Without Prejudice October 2011
During 2010 the National Credit Regulator together with various
stakeholders in the credit industry, appointed a task team
particularly to investigate the debt review process and to consider
and formulate proposals to address problems identified in the debt
counselling process pursuant to that investigation.
During August 2011, the NCR issued a statement that, following the aforesaid investigation, a new system had been proposed for introduction in order to standardise the manner in which debt counsellors assess applications for debt counselling and draw up proposals for over-indebted consumers.
The intention is to assist with the efficiency of the debt review process and to keep debt review cases from landing up in court as a result of inconsistencies and/or problems and/or delays.
The proposed new system is known as the Debt Counselling Rule System. It aims to standardise the way proposals are drawn up and afford the debt counsellor, the consumer and the credit provider certainty and reliability in the debt counselling process. For it to be effective, rules will need to be applied by the debt counsellor to produce standardised outputs and documentation.
After much deliberation, an entity (endorsed by the Debt Counsellors Association of South Africa, the Payment Distribution Association of South Africa, the Credit Technology Association and the Credit Providers Association) known as the Central Rules Engine (CRE) has been established.
The System comprises a number of formulas which can be utilised by debt counsellors who log onto the system and submit affordability assessment and restructure proposals. Credit providers will also then be able to log onto the system to ensure that the proposal has been approved through the System. The System will assist with decisions as to whether a consumer is indebted, the affordability and probability of proposed repayments being made to credit providers, and assist in determining whether a consumer can be rehabilitated.
This set of standard restructuring rules is aimed at ensuring all debt counsellors submit restructuring proposals that follow an agreed set of principles. The reciprocal offering is that credit providers, which receive proposals following this agreed set of debt restructuring rules, will accept the proposals and in turn ensure that consumer over-indebtedness is effectively addressed.
Software vendors will need to upgrade their systems accordingly.
The introduction of the System coincides with a decision by the Constitutional Court in terms of which a consumer was refused leave to appeal a decision of the Supreme Court of Appeal. The SCA found that a credit provider has the right to terminate the debt review process after a period of 60 days on condition that the consumer is in default, irrespective of the fact that the debt review concerned has been referred to the Magistrates Court for a rearrangement order. Once the credit provider terminates the debt review, the credit provider can enforce the credit agreement placing consumers at risk of losing their assets in the event that 60 days have lapsed since they applied for debt review and their debt counsellors have not yet obtained an order for a rearrangement of their obligations.
This judgement makes it very clear that debt counsellors and consumers have to ensure compliance with the relevant time frames prescribed in the Act and debt counsellors must file their applications for their clients' rearrangement orders as soon as possible and/or obtain the consent of all the credit providers to a proposal as soon as possible.
The proposed System will go a long way to assist in doing this and to avoid the lapsing of time which could have negative consequences on an over-indebted but otherwise blameless consumer, who could suffer an execution against her assets merely because of a delay by a magistrate to make a rearrangement order or by the debt counsellor in bringing the relevant application to court.
It should be noted that the case of the Supreme Court of Appeal does not oust the operation of the NCA where a substantive application is made by a consumer to review a debt review process.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.