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“All progress is based upon a universal innate desire on the part of every organism to live beyond its income.” — Samuel Butler , English composer, novelist and satiric author (1835- 1902).

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SOUTH AFRICAN NATIONAL CREDIT REGULATOR

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South african national credit regulator

“All progress is based upon a universal innate desire on the part of every organism to live beyond its income.”

— Samuel Butler , English composer, novelist and satiric author (1835- 1902).

“The business of a moneylender … has no where nor at any time been a popular one. It is an oppression for a man to reclaim his own money: it is none to keep it from him”

— Bentham, British reformer, 1787

1


South african national credit regulator

SOUTH AFRICAN NATIONAL CREDIT REGULATOR

ACT

RURAL HOUSING LOAN FUND 14th ANNUAL WORKSHOP

Topic: General compliance to the NCA, reflections on consumer indebtedness

Ramabaka Abel Tshimole

15 October 2010


Topics

Topics

Overview

Registration

Compliance

Consumer Credit Market

Debt counselling

Conclusion

3


South african credit market

South African credit market

Legislative framework before National Credit Act

There was no single unitary legislation regulating the credit market

There were different pieces of legislation such as the Usury Act & Credit Agreements Act

Exemption Notice promulgated under the Usury Act established a regulatory body to regulate micro lenders

Legislative framework before National Credit Act

  • There was no single unitary legislation regulating the credit market

  • Different pieces of legislation such as the Usury Act & Credit Agreements Act applicable to different credit agreements

  • No single reporting framework & uniform standards to monitor compliance with legislation

  • Legislative framework before National Credit Act

  • There was no single unitary legislation regulating the credit market

  • There were different pieces of legislation such as the Usury Act & Credit Agreements Act

  • Exemption Notice promulgated under the Usury Act established a regulatory body to regulate micro lenders


National credit act in a nutshell

National Credit Act in a nutshell …

Interest

& fees

Reckless

lending

Marketing

practices

& disclosure

National

Credit

Act

Enforcement &

debt collection

Agreements

& quotes

Unlawful

agreements,

provisions

Debt

counselors

Credit Bureaus

National Credit Register


National credit act

National Credit Act

Consumer credit institutions

National Credit Regulator

  • Registration of industry participants

  • Enforcement of the Act

  • Development of an accessible credit market

  • Research & publication of information

    National Consumer Tribunal

  • Adjudication of disputes & complaints


Consumer credit market in south africa

Consumer Credit Market in South Africa

Credit Providers

10 x Credit

Bureaus

36,3 million

Credit Consumers

R1.1 trillion

$164 Billion

consumer credit

Credit Providers = 4,301

Branches = 33.875

1,847

Debt Counsellors


Achievements

ACHIEVEMENTS

  • Unqualified (clean) Audit Report

  • Registration of 4,301 entities with 33,875 branches

  • Representing approximately R1.1 Trillion of credit, provided to 36,3 million credit agreements/clients

  • Registered 10 credit bureaus,

  • Registered 1,847 debt counsellors, arranged training, provided guidelines, accredited PDA’s 6 already

  • Complaints received 9,303, calls received 349,101

  • Investigations underway 39, completed 414

  • Compliance notices 47, Cases referred to Tribunal 20

  • Received 206,045 applications for debt review, 61,682 consumers approved and under debt review

  • Awareness workshops held 1,741, radio/TV broadcasts 1,338/247, AVE R248m


Investigation statistics

Investigation Statistics


Enforcement statistics

Enforcement Statistics


Registration of credit providers credit bureau debt counsellors

Registration of credit providers, credit bureau, debt counsellors

The requirements

  • Minimum requirements are set which also specify disqualification criteria

    • Registration with SARS, appointment of accounting officers/auditor,

    • Confirmation of registration with CIPRO, criminal/ITC check, etc

  • Conditions of registration are stipulated and imposed

    • General conditions

      • Overall compliance with NCA & other applicable legislation

    • Specific conditions

      e.g for credit providers

      • Language policy proposals

      • BBBEE

      • Combating over-indebtedness of consumers


Development credit providers

Development credit providers

The requirements

  • Same requirementsconditions as those of general consumer credit, in addition having to

    • Provision of business plan – product offering; financial capacity, Human capital, systems, processes and procedures

    • May apply for permission to deviate from certain sections of the Act

      • The credit provider must specifically identify all areas in which documentation which it intends to use or procedures which it intends to apply deviate from the requirements that apply to other credit agreements. This must be done with reference to the specific sections of the Act through which discretion is provided to the NCR for approving specific documentation or procedures for developmental credit agreements (e.g affordability assessment procedures/provisions, statement of account);

      • The credit provider must motivate the departure from the requirements that apply to credit agreements in general; that is why is it necessary for the credit provider to depart from the procedures or documents that apply to other credit agreements; and

      • The credit provider must further motivate why it considers the procedure or documentation which it proposes to use to still afford the necessary protection to the consumer. This requires the credit provider to indicate which special circumstances exist or alternative procedure it applies which would ensure that the legislative objective of the particular section of the Act will still be met.

        Intention is to stimulate provision of developmental credit focusing on small business development/support, low income housing and educational loans

        166 Development Credit Providers Registered with an approximate total principal debt/loan book amounting to R42bn.


Compliance monitoring

Compliance Monitoring

1. Statutory Reports Processing

2. Compliance Analysis of Statutory Reports

3. Conditions of Registration

4. Market Conduct – Flavour of the Quarter

5. Compliance Research and Education

5.1 Compliance Research

2.1 Significant Entities (Top 20)

3.1 Language Policy

1.1 Statistical Returns

3.2 Commit-ment to BBBEE

2.2 Remaining Significant Entities (Biennially)

1.2 Other Statutory Reports (AFOR, AFS, AER, ACR)

5.2 Industry Workshops

3.3 Combat of over indebtedness

2.3 Cyclical Reactive Review (Other entities)

3.4 Review of Conditional Registrations

Compliance monitoring


Compliance reporting

Compliance reporting

  • Compliance reporting by different registrants

  • The reporting is standard and additional information may be

    requested

  • Information in the reports used to monitor market trends, market conduct/practice


Pro active and reactive monitoring

Proactive

Currently we are concentrating on desk top analysis (Off-site analysis)

Credit providers submit returns and reports

Plans to introduce on-site analysis

Assess the level of compliance in terms of the documents submitted to us in comparison to what is really happening in the companies by interviewing management team and staff

Proactive general assessment and evaluation of business practices and business models to identify areas of concern and aspects that may be good for the industry (best practices in a way)

Market conduct studies

Focus on initial inspection before the files could be escalated to investigations and enforcement to lessen the workload on them

Proactive investigations

Compliance Framework to inform the sequence, standards and methods to use

Reactive

Media reports

Advertisements/ Marketing materials

Reportable irregularities

Following up on the non-compliance reported by IRBA on the reportable irregularities received

Complaints and call centre reports

On going depending on the non-compliance received

This will be the focus of complaints department

Pro-active and reactive monitoring

15


Statutory reporting

Statutory reporting

All registrants are required to submit reports at given times

Guidelines and industry workshops are provided to enlighten registrants

Consistency, accuracy, correctness, reliability, validity

  • Registrants, accounting officers/auditors, compliance officers

  • Systems, processes and procedures


Enforcement tools

Enforcement Tools

  • Conditions of registration

  • Reports, statistics, research

  • Explanatory notices, letters of undertaking

  • Consumer complaints & various ombud

  • Compliance notices & criminal action

  • Tribunal, courts

    Consultation requirement relating to enforcement action on banks, but note does not apply to insurers


Ncr investigations present focus and areas of concern

NCR Investigations Present Focus and areas of concern

  • Consumers losing homes due to unlawful practices

  • Debt Counsellors: Receiving/distributing money & adhering to the time frames

  • Debt collection practices of credit providers

  • Section 73 Audits – Credit Bureaus

  • Micro lenders: Adherence to interest caps and costs, card and pin, emergency loans, disclosure requirements,

  • Non-registrants

  • Major concern: The use of the NCA to further fraudulent activities

  • Marketing and advertising

  • Pre-agreement quotes and disclosure

  • Right to set-off

  • Priority payments


Independent professionals practitioners

Independent Professionals/ Practitioners

Independence of some of the reports

The NCA somewhat rely on independent professionals like auditors or accounting officers

i.e. Assurance Engagement report

19


Compliance reporting feedback

Compliance Reporting feedback

  • Reporting the outcome of the analysis of Statutory returns and others reports

    • Consumer Credit Report

    • Credit Bureau Monitor

    • Research Reports from various research done to monitor performance and conduct of the credit industry players

      • Pricing and Access Study

      • Report on Over-indebtedness

      • Impact of credit crisis on the consumer credit industry

    • Relevant stakeholders

      • MRCC (Management Registrations and Compliance Committee

      • MECC (Management Enforcement and Complaints Committee)

      • CEO/COO

      • Various government departments

      • Registrants and/or associations of registrants (e.g banking association)

    • NCR website

    • Media release


Current state of the consumer credit market

Current state of the consumer credit market

Statutory Statistical Returns submitted by Credit Bureaus & Credit Providers (including banks)


Credit granted vs debtor s book

Credit granted vs Debtor’s book


Demand and supply of credit

Demand and supply of credit


Credit granted per industry

Credit granted per industry


Gross value of book credit type

Gross value of book – credit type

64.85%

5.29%

11.18%

18.62%

0.06%


Gross value of book provider type

Gross value of book – provider type

  • Banks continue to dominate the consumer market with 89% of book

  • Other providers enjoy approx. equal share


Cb impaired records

CB impaired records

  • Credit bureaus have records for 18.32 million credit-active consumers

  • The # of consumers with impaired records continued to increase reaching 8.59 million this quarter

  • 26.1% of accounts are impaired


Status of the arrears levels and credit standing of consumers and accounts

Status of the arrears levels and credit standing of consumers and accounts

  • There has been a slight improvement in the numbers of accounts that are going into arrears

  • The % increase for the number of consumers and accounts with impaired records on a quarter to quarter basis is showing signs of recovery even though there has been an overall increase in the impaired records.

  • 217 205 (mortgage) accounts out of 1,8 m accounts are in arrears. Rand value = R113 billion out of R736 billion. Equates to 15% of the rand value of the mortgages in arrears.


Debt counselling

Debt Counselling


Debt counselling1

Debt Counselling

DEBT COUNSELLING ASSOCIATION

OF SOUTH AFRICA

A new profession was born in 2007

The aim is to assist the over indebted consumer

For some role players in the credit market this was an unwanted baby


Debt counselling update

Debt Counselling: Update

Discussions between Credit Providers and Debt Counsellors

New rules and standardized procedures

Notifications and

financial

information

Response to Debt

Counsellors’

proposals

Restructuring rules

Terminations in

terms of

Sec. 86 (10)


Importance role of debt counselling

Importance & role of debt counselling

  • Role of debt counselling, in the context of the lack of appropriate personal insolvency mechanisms in SA.

    • No appropriate “personal insolvency mechanisms”. US, UK & EU have range of different mechanisms for personal insolvency. The mechanisms in SA are outdated and ineffective.

    • As result, when debt stress occurs there is no effective mechanisms to resolve the issues, or for creating a “settlement” in which the obligations of the consumer and the demands of different credit providers are reconciled.

  • Negative social impact of debt stress

    • No mechanism to resolve a personal financial crisis and enable an individual to get another chance.

    • Household income is permanently reduced through debt payments. Household needs not met and social welfare receipts are diverted to debt servicing.

    • School fees not being paid, arrears on municipal service payments and a multitude of related areas.


Debt profile vulnerability of different groups

Group 1 = informal sector, domestic workers, social grant recipients & agricultural sector

Low credit exposure, mainly furniture & unsecured. BUT – more significant relative to income!

Position may be improving if new credit limited

Often unaware of protective measures, e.g. UIF, insurance or counselling

Group 2 = Entry level workers in public & private sector, earning R1.8k to R6.1k/m

Significant exposure, both unsecured (< 3 years), vehicles & mortgages

Short term credit exposure ‘self-correcting’ over time, but mortgages & vehicles require assistance

Group 3 = middle income, R6k to R17k/m

High level of exposure to all products & high debt stress

Most vulnerable, to debt stress & loss of house if affected by either job loss or reduced income

Group 4 = high income, R17k/m +

high credit exposure, mainly mortgages, vehicles & credit facilities. Also 2nd properties. Income reduction biggest threat.

Greater ability to resolve own problems. But often resorts to DC assistance / protection.

Debt profile & vulnerability of different groups


Policy response consumers

Low income groups least aware of protective measure, whether counselling, UIF or others.

Awareness programme important – also on ‘self-protection strategies’

Debt counselling huge role in resolving cases of reduced income –legal problems major obstacle

Debt counselling little value in case of job loss, no income to service debt … some form of personal bankruptcy, while protecting housing?

Policy response - consumers


Causes of debt stress implications in the current environment

Causes of debt stress & implications in the current environment

  • Borrowers

    • Reckless & aspirational borrowing,

    • External factors – loss of income / relationships breaking up / death and sickness

  • Credit providers & consequences of hard selling

    • Hard selling by credit providers contribute to over-indebtedness.

    • Reckless lending

    • Call centre agents & misleading disclosure = consumers taking on credit which they cannot afford.

    • Resist implementation of debt counselling

  • Job losses + reduced income = debt stress

    • Debt counsellors confronted with huge demand.

    • Additional impact of the financial crisis. Job losses + significant reductions in income. Reduced overtime; sales commissions; year-end bonuses etc.

    • Even people who were not over-indebted are affected.

    • Staff of credit providers also under pressure (sales targets, collection targets, clients …).

      Challenge is to recognise these realities, and to find mechanisms to reconcile the conflicting claims.

      Engagement between debt counsellors and credit providers critical.


Debt counselling2

Debt Counselling

  • 1,847debt counsellors registered, five accredited payment distribution agencies. Extensive monitoring + support mechanisms + investigations & enforcement.

  • 206 045+ applications cumulatively, growing at 7950 pm. Monthly distributions to creditors now estimate R2.7 b (to date), for approx 61,682 consumers.

  • “Declaratory order” addressed some issues, but legal amendments required

  • Despite challenges, debt counselling already played a huge role in mediating between debt stressed consumers and their credit providers. Resulting also in change in credit provider behavior.

Total applications

Monthly payments to creditors


Backlogs reasons risk to debt counselling

Backlogs, reasons & risk to debt counselling

  • Interpretation of NCA & Magistrates Court procedures exploited by industry to prevent magistrates court hearings from taking place

    • Credit providers exploited every area of uncertainty to oppose hearings. NDMA not implemented. Delays in providing documents, cause overruns on time limits. Opposing application of certain section of Act, eg 90(2)(n) and 103(5). Irregular terminations & repossessions.

    • But, major improvement recently, with banks taking a more constructive approach

    • And, 1000’s of consumers have already benefited both from debt counselling and from internal restructuring by banks

  • NCR’s Application for Declaratory Order, 21 August.

    • clarified number of issues; certain issues not addressed; some complications

  • Still problems. Require amendments to NCA & Regulations.


Consumers case studies

Consumers Case studies


Problems debt counsellor behaviour

Problems: Debt counsellor behaviour

  • Majority of debt counsellors working very hard, under great pressure. But also a number of “bad apples” …

    • Taking clients for fees, doing no work

    • Refusing to use PDAs, misappropriating client repayments

    • Restructuring proposals unprofessional and meaningless

    • Confrontational with credit providers, running to courts when consensual solutions possible

    • Time-lines not met; Bad administration (e.g. account numbers);

    • Delegate counselling to unregistered employees

  • Biggest risk: debt counselling becoming a payment holiday

    • Creditors must terminate & enforce if not comply with process, no payments made


Problems credit providers

Problems: Credit providers

  • Certificates of Balance: not provided or late & inaccurate

  • Unrealistic payment expectations. Unsecured creditors unreasonable. Competitions between products. Can’t find ‘settlements’.

  • Not cancel old debit orders. New restructured debit orders thus ‘rejected’

  • Preventing hearings in magistrates courts from taking place

  • Practices of collection departments & outsourced legal representation. Not adjusting account details.


Problems payment distribution

Problems: Payment distribution

  • Payment distribution by counsellors not acceptable.

    • Debt counsellors neither trained nor equipped to do payment distribution. Conflicts of interest and huge threat to integrity of process

    • Compliance with Reserve Bank rules

  • Many problems created by information supplied by debt counsellors. And bank system problems.

  • Volumes and administrative complexity a challenge, but the system works.


Ncr implemented a range of interventions to support debt counselling

Training & support: Accredited specialised training institutions & provided initial material. Implemented before effective date of Act. Also arranged follow up courses & workshops, to support debt counsellors & improve expertise.

NCR capacity: NCR appointed special call centre agents & complaints officers specialising in debt counselling – to deal with problems, intervene when things go wrong, protect homes from repossession wherever possible.

Payment distribution: NCR accredited specialised payment distribution agencies. To separate debt counselling from payment distribution. To limit risk of fraud & theft of consumer payments.

Audits & inspections: Performing ongoing audits & inspections on debt counsellors, PDAs and credit providers (including banks)

University of Pretoria review to identify problems

Audits on PDA’s

552 on-site visits + 65 investigations

NCR Task Team to investigate problems

Banks

Debt counsellors

Payment arrangements

NCR implemented a range of interventions to support debt counselling …


Challenges magistrates court process

Challenges: Magistrates Court process

  • Delays = risk to the banking sector + incentive for consumers to use it as a payment holiday …

  • Differences between requirements of different courts = increase cost, complexity & confusion


Latest developments

Despite these challenges, debt counselling already made a significant contribution in creating a mechanism to ‘mediate’ between consumers and multiple creditors,

& limiting losses through repossession of houses & cars

BUT: cannot allow consumers to abuse process for payment holiday!!

Latest developments


South african national credit regulator

Thank You !www.ncr.org.za


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