Presented By: Paul Slot

A Review of the NCR Debt Counselling Fee Guidelines

Date: 20 Augustus 2014

A Review of the NCR Debt

Counselling Fee Guidelines

Background

◊ Debt Counsellors have expressed concern that current fee structure

and fees collected are insufficient to cover cost

◊ DCASA has conducted a full review of the time and cost of the current

Debt Review process to enable a review of the current NCR Debt

Counselling fee structure

1st Fee Structure 2007 1st Review 2011 No Review since 2011

Background

◊ There are currently 2 351 registered DC’s

◊ DCASA has contacted all registered DC’s

770 reported that they are active

1 581 reported that they are non-active

but registered

◊ The main reasons for non-active status:

Debt Counselling not a viable business

Debt Counselling to complex

Active vs Non Active

Key findings of 2009 Survey

2009

Survey Result

Time required for entire Debt Review Process:

19.2 hours

Average Professional fee R1 985.00

Average After Care fee R114.60

Unpaid ratio: 15%

Average Debt Review term: 25 months

Salary of Debt Counsellor: R15 000

Salary of Debt Counsellor Assistant: R10 000

Salary of clerk: R8 000

Total Average hours for Debt

Review increased

to 43.5

by November 2010

Research Method

◊ DCASA’s research method included:

Review of DC fee review model and findings conducted in 2007

Review of DC fee review model and findings conducted in 2009/2010

Development of questionnaire for Debt Counsellors

Submission of a questionnaire to all Active Debt Counsellors

In the questionnaire input was required on the time spend on each Debt Counselling task as well as the cost structure of the practice

Analysis of the current Debt Counselling fee structure in relation to time, cost and income

No research was conducted on the Debt Review Court Application process conducted by Attorneys on behalf of the Consumer

Process Feedback

◊ The Debt Counselling Fee survey was e-mailed to every Active Debt

Counsellor and followed up telephonically

◊ 20.83% of all Active Debt Counsellors completed the survey

◊ 40% of Debt Counsellors who submitted the survey are not DCASA Members

The results of the survey is considered to be statistically significant

Debt Counselling Process Review

◊ Debt Counselling currently consists of 202 individual tasks

◊ Debt Counsellors were requested provide the following information:

Time per tasks (202) over lifespan of

Debt Review

Average Professional Fee , After

Care Fee and Average Salary

Number of New Debt

Review applications per month

Spending on: Office Space,

Marketing, Pay roll and other

costs

Information on Payments ,

Terminations and Debt

Review Term

← Lifespan of the Debt Review →

Debt Review Task (Per Debt Review)

Sub Tasks

Time (hours)

Interview Process 16 5.7

Processing of Client Application 20 5.6

Certificate of Balances 9 1.7

Proposals 25 7.0

Legal Process 28 10.9

PDA Process 4 1.3

Credit Provider Queries & Terminations

6 1.8

Consumer Payment Queries (PDA) 5 1.1

Time spent per Debt Review Task

Findings of 2014 Survey

This represents

legal preparation only.

Does not include the Debt Review

Court Application

process handled by Attorney, DC

appearance where required

and related queries

Time spent per Debt Review Task

Findings of 2014 Survey

Debt Review Task

(Per Debt Review)

Sub Tasks

Time (hours)

After Care Queries 20 10.1

Payment queries 11 0.9

Withdrawal from Debt Review 5 1.4

Legal Collection of Debt Counselling fees

3 0.1

Clearance Certificates 8 3.5

Variation or Rescission of Court Order

8 0.4

Updating Consumer Information 4 1.6

Total Time required 202 53.3

Include : Debt Review

Confirmation to CP’s;

Duplicate 17.1 & 17.2 letters to CP’s;

Paid up letters from CP’s;

Terminations; PDA queries;

Balance update; Proposals - late

responses; Requests for

Documents

Time spend per Debt Review Task

Findings of 2014 Survey

5.7

5.6

1.7

7

10.9

1.3

1.8

1.1

10.1

0.9

1.4

0.1

3.5

0.4

1.6

0 2 4 6 8 10 12

Interview process

Processing of Client Application

Certificate of Balances

Proposals

Legal Process

PDA Process

Credit Provider Queries & Terminations

Consumer Payment Queries (PDA)

After Care Queries

Payment queries

Withdrawal from Debt Review

Legal Collection of Debt Counselling fees

Clearance Certificates

Variation or Rescission of Court Order

Updating Consumer Information

Debt Review Process 202 Tasks over 53.3 Hours

Key findings of 2014 Survey

Description

2009 Survey Results

2014 Survey Results

Time required for entire Debt Review Process:

19.2 hours 53.3 hours

Average Professional fee R1 985.00 R2 878.30

Average After Care fee R114.60 R143.92

Unpaid ratio: 15% 19%

Average Debt Review term: 25 months 30.3 months

Salary of Debt Counsellor: R15 000.00 R11 026.00

Salary of Debt Counsellor Assistant: R10 000.00 R4 667.70

Salary of clerk: R8 000.00 R3 036.80

Distress factors among Debt Counsellors

◊ Time required for the Debt Review process has increased by 177.6%

from 19.2 hours to 53.3 hours. This excludes the Court process

◊ The survey results focus on the Debt Review process only and exclude

Management time and costs

◊ The Proposal, Legal and Queries Processes consume 52.53% of the

entire Debt Review process

◊ The Legal and Court process remains unstructured and non

standardised and Courts amend requirements on a very regular basis.

(The 2010 DC Fee review included a recommendation to implement standardised and

simplified Court Application process . This recommendation was not implemented)

Distress factors among Debt Counsellors

◊ Time required to deal with reckless credit, where required, amounts to 27 hours per matter with no compensation whatsoever. This might be the reason why Debt Counsellors are reluctant to pursue reckless credit

◊ The time required to resolve end balance differences is increasing at an alarming pace

◊ The time required to resolve queries related to Credit Provider harassment, money grab and incorrect terminations remains high

◊ Operation cost and overheads has increased significantly since 2009

Findings

◊ Debt Counsellors earn on average R87.20 per hour

◊ Debt Counselling assistant earn on average R36.90 per hour

◊ Clerical staff earn on average R24.00 per hour

◊ Current gross profit margin for a Debt Counselling practice, excluding management cost, is 14%

◊ Salary of Debt Counsellors and his/her staff reduced by 43.24% since 2009 despite increase in time and risk required

◊ Current salaries paid to Debt Counsellors, Debt Counselling Assistants and Administrative staff are between 40% and 80% below the mark norm

◊ The current Debt Review reward structure is not conducive to attract and retain skilled Debt Counsellors in the industry

Findings

◊ Where the Professional Fee is less than R2 878 the Debt Review service is

provided at a loss.

◊ If Consumer is forced to pay for services rendered up to abandoning the process the gross profit margin of Debt Counsellors could increase by 7.5% without amending the current fee structure

◊ Small Debt Counselling practices increasingly make use of part time staff

Findings

Average salaries paid per size of Debt Counselling practice

Size of practice Debt Counsellor Debt Counsellor

Assistant Admin staff

Large R15 437.50 R8 125.00 R5 250.00

Medium R17 222.20 R9 833.30 R6 611.10

Small R10 400.20 R3 842.70 R2 448.40

Average R11 026.20 R4 667.70 R3 036.80

Findings

General Finding

Size of practice Unpaid

Ratio Client loss ratio

(up to day 90)

Professional Fee

Large 19% 20% R2 696.00

Medium 17% 21% R2 695.00

Small 20% 21% R3 015.00

Average 19% 21% R2 878.30

◊ Average Professional fee at Small Debt Counsellors is 11% higher

◊ Consumer loss ratio of 21% appears to be current industry norm

◊ Unpaid ratio of 19% appears to be current industry norm

Findings

Current cost vs revenue allocation

Take on After Care

% of Costs 61% 39%

% of Revenue 60% 40%

◊ Professional Fee received covers take on cost

◊ After Care fee covers the after care cost

◊ But at a very marginal profit

◊ Current profit margin is well below acceptable norm

0%

10%

20%

30%

40%

50%

60%

70%

Take on Aftercare

Cost Vs Income

% of Costs % of Revenue

Findings

Cost and revenue over life of Debt Review Rand

Average cost of Debt Review 5 082.70

Current revenue per Debt Review 5 909.28

Current surplus 826.61

◊ With a gross profit margin of 14% the current surplus per Debt Review amounts to R826.61

over the lifetime of the Debt Review

◊ The current DC fees to the Consumer, as a % of repayments, amounts to 4.56%

◊ The current DC Fees and Legal Fees, as a % of repayments, amounts to 7.42%

◊ If a concession from a Credit Provider includes a fee reduction to zero and a 3% (Say from 31%

to 28%) interest rate reduction this covers the Debt Review & Legal Fees cost in full

What is an acceptable profit margin?

What profit margin will attract good Debt Counsellors?

◊ According to Forbes the average pre tax margin for small to medium businesses is 16.5%

◊ According to the DCASA Survey the average gross margin for Debt Counsellors amount to 14%

Based on the spending norms reported in the DCASA survey Debt Counsellors will be attracted to the Debt Counselling industry if gross margin exceed 30%. This will result in a pre tax profit of 10% to 12%

Findings

Marketing 10%

Payroll 31%

Communication 12%

Office Consumables 5%

Rent 12%

Insurance & Subs 4%

Accountant & Auditor

4%

Systems 3%

Furniture 3%

Electricity & Water 3%

Post & Courier 3%

Training & Travel 6%

Bank charges & sundries

4%

Debt Counsellor Practice Average Spending Norms

Debt Counsellor Practice Average Spending Norms

Marketing Payroll Communication

Office Consumables

Rent Insurance

& Subs Accountant & Auditor

Large 16.4% 36.5% 7.7% 2.7% 13.7% 1.2% 1.7%

Medium 11.4% 48.3% 7.9% 2.2% 8.0% 2.9% 2.4%

Small 10.3% 30.7% 14.1% 6.4% 13.5% 5.2% 4.0%

Ave 10.7% 32.4% 12.8% 5.6% 12.7% 4.6% 3.7%

Systems Furniture Electricity &

Water Post & Courier

Training & Travel

Bank Charges & Sundries

Large 1.6% 1.2% 1.2% 1.6% 2.0% 1.1%

Medium 2.9% 3.1% 2.0% 1.0% 2.7% 1.4%

Small 3.7% 3.6% 3.4% 3.2% 7.0% 4.7%

Ave 3.4% 3.2% 3.1% 2.7% 5.9% 3.9%

Possible Solutions

◊ For Debt Counselling to achieve a 25% gross margin revenue needs to increase by 12% (Based on current salaries)

◊ Increase Professional and After Care caps but this will have a minimal effect on Debt Counselling profitability

◊ Amend After Care Fee after year two from 3% to 5%

◊ Introduce legal preparation fee for Debt Counsellors (Debt Counsellors spends 10.9 hours on the legal preparation)

A single solution may not be achievable:

Possible Solutions

◊ Introduce a standard withdrawal fee for services rendered. This could

increase gross profit by 7.5% without amending the current fee structure. (21% of Consumers who apply for Debt Review abandon the process within

90 days without paying anybody)

◊ Improve efficiencies on Processing, Proposal, Legal and Queries

◊ Introduce fee for reckless credit investigations

The Way Forward

◊ DCASA’s aim is to submit a recommendation to the NCR

◊ This will require further analysis and feedback to Debt Counsellors

◊ A draft proposal will be submitted to the DCASA NEC for deliberation

◊ Final draft proposal will be formulated and Debt Counsellors will be

requested for feedback at the DCASA Regional meetings

◊ Final proposal will be approved by DCASA NEC and submitted to the

NCR.