Reg­u­la­tor wants debt coun­sel­lors to check for reck­less lend­ing for no fee

What is reck­less lend­ing?

Sunday Times - - Money - By AN­GELIQUE ARDÉ

● 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.

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