NCA Principles by alicejenny

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									THE HISTORY OF DEBT COUNSELLING &
THE FUTURE OF ALTERNATIVE DEBT
MEDIATION
19 OCTOBER 2011

MAGAUTA MPHAHLELE
CEO
HISTORICAL DTI CONCERNS
•    Unsustainable debt burdens driven by:-

        Reckless credit extension by some credit providers (not
         limited to micro lenders);
        Consumer abuses due to need on part of credit provider
         to put themselves first in line for repayment through
         preferential arrangements and abuse of court process;
        “No way out” for consumers – resulting in deviant
         consumer behavior and spawning other abuses ( e.g.
         Administration Orders);
        Wide scale resort to credit enforcement measures that
         impacted negatively on the economy, society and
         individuals;




    10/7/2012                                                      2
       HISTORY OF DEBT COUNSELING

1999                            2002                            2007

   • DTI conceptualises Debt           • Project Handed over           • NCA Enacted
     Counselling in response             to the then MFRC              • For profit and court
     to market failure                 • 2nd Phase Pilot                 supervised model
     concerns;                           implemented;                    adopted in NCA;
   • Project piloted through           • Not for profit model          • NCR established to
                                         with MFRC                       enforce NCA and
     the University of
                                         compensating                    regulate debt
     Pretoria;                           counsellors for each            counsellors through
   • Not for profit model                case handled;                   setting entry
     based on government               • No set of                       requirements,
     funding ;                           restructuring rules             registering and
   • Counsellor role included            but “negotiation”               deregistering where
     negotiation, financial              based on identifying            there is non
     education and advocacy              contraventions and              compliance with
                                         using them as a                 registration
     through case work                                                   conditions
                                         negotiation tool to
                                         reduce debt burden




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          NCA INTERVENTIONS
Dealing with Over-indebtedness: NCA Principles:

    Professionally qualified and regulated debt counselor that meets minimum
     entry criteria that is not too onerous to create barriers to entry for historically
     disadvantaged individuals;
    For profit model where cost are for the consumer for the application,
     negotiations and after care with restrictions on credit provider contributions to
     avoid conflict of interest;
    Court supervised process due to preservation of creditor contractual rights,
     consumer rights and need to ensure enforceable restructuring outcomes;
    A stay of credit provider enforcement rights to allow for the negotiation
     process to be concluded and confirmed by the courts ;
    Stay of credit provider enforcement rights balanced with right of termination
     after 60 days from date of application where there is default;
    Debt adjustment measures through term extension and payment holidays
     with no reduction in interest rates or principal amount reductions. Aim is for
     consumer to meet all contractual obligations;
    A combination of statutory and voluntary measures to deal with payment
     difficulties ;
    “Fresh Start” through issuing of clearance certificate once all obligations are
     met and removal of record from credit bureau.



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     Hybrid Voluntary /Statutory Model(simplified)

CP COLLECTION               DEBT COUNSELING             MEDIATION
ACTIONS

    • Individual internal       • Only non section          • After the fact
      restructuring               129 agreements              mediation once
      attempts based            • Option between              matters have
      on own policies             own, court                  been terminated
      (no holistic                ordered and                 and there is legal
      customer view               industry                    enforcement and
      relating to other           restructuring rules         execution
      credit                      after following           • Referral to Credit
      agreements);                statutory and               Provider or Debt
    • Section 129                 voluntary                   Counsellor where
      issuing followed            assessment and              consumer
      by dispute                  affordability               requires
      resolution or               guidelines;                 restructuring and
      arrear                    • Agreements                  mediation where
      management                  finalised by court          agreement is not
      negotiations                whether matter is           reached
    • Termination                 contested or there        • Referral to Ombud
    • Summons                     is consent                  where mediation
    • Judgment and              • Limited use of              is not successful
      Execution                   NCT due to legal
                                  and process
                                  challenges




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      TASK TEAM: Codes of Conduct
    A voluntary DC code of conduct that provides for:
      –   General market conduct, cooperation and professionalism undertakings
      –   Commitments to comply with the redefined process and formats as per the task team
          recommendations
      –   Dispute resolution guidelines including recognition of the jurisdiction of the Credit Ombud
      –   Monitoring and compliance provisions.

    A voluntary PDA code of conduct that provides for:
      –   General market conduct, cooperation and professionalism undertakings
      –   Commitments to comply with the redefined process and formats as per the task team
          recommendations
      –   Dispute resolution guidelines including recognition of the jurisdiction of the Credit Ombud
      –   Monitoring and compliance provisions.

    A voluntary CP code (under s48(1)of the NCA) that provides for:
      –   Prevention of over-indebtedness including accurate bureau reporting
      –   Administrative cooperation with DC’s and compliance with deadlines;
      –   Commitments to comply with the redefined process and formats as per the task team
          recommendations including adoption of rules and guidelines that become binding under the
          code through NDMA
      –   Complaints handling (internally), mediation (NDMA) and dispute resolution (Credit Ombud)
      –   Consumer education and awareness
      –   Compliance reporting and monitoring provisions




    10/7/2012                                                                                           6
                           Sec 48 Code Take Up
Breakdown of credit providers per fee category according to Debtors Book. To
date 1291 CPs out of 4448 have accepted the Code (28%).


FEE              PRINCIPAL DEBT               NUMBER REGISTERED   CODE ACCEPTED
CATEGORY
N1               =/< 15 Billion               10                  6

N2               =/<5 Billion> 15 Billion     7                   7

N3               =/<1 Billion > 5 Billion     44                  25

N4               =/,100 million > 1 billion   92                  57

N5               =/< 5 million > 100          458                 147
                 million

N6               =/<1 million > 5 million     692                 135

N7               Less than 1 million          3145                914

TOTAL                                         4448                1291

     10/7/2012                                                                    7
CP Code Commitments
   To lend responsibly and avoid over indebtedness from occurring where
    possible ;
   To comply with any voluntary industry agreed processes, timeframes,
    rules and procedures for receiving and responding to debt counselling
    applications;
   To comply with the legal and procedural requirements for statutory debt
    counselling in terms of the National Credit Act and all other relevant legislation;
   To implement effective policies and procedures for dealing with the cancellation of
    existing debit orders, payroll deduction arrangements and stop orders on the duly
    authorised instruction of the consumer;
   To diligently implement all the terms and consequential payment arrangements of Any
    debt restructuring agreements to relieve over indebtedness reached in the statutory
    debt counselling process;
   Not to terminate debt review proceedings or resort to litigation in respect of the affected
    credit agreement whilst a consumer has lodged a complaint with the NDMA or has
    declared a dispute and it is being dealt with by the Credit Ombud; and
   To comply with any guidelines issued by the National Credit Regulator and adopted in
    terms of the Code relating to how Credit Providers will conduct themselves or manage
    the debt counselling process.




     10/7/2012                                                                                    8
Same Old Story!!!!!!!!!

  •   Access for consumers with no realistic prospect of rehabilitating
      (meeting objectives in S3 of NCA);
  •   Inadequate compliance & operational management of process
      by credit providers, PDAs and debt counsellors
  •   Deficient bureau reporting (30% under reporting by DC’s);
  •   Reckless exposures are not adequately addressed in the review
      process;
  •   Vast majority of cases in DC STILL not being resolved through
      consent requiring court hearings.
  •   Severe capacity constraints/ delays in the courts system &
      diverse approaches/ requirements in different courts/ significant
      legal uncertainty even after recent court judgments relating to CP
      termination rights and exclusion after section 129;
  •   Multitude of cases STILL ending up in the judgment and written
      off space leading to other complications and questionable
      conduct by collection agencies which exacerbates the over
      indebtedness problem.
  •   The treatment of secure and unsecure agreements in the industry
      restructuring rules still a matter for debate and concern among
      CPs.
                                                                           9
DCRS Flow of Proposals
Since January to date 7664 proposals have been submitted of which 5973 solved representing an average of
a 73% solve rate. Some DCs reporting a 90% acceptance rate. System and conduct related issues impacting
on volumes.

                                                            Chart Title
           Total        Solve      Not Solve      Solve Rate         Expon. (Total)      Expon. (Solve)           Expon. (Not Solve)




                                                                                                                           1750
                                                                                                           1605
                                                                                      1475
                                                                                                                              1346
                                                                                        1193                 1253
                                                                     1074
                                                                        884
                                                  752
                                                     602
                                   513
                   390                393                                                                         352             404
                      253                                                                     282
                         137                            150                190
 105 49 56                              120
           0.47             0.65           0.77                0.8            0.82                  0.81            0.78               0.77

   February           March           April           May                 June               July             August         September

                                                                                                                                        10
 Consumer Credit Standing
              Consumer Credit Standing – 18.6 million
             consumers of which 8.6 million are not in
                         good standing




                14%                          Current
                                    39%
20%                                          judgments &admin
                                             adverse Listing
      14%                 14%                3+in arrears
                                             1-2 month in arrears




 9/22/2011                                                          11
Statutory counselling trends (NCR Estimates
              + CMR report)
             6.2 million consumers who are 1 – 2 months and 3+
                              months in arrears
        In distress    Applications      Rejected/terminated        Active    Paying

                                      2%
                                 4% 1% 1%


                                                  92%




                 •110 000 under debt counseling (active)
                                 •71 000 paying
          •244 million distributed through PDAs in September 2011
 •5.4 billion paid over to credit providers since 2007 against estimated 30
                           billion debt review book.
 9/22/2011                                                                             12
               Court Applications
                            Court Applications
           80,000
           70,000
           60,000
           50,000
 Volumes




           40,000
           30,000
           20,000
           10,000
               0
                    Total       Granted         Awaiting a
                                                 Hearing
                                          Status

9/22/2011                                                    13
KEY CONSIDERATIONS GOING FORWARD
 •   A revisit of the current hybrid statutory/voluntary model and the
     possible development of a pure voluntary debt mediation model that runs
     parallel to the statutory process;
 •   Agreement on the treatment of section 129 agreements and the
     suspension of legal enforcement rights where the consumer meets certain
     eligibility criteria.
 •   Possible shift of costs from consumer towards credit provider with
     leading to lower & sustainable recovery cost (cost bearing and sharing
     model between ± 10 credit providers vs. 10 independent enforcement
     expenditures;
 •   Positive scale impact on present distressed SA credit consumer market (±
     8.5 million (45%) of ±19 million on bureaus impaired) through credit
     providers making the voluntary option available to the consumer instead
     of taking legal action subject to eligibility criteria;
 •   Serious reconsideration of involving the courts by exploring other
     methods of binding parties to agreements reached and following the
     mediation route where disputes arise; and
 •   Agreement on the treatment of secured and unsecured credit
     agreements in the development of industry debt restructuring rules;




                                                                                14
POSSIBLE VOLUNTARY MODEL




                           15
NDMA Mediation Statistics
Since January 2011 2353 Complaints and Enquiries Dealt
with. Call Centre handled 45 000 calls.
                          Quarterly Statistics
                     Total     Enquiries         Complaints

  844                                      874


                    635
                                                        544
              458
        386
                          310 325                 330



                                                              0   0   0

   Jan - March       April - June      July - September                   16
Source of Complaints

                               Chart Title
                    Debt Conselor    Consumer         other
         0.76



                                       0.53
                    0.5 0.5
                                              0.46



  0.24




                0               0                    0.01     0   0   0

    Jan -March       April - June     July - September
                                                                          17
Types of Complaints – 3rd Quarter
                      Complaints per Category



                                                      Terminations
                        21%
                                                      Car Repo
                                                30%
                                                      Property Auct
        1%                                            Summons
                 4%                                   COB Response
       1%
  1%                                                  PDA Not Paying
            3%                                        Set Off
                                                      DC Negl
                      12%                             Proposal Rej
                                          18%
                                                      other
                               9%



                                                                      18
Quarterly % Increase per top 4 Complaints
                                               Chart Title
              70%


              60%


              50%


              40%
 Axis Title




              30%


              20%


              10%

                                                                       0 0 0
              0%
                    Terminations   Prop Auct   Car Repo      Summons
                                                                               19
                     CONTACT INFORMATION


    info@ndma.org.za
    www.ndma.org.za
    Call Centre: 086 111 6362 (086111 NDMA)




10/7/2012                                      20

								
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