THE National Credit Regulator (NCR) has given notice that it intends to withdraw its approval of the codes of conduct of several organisations in the debt counselling and payment distribution industry, and its recognition of some of the organisations.
This decision announced recently followed a recent review of the effectiveness of their codes of conduct to prevent overindebtedness of consumers. The NCR said it intended to withdraw the codes and recognition of the National Debt Mediation Association (NDMA), the Debt Counsellors’ Association of SA (DCASA), the Payment Distributions Association of SA (PDASA) and the Credit Ombud. The parties have until December 13 to make representations addressing the concerns of the NCR.
Some provisions of the codes deprive debt counsellors of their constitutional right to freedom of association and lack accountability to the NCR with regard to the implementation, monitoring and reporting on the codes.
The regulator issued a circular at the beginning of last month, expressing its concern about a sustained increase in the level of impairment of consumers’ credit standings and payment of their accounts. Its research shows that 47% of credit active consumers have at least one account three or more months in arrears. The regulator said about 6,400 consumers continued to apply each month for debt counselling.
The NCR said it was concerned with the rapid growth in unsecured lending "in a highly credit-impaired environment." The regulator said the credit providers’ code of conduct to combat overindebtedness had failed to achieve the purpose for which it was intended.
The NCR set up a task team in 2009 to identify the blockages in the debt review process under the National Credit Act.
Some of the recommendations from the task team report, including the three codes of conduct, were implemented in 2010.
"In order to assess the effectiveness of the codes, the NCR issued a notice of intention to review the codes of conduct in September this year, and invited written submissions from the industry stakeholders which were duly considered," the NCR said.
"Following this process, the NCR has given notice of its intention to withdraw the codes and its recognition of the roles of the NDMA, Credit Ombud, DCASA and PDASA," the regulator said.
It declined to comment on the consequences for consumers until the process was finalised.
The debt counselling industry body (DCI) welcomed the NCR’s findings and said that for millions of families personal debt was a bigger problem today than it was a few years ago.
The NCR’s investigations have uncovered significant evidence of reckless lending by credit providers contrary to their commitment as enshrined in their codes and in the credit act. "Millions are swamped in debt, but our courts are not swamped by lenders being charged with reckless lending," said DCI founder Deborah Solomon.