CREDIT INDUSTRY Power back to the poor
The national credit regulator (NCR) has withdrawn its approval of the credit industry codes of conduct, in what is seen as a warning to the bigger credit providers, mainly banks. The regulator is unhappy about some of their practices.
The NCR found the codes to be unconstitutional and biased towards certain players in the industry.
One of the codes — focusing on combating overindebtedness — was negotiated between industry players for fair credit extension and collection standards. It also provides for voluntary debt settlements between a credit provider and consumer and for educational steps to inform consumers about debt.
Debt counsellors following the provisions of the National Credit Act (NCA) have criticised the codes, saying they are detrimental to consumers. Credit providers through the National Debt Mediation Association (NDMA) have denied the accusations, but the NCR has now seemingly favoured aggrieved parties by withdrawing its approval. The NDMA’s recognition in terms of its role in the codes was also withdrawn.
NCR CEO Nomsa Motshegare has indicated the reason for the step is that bigger credit providers have caused overindebtedness among consumers. And despite a sustained increase in defaults, unsecured lending continues its rapid growth.
These concerns were expressed in a workshop with lenders at the end of October in which Motshegare warned that the position of consumers had worsened and the NCR would act to improve the situation. This would include more onsite visits and engagement with lenders.
The recent step by the regulator, announced at the end of November, is widely viewed in the industry as a precursor of further action against the bigger players, which could include requiring insurance premiums to be capped much as maximum interest rates
48 are prescribed. Insurance fees on loans are currently not capped.
The NDMA and the bigger lenders, such as African Bank, have pushed hard for a voluntary debt mediation system to improve the workings of the present NCA. A voluntary system is regarded as vital for a credit market to function optimally. It should also allow consumers to address overindebtedness without resorting to legal steps.
However, the regulator has stymied the accounts from different credit providers. A consumer has on average only R3 212/month to live on after paying statutory deductions, essential living expenses and other fees. “This is clearly a problem with the average monthly gross income amounting to R10 850.”
But she differs with the NCR in the solutions offered. She says the NCA has many deficiencies and her association favours greater interaction between an indebted consumer and a principal credit provider.
Consumers have been reluctant to follow the acknowledged debt counselling process through the provisions of the NCA. In contrast, Mphahlele says: “We are pleased to say that an average of 74% of proposals received were solved through the rules system, in effect ensuring 27 750 applications were successfully restructured.”
She says the rules system can also assist debt counsellors in helping to meet legal requirements. In many cases concessions given to consumers in the form of interest rate cuts, a reduction in fees and term extensions go beyond what the NCA prescribes.
However, the debt counselling industry does not agree with the NDMA assessment and continues to sharply criticise banks and bigger credit providers. Neil Roets, CEO of Debt Rescue, describes the NDMA as a monster. “It was entirely created for the benefit of major credit grantors to deprive indebted consumers of the protection they enjoy under the debt counselling process.”
He says it was the right step for the credit regulator to withdraw its recognition of the codes.
Sources in the industry say the official position of the NCR is often at odds with the message conveyed in personal meetings. In these meetings Motshegare has made it clear she does not believe a bubble in the unsecured lending market exists and that she has faith in the main players in the industry to handle any bad debt problem efficiently.
She is also very careful not to single out any particular credit provider as the culprit. voluntary process, as well as other initiatives by the NDMA, such as the debt counselling rules system. This system is used to develop debt restructuring proposals which can be automatically accepted by credit providers.
NDMA CEO Magauta Mphahlele admits that overindebtedness does exist. On average currently each consumer has 7,8