Regulator wants debt counsellors to check for reckless lending for no fee
What is reckless lending?
● If the National Credit Regulator (NCR) has its way, debt counsellors will no longer be allowed to charge you an additional fee for the work they do to get your credit agreements declared reckless.
The regulator has issued notice of its intention to withdraw the reckless-lending fee from the debt-counselling fee guideline, calling for written submissions from the public and the credit industry before the end of the month.
The R1,500 fee, which was introduced in April, was intended to encourage debt counsellors to look for reckless lending, which can lead to the debt being set aside.
Some debt counsellors are not happy with the proposal.
“Investigating reckless lending is very time-consuming and challenging for debt counsellors and the attorneys who have to represent the consumers at court,” says debt counsellor Zak King.
“When the fee was introduced by the NCR in their guideline, reckless-lending investigations suddenly began to be done in earnest. Removing the fee will effectively scale back or possibly eliminate recklesslending investigations again.”
Since debt counsellors are paid a percentage of the amount distributed to the over-indebted consumers’ creditors, this has served as a perverse incentive for them to include in debt review reckless credit agreements that consumers should not be repaying.
The National Credit Act, which governs debt counselling, is in the process of being amended. One of the amendments to the act is aimed at compelling debt counsellors to check for reckless lending.
As the law stands, a debt counsellor only has to look for reckless lending if you, the consumer, explicitly ask for it.
If the amendments to the act go ahead — the bill is moving through the National Assembly — a debt counsellor who has accepted a consumer into debt review “must” determine whether any of the consumer’s credit agreements “appear” to be reckless.
When the reckless -lending fee was introduced it was not made clear by the regulator ● Reckless lending is prohibited under the National Credit Act. A credit agreement is reckless if, at the time it was granted, the credit provider failed to assess whether you could afford the repayments.
Even if you had passed the affordability assessment, a credit agreement is reckless if no assessment was done or the credit provider cannot provide a copy of it and of your credit report, which should accompany the assessment.
And, if by taking on the credit you became overindebted or were unable to pay your debts and living expenses, then
what the fee covered — whether it was for a reckless-lending investigation, a recklesslending application to court, or for a successful reckless-lending order.
According to a circular issued by the NCR last month, the reckless-lending fee was “abused by debt counsellors and charged to the credit was granted recklessly.
If you had an adverse listing and/or a judgment against you at the time you were given more credit, this is reckless lending, Stephen Logan, an attorney and the founder of Fair Credit, says.
A credit agreement is also reckless if you didn’t understand the risks and costs to you of the credit or your obligations in terms of the agreement. Only a court can make a finding of reckless lending. If a court finds a credit agreement is reckless, it can set aside part or all of your rights and obligations.
consumers inappropriately”.
Industry insiders say that some debt counsellors began sending reckless-lending inquiries to every lender on every debt-review application, resulting in complaints from credit providers buckling under the deluge of inquiries.
David O’Brien, a debt counsellor and the MD of Meerkat, says Meerkat will be unaffected by a withdrawal of the fee because the firm does not charge it in every case. “We apply a reckless-lending filter on every application that we receive, to see if we believe that reckless lending is indicated. If the indicator is positive, then we will proceed with a reckless-lending investigation.
“We will charge a fee based on the amount of effort, but commensurate with the client’s [ability to afford it]. We believe this is an appropriate way to deal with reckless-lending investigations.”
Fee or no fee, “debt counsellors are still expected to render the service” of investigating for reckless lending, says Lebogang Selibi, spokesperson for the NCR.
There are no regulations determining what debt counsellors may charge for rendering their services. The only fee prescribed in the act is the R50 application fee. Selibi says it is the NCR’s intention to recommend to the department of trade & industry that it regulate the fees.
Debt counsellor Michelle Barnardt says the reckless-lending fee was neither economical nor reasonable. “I’m working on a matter involving prima facie reckless lending on five credit agreements for one debtreview application for a couple married in community of property. It took me days to investigate, draft the application and index the application, which ran to 272 pages.
“It’s very costly to take a reckless credit matter to court. The consumer paid R4,000 for legal fees, but the attorney charged R8,000 to argue the matter. So R4,000 came out of my own pocket, excluding all the printing costs.”
Attorney and debt counsellor Sharin Grové says reckless-lending applications are vigorously opposed by credit providers, and most attorneys who bring these applications work on a flat fee, irrespective of the number of times they have to go to court to argue the matter.
She says this means attorneys have little to no incentive to put any effort into a reckless-lending application when they know it’s going to be opposed and the consumer has no more money to spend on legal fees.