The National Debt Counselling Association (NDCA) has proposed that the government must enhance standards in the sector and prevent unregistered or unethical practitioners from posing as legitimate debt counsellors.
The proposal was recently submitted to the department of trade, industry and competition, the National Credit Regulator and other debt-counselling industry players
The NDCA said it hopes some of the recommendations will be included in amendments to the National Credit Act and its regulations.
René Moonsamy, head of the NDCA, said the proposal — which aims to align the sector with the rest of the financial services industry — will be based on existing regulations in the National Credit Act, but enhanced by provisions of the Conduct of Financial Institutions (COFI) Bill, and the Treating Customers Fairly (TCF) principles.
The National Financial Ombud Scheme (NFO) found in recent years that matters reported to the Credit Ombud “were due to some fault, inaction or misconduct on the part of the debt counsellor”. According to the NFO, in some cases debt counsellors do not take timeous action in:
- their response to counter proposals;
- setting down matters for court; or
- negotiating with credit providers to avoid a termination of the matter.
Once the credit providers lawfully terminate, it remains extremely difficult for the consumer to pursue the matter further.
The NFO said consumers generally don’t have the funds to instruct attorneys to attend to the defence of the further court actions against them and credit providers often feel that they have been lenient for a considerable time while not receiving full payment on the account. The body also found there were some cases where credit providers did not adhere to the debt review court order.
The NFO believes consumers are not adequately informed and made aware of the pitfalls of the process, “as is evidenced by the number of consumers who claim to have lost money paid over to the debt counsellors or who did not realise that debt counselling is not an absolute bar to legal action and repossession of their property”.
It is set to increase awareness campaigns to inform consumers about the services of the Credit Ombud.
“Too many consumers have lost property or money because they simply did not know that free assistance is available to them once they encounter problems with their debt counsellor or credit providers while under debt counselling,” said the NFO.
Moonsamy said debt counsellors held positions of trust, guiding financially vulnerable people towards sustainable debt management. “Arguably the debt-counselling licence is the single most important financial services licence granted in South Africa. This proposal aims to align the debt counselling sector with the rest of the financial services industry,” she said.
The proposal details requirements, which include:
- Increased competence requirements, including higher levels of minimum recognised qualifications, more direct relevant experience, and an apprenticeship in the role before becoming fully qualified. These would supplement the existing requirements as part of licence renewal, including:
- completion of a regulatory examination; continuous professional development; and continued monitoring of good standing, such as Sars and criminal clearance.
- Honesty, integrity, and good-standing provisions requiring practitioners not to have criminal convictions related to fraud, dishonesty or financial misconduct. A background check will include criminal record and financial history verification. Practitioners will have to complete an annual fit-and-proper assessment.
- Operational ability, with the resources, processes and systems to conduct business effectively and fairly. Practitioners will also need to comply with governance and risk-management standards, and must regularly review these. They will have to demonstrate financial stability and comply with financial reporting requirements.
- Oversight requirements will clarify roles for key individuals (registered debt counsellor) and representatives (debt counsellor in training), similar to the way key individuals operate in insurance. Debt counsellors in training will work under the supervision of a registered debt counsellor for a period of time before they may register themselves.
The NDCA believes that applying the COFI bill to the debt counselling industry will ensure uniformed standards of conduct across all financial institutions.
“It will improve consumer protection by addressing misconduct, conflicts of interest and unfair practices, and enhance transparency and accountability,” said Moonsamy.
She said debt counsellors will also be required to incorporate into their business models the TCF principles, consisting of six fairness outcomes:
- a customer-centric culture;
- products and services that meet consumers’ needs;
- clear, transparent communication;
- suitable, unbiased advice that is in the interests of consumers;
- products and services that meet expected standards; and
- fair, efficient complaint handling.
Benay Sager, head of DebtBusters, said they have provided input and “fully supports the NDCA’s proposal to improve industry standards”.
TimesLIVE