislative shortcomings on debt counselling through legislative amendments – the Regulator feels that these amendments, together with guidelines that will be issued by the NCR, should address legislative issues that are currently vexing the industry. Do you think this will bring greater clarity? Comment below or email fiona@fanews.co.za