In January, the National Credit Regulator (NCR) took a significant step towards enhancing the debt counselling landscape in South Africa by issuing updated guidelines aimed at streamlining and improving the overall efficiency of the debt counselling process.
These guidelines are important because they seek to protect consumers who find themselves in a financially precarious situation, ensuring they have access to fair treatment and support during challenging times.
One of the key aspects of the guidelines is to provide clear directives for credit providers regarding the cancellation of debit orders and payroll deductions when a consumer applies for debt counselling.
This measure is designed to safeguard consumers’ financial resources, allowing them to allocate sufficient funds for the necessary fees and insurance related to the debt review process.
By creating a more transparent and equitable framework, the NCR aims to foster an environment where consumers can confidently navigate their financial difficulties, ultimately contributing to a healthier credit market and promoting responsible lending practices. As these guidelines take effect, they hold the promise of not only benefiting individual consumers but also enhancing the overall integrity of the credit system in South Africa.
Key aspects of the debt counselling process and cancellation of deductions
Debt counsellors are essential in initiating the cancellation of debit orders and payroll deductions when a consumer applies for debt counselling. This step is crucial to ensure that the consumer has enough funds available to cover fees and other costs early in the debt review process.
National Credit Act and Task Team Agreement
The National Credit Act, along with the Task Team Agreement (TTA), outline the steps to be followed when a consumer applies for debt counselling:
- Form 17.1: Debt counsellors must send this form to all credit providers within five business days of receiving a consumer’s debt counselling application (Form 16).
Through serving this form, the debt counsellor requests detailed information on the consumer’s debt in order to assess their financial situation and determine whether they are over-indebted according to the prescripts of the NCA.
- Debt rearrangement proposal: In the context of debt counselling, debt counsellors must act promptly and effectively once they accept an application for assistance. Within 30 business days, they are required to prepare and submit a debt restructuring proposal to the relevant credit providers, adhering to the minimum requirements outlined in Annexures C and D of the TTA.
The proposal outlines a revised repayment plan designed to support consumers facing financial challenges. It emphasises the importance of reasonable terms that can realistically be met by the consumer, ensuring that the proposed adjustments do not place further strain on their finances.
The goal is to make the repayment process as fair and flexible as possible, allowing consumers to regain control of their financial situation.
A key component of this approach is the open line of communication between the credit provider and the debt counsellor. This collaboration ensures that both parties understand the consumer’s needs and circumstances. Regular discussions are crucial for maintaining a reasonable and adaptive repayment plan, because they allow for adjustments to be made if the consumer’s financial situation changes.
Ultimately, a reasonable proposal not only assists consumers in managing their debts but also encourages a co-operative effort to resolve financial difficulties, paving the way for a more sustainable financial future.
Responsibilities of credit providers, as prescribed by the guideline issued by the NCR
Upon receiving Form 17.2, known as the Debt Rearrangement Proposal, credit providers bear specific obligations to assist consumers facing financial difficulties. Initially, they must cancel all debit orders and payroll deductions associated with the consumer’s debts outlined in the proposal. This cancellation is vital, because it allows consumers to halt payments that could worsen their financial situation.
Moreover, credit providers are required to cease any set-off actions against the credit balances or salary deductions from the consumer’s accounts. Set-off refers to a creditor’s right to automatically deduct amounts owed from the consumer’s available funds, which can severely limit the individual’s ability to manage living expenses, contributing to further financial distress.
Additionally, it is crucial to include payday loans in the debt review process. These short-term loans, typically with repayment periods of less than 31 days and high interest rates, can entrap consumers into a vicious cycle of debt. Prioritising payday loans over other debts can be detrimental, placing undue pressure on those already struggling. Therefore, integrating payday loans into the broader debt review process ensures that all debts are managed fairly and equitably.
Key provisions in the guidelines emphasise that Forms 17.1 and 17.2 should be sent solely to credit providers and not to third parties such as HR departments or payroll administrators. Credit providers are obliged to comply with reasonable requests from debt counsellors to assess the consumer’s financial situation and engage in good faith during the debt restructuring process.
If a credit provider fails to comply with the cancellation of debit orders or payroll deductions within three days of receiving Form 17.2, the NCR will take decisive action. This includes issuing a formal notification to the credit provider and relevant third parties, instructing them to halt the deductions within a designated timeframe. Non-compliance will trigger enforcement by the NCR, considering the implications of the debt review process. Furthermore, debt counsellors are advised to report instances of non-compliance to the NCR, providing all necessary documentation, including Forms 17.1 and 17.2, proof of sending, and the debt counsellor’s instructions for cancelling deductions.
What constitutes a ‘reasonable proposal’?
From the information outlined, it is clear that if a debt counsellor serves a Form 17.2 that includes a reasonable debt rearrangement proposal, the credit provider is obligated to stop the debit order and/or salary deduction. But what defines a “reasonable proposal”?
In our view, the industry should be guided by the terms and provisions set out in the TTA. These terms will be considered sufficient and reasonable grounds for the cancellation of the debit order or salary deduction.
If a credit provider receives Form 17.1 and Form 17.2 simultaneously, which is a common practice in the industry, the proposal cannot be deemed reasonable. In such a case, the credit provider is within their rights to notify the debt counsellor of the non-compliant proposal and refuse to cancel the debit order or salary deduction until a proper, reasonable proposal is received.
Conclusion
Credit providers need to understand and implement the updated NCR guidelines for debt counselling, particularly regarding the cancellation of debit orders and payroll deductions. If you have any clarity-seeking questions, do not hesitate to contact Moonstone Compliance.
Anne-Carien du Plooy is an NCA compliance officer at Moonstone Compliance.
