New Codes of Conduct throw credit industry into disarray

Fiona Zerbst, FAnews Online Editor

The new Credit Industry Codes of Conduct introduced by the National Credit Regulator (NCR) have caused a fracas in the credit industry, in part because of the heavy-handed way in which they were introduced, but also because the new codes appear to revert

The new codes have created uncertainty in the industry, because debt counsellors and credit providers now have no idea as to what the thinking is behind this drastic move on the part of the regulator. “It is the regulator’s role to bring certainty to the industry, but quite the reverse has happened here,” says Paul Slot, director of debt counselling firm Octogen.

Task Team Agreement set aside

How did this come about?

When the NCA came into being in 2007, it was a seriously flawed piece of legislation and a task team was put together by the NCR to address some of its deficiencies, particularly with regard to the statutory debt review process. The credit industry then agreed on standard processes, forms and debt restructuring rules, which would allow for a more seamless process.

The introduction of voluntary enhancements was particularly important. These enhancements include: Cancellation of debit orders to enable consumers to pay all credit providers; affordability guidelines for debt counsellors when they perform an assessment for debt review; standard systems for debt counsellors; acceptance of repayment plans in terms of standard rules that reduce cost and interest rates substantially for consumers; eligibility requirements to apply for debt review; and an agreement by credit providers not to terminate if the consumer is making payments in line with an agreement and/or court order.

It seems as if the new codes are effectively undoing the work that led up to the Task Team Agreement, which was signed by all stakeholders, including the National Credit Regulator and the Debt Counsellors Association of South Africa (DCASA) and credit providers. The debt review industry is in the same muddled position it was in three or four years ago, when the task team was first put together.

“The idea was to find voluntary measures that would improve on the statutory process – the intention was not to change the Act but solve certain industry problems,” says Slot.

“The NCR announcement came as a shock to the industry especially due to the fact that the decision was taken without any consultation,” the DCASA said in a submission. “The well-established need for transparency and consultation is practiced in all spheres of government in South Africa but it was not practiced by the NCR in this case. This is in sharp contrast to the process followed when the Code of Conduct was implemented.”

The NCR has withdrawn the old codes, which do away with benefits to consumers. If these benefits are lost, this will mean that the debt counsellor's role as an independent intermediary is being undermined and debt counsellors will have to work even harder at securing the rights of their clients. 

The new codes have also set aside the requirement for professional indemnity insurance by debt counsellors, the need for accredited debt counselling systems, the need to belong to an association and the need to submit standard debt review proposals. The NCR will be the only body that will deal with unresolved complaints. This could well increase the court’s opposition to debt review applications by credit providers, which will increase the time and cost required to finalise matters in court.

“The Regulator is, in effect, taking back the statutory process, and imposing new conditions on credit providers and debt counsellors,” says Slot, adding that the flaws in the NCA are unfortunately not being addressed. This may result in unintended systemic risk in the credit industry at a time when the opposite is required.

Credit Ombud responds

Credit Ombud Manie van Schalkwyk has responded to the NCR’s statements that they no longer recognise the role of the Ombud as such, pointing out that the role of the ombud is recognised in terms of the Financial Services Ombud Schemes Act, 2004 (FSOS).

Jurisdiction to accept and resolve debt counselling disputes has been approved by the FSOS Council and when the Codes of Conduct were first drafted the NCR requested that debt counselling disputes be escalated to the Ombud. The new Codes omit this clause but the jurisdiction of the Credit Ombud is enshrined in the Constitution of the Association and the Terms of Reference, which makes provision for accepting complaints in three areas: credit information, non-bank credit and debt counseling disputes.

Van Schalkwyk says it’s ‘business as usual’ and the office of the Ombud is committed to helping consumers with complaints.

Editor’s thoughts:
Systemic risk in the credit industry is the last thing we need against the backdrop of a possible credit bubble, which the industry itself is not being upfront about. Slot says that a consultative process would have made all the difference and allowed the existing debt restructuring system to consistently aid consumers in fully repaying their debts. What will happen now is anyone’s guess. Debt counsellors are keen to engage with the NCR to find ways of retaining some of the benefits of the Task Team Agreement. Meanwhile, the DTI is in the process of changing the NCA itself, but there is no indication as to when this will be finalised. How do you think these developments will affect the credit industry? Comment below or email fiona@fanews.co.za.