NATIONAL CREDIT ACT AMENDMENT BILL 2013

PARLIAMENTARY HEARINGS28 – 30 January 2014

Presenter: Magauta MphahleleCEO: NDMA

Start Here

THE TEAM

It always seems impossible

until it is done. Nelson

Mandela

The NDMA is a non profit organisation that aims to contribute to combating over indebtedness through proactive and reactive measures, impactful partnerships and advocacy. The NDMA is run by a team of dedicated individuals who are experts in debt advise and management. They have integrity and are motivated by the drive to serve and make a difference to consumers who approach us for assistance.

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WE AIM TO SERVE

THE NDMA LEADERSHIPThe NDMA is led by and independent Board comprising of Board Chairperson, Sikkie Kajee and5 other Board Members, including the CEO, Ms Magauta Mphahlele.

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Other members recently appointed to the Board are:•Ms Lebo Ramafoko – CEO of Soul City Institute•Ms Esther Letlape – Deputy Chairperson of Community Rail Services & Human Resources Consultant•Mr Brian Mdluli – CEO of TOPAZ and Chairperson of the Communication Subcommittee of the Services Seta•Mr Christo Otto – Retired Banker

NDMA FOCUS 2013/2014

Maintain a sustainable and impactful organisation:To provide and advocate for the highest standards of affordable consumer services,innovative, and sustainable solutions for the market backed up by sound business and ethical principles within a non-profit model;

Design and implement effective interventions to prevent and

alleviate debt Stress: To create healthy credit consumers in South Africa through effective and cost efficient consumer education and financial hardship management solutions;

Build and maintain strong and impactful partnerships and

Networks:With other NGOs, government departments, regulatory agencies and other related consumers services agencies work collaboratively to make sustainable impact.

Advocate for changeTo influence and inform policy and practice through targeted research and casework analysis.

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ADDRESSING FINANCIAL HARDSHIP

DEBT STATUS IN SOUTH AFRICA6

South Africa has more than 20 million credit active consumers. Almost half of these suffer from some form of financial distress, leading to the inability to service their debt while affording minimum living expenses. These South Africans and their families/household members are suffering from the consequences of such financial difficulties with the accompanying embarrassment, worry and humiliation from being pursued by creditors and debt collectors. This situation is made worse by the inadequate debt relief remedies and lack of access to redress as most of the remedies are court based.

In many cases judgments and emolument attachment orders have been obtained even where residual net incomes are insufficient to meet even the most basic living costs. The spotlight is constantly on the abuse of mechanisms and highlights how abusive market practices can worsen the plight of the consumer. Specific consequences of debt stress in most families and individuals are:

Reduced standards of living; Social stigma and exclusion; Deterioration in health; Relationship breakdown; Financial exclusion; House repossession or eviction;

Utility disconnection; Reduced productivity; Personality disorders; Suicide; and Criminal and corrupt activities

CAUSES OF OVER INDEBTEDNESS7

From January 2011 to December 2013 the NDMA has handled 46026 calls to its helpline, 6914 enquiries and 7213 cases. These show that the reasons for the plight of consumers vary and include:

Over-indebtedness due to having taken on/been granted debt in excess of affordability capacity or as a result of the consumer not disclosing their true financial position;Ineffective remedies, abusive and illegal practices in the debt collection industry and lack of product knowledge;Lack of money and financial management knowledge and skills made worse by lack of planning and savings;Changed family or personal circumstances that have resulted in unforeseen temporary or more permanent income and or expenditure shocks/changes such as:

Illness/medical expenses in the family and extended family; Death of a spouse or other family member contributing to household income;Loss of employment of one or more people in the family/ household;Involuntary change in the borrower’s employment status/ income;Rising cost of living due to increases in fuel and amenities; andUnforeseen emergency expenses; Educational costs; etc.

CREDIT STANDING OF CONSUMERS

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The number of consumers with impaired records increased by 71,000 to 9.76 million,from 9.69 million in the 2ND quarter of 2013!

7.7 million are up to date1

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2.78 million are 1 – 2 months in arrears

4.6 million are more than three months in arrears

2.8 million have adverse listings

5 2.6 million have judgements and admin orders

Case Studies01

CASE STUDIES10

01. The Yoke of administration

• The consumer, a female and sole breadwinner in her 60s, was placed under administration in 2009. Since then, the administrators have deducted R500 per month from her salary, amounting to R18 102. The consumer currently takes home R1 547 and her living costs are R1 700. Like many other South Africans, she supplements her income with microloans from a local Mashonisa in order to survive.

• The main challenge for this consumer was

that she had been paying the administrator through a salary deduction for four years, but she recently found out that the administrator had not been paying the money over to some of her creditors and as a result some creditors handed her account over for legal collection, thus increasing the amount now owing. A chunk of the R18 000 went to the administrator for fees.

The NDMA maintains a large database of Case studies to inform its work, educate and advocate for change. The Case studies below illustrate the shortcomings in current remedies

02. Debt Counselling Not an Option• 52 year old Domestic worker married in COP with

two children, living in an RDP house. Husband lost his job as a taxi driver in 2013 which used to bring in R1000 per week.

• The two young adults are studying with the assistance of bursaries and study aid but the mother still has to provide basics essentials like food, clothing and transport.

• She earns R1700, living expenses are R1 488 and her total outstanding debt is R36 932 with monthly instalments totalling R2 677. She can only afford to distribute R211 per month. She has two personal loans and one furniture agreement. The joint income was considered when these were given.

• The NDMA attempted to negotiate with creditors to accept 7% of the instalment and they were not willing. We referred the consumer to ProBono to assist her with the Administration process.

CASE STUDIES11

03. Self Employed: Debt Mediation to the Rescue

The NDMA maintains a large database of Case studies to inform its work, educate and advocate for change. The Case studies below illustrate the shortcomings in current remedies

04. Credit with Benefits: Mediation to the Rescue • Consumer’s car was in the process of being repossessed

due to arrears. Consumer is a web developer specializing in online store development. His most recent commission was R7695.00. He is in the process of negotiating an online store with two large retail companies, which will be on a much larger scale to this one and expect a go ahead soon, with a 50% down payment.

• His other project is wedding planning and management. He secured a management contract at R25,000.00 and the income from a referral to the service providers at 10%-15% will bring in a further R30,000. He had already received R12,500.00 and will be acquiring more weddings through his event management website at iorganize.co.za and the various contacts..

• NDMA was able to negotiate for consumer to pay R6000

towards his arrears over three months and as business picks up increase his payments to catch up with the total arrears.

• He was able to retain his car which he desperately needed to conduct his business.

• Consumer took a consolidation loan to pay his debts. The Consumer was unhappy that the balance of the loan had not decreased despite him paying the monthly instalments for the loan.

• The Consumer attempted to query the balance with the credit provider but he was not happy with the explanation provided.

• The Consumer requested the NDMA’s assistance in querying the balance outstanding.

• The NDMA discussed the above contract with the credit provider. • On closer inspection of the statement the NDMA realised that on top of the

capital amount loaned, the consumer could access other “benefits” which included cash advances to cover annual essential needs and monthly cash support which were added to the balance as the consumer accessed them.

• The NDMA worked out a monthly budget for the consumer and explained the terms of the contract and the breakdown of all fees, costs and interest of the contract to the consumer.

• Credit life insurance and the costs were explained to the consumer.• The Credit provider afforded the consumer the opportunity to find his own

credit life policy but the Consumer declined the offer and opted to keep the credit life policy that was in existence with the company.

• The reward benefit was not compulsory. The consumer decided to cancel the reward benefit which resulted in his instalment being reduced from R2 371.79 to R1 417.71 per month giving him a monthly cash flow relief of R954.08.

• The settlement amount was fixed at R22 723.20 giving him a relief of R62 661.24 had he paid off the account at the time of mediation.

Over indebtedness: Key Considerations

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Reckless borrowing and lending are not the only drivers of over indebtedness. Economic and life shocks, lack of employment and lack of a savings culture play a major role hence the need to have proper remedies to deal with long and short term debt problems;

Debt Counselling is not suitable in all cases and the cost of administering the process for debt counsellors makes servicing low income consumers, consumers with no income and consumers who for personal reasons do not want it unviable.

Our insolvency laws are expensive and inaccessible. Administration is highly abused and needs a complete review. The courts not a suitable place for consumers to resolve disputes and transgressions of the law.

While consumers can approach credit providers to restructure consumers face huge obstacles which include low bargaining power due to lack of knowledge, competing multiple credit provider demands, processes, policies and procedures.

The following policy considerations are important to consider when the committee makes its deliberations;

Over indebtedness: Key Considerations

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Access to redress is very limited for low income consumers due to the cost, especially as most remedies are court based .

There is no sufficient capacity to prevent and punish abusive market practices in the debt collection and administration industries. The competing mandates and jurisdictions of various regulatory institutions coupled with lack of cooperation makes the problem worse.

Ombud Offices play an important role but are not adequately capacitated. Belonging to an Ombud Scheme should be compulsory.

NGOs need to be capacitated to play a central role and act as a safety net for millions of consumers who cannot afford to fight for their rights. NGOs would also be better placed to provide impactful and sustainable education and redress programs while regulators concentrate their resources and efforts on proactive and reactive enforcement and compliance programs.

Awareness workshops are not sufficient consumers need to be able to approach well resourced and local NGOs or something like the NDMA helpline for detailed and objective information on credit issues.

The following policy considerations are important to consider when the committee makes its deliberations:

COMMENTS ON AMENDMENTS14

Bill Proposal NDMA Comments RecommendationAmendment of section 86 of the Act

We agree with the proposed amendments however we are of the view that the section does not go far enough to address the unintended discrimination against consumers who do not qualify for debt review.

S86(7) (b) of the NCA makes provision for the consumer to make voluntary arrangements with their credit provider but there is no process in place for a consumer to access this option. Even (a) where a consumer is not found to be over indebted there has to be some “channel” or place for them to go as in their minds there is a problem with their finances that’s why they asked for the assessment.

There is lack of a structured procedure to deal with the voluntary arrangements outlined in section 86(7)(b) as such it is not being used and this excludes millions of consumers from accessing a viable remedy.

Where there is consent the Tribunal should be empowered to provide the remedies outlined in 86 (7) (c) and 87. This will reduce the cost of debt counselling immensely.

The Tribunal should be capacitated to handle these applications and its procedures should be simple, cost effective and quick.

86(7)(c) should also fall within the jurisdiction of the Tribunal where there is consent.

The Minister should be empowered to issue regulations regarding how the 86(7)(b) voluntary process should be handled. These regulations should address:a) Affordability and Eligibility criteriab) Application Procedure c) Creditor Consent Rules and Procedured) Protection from legal actione) Credit Bureau listing if anyf) Confirmation of agreementg) Fees and charges

Voluntary arrangements should only be subject to the jurisdiction of the Tribunal.

NGOs should be funded by a credit provider levy to accommodate low income consumers or consumers whose financial circumstances are such that they would not afford to pay for debt counselling or other remedies.

The Minister can through regulation set the rules to manage conflict of interest and the governance structures and reporting procedures for qualifying NGO’s under the ADR registration requirements.

COMMENTS ON AMENDMENTS15

Bill Proposal NDMA Comments RecommendationAmendment of section 129 of the Act

We agree with the proposed amendments however we are of the view that the section does not go far enough to address the problems experienced by consumers who have more than one credit agreement in arrears and has to deal with the competing demands of multiple credit providers, the costs of the ADR and the status of the agreements reached in this process. Just addressing the default status does not provide a solution in some instances.

Whilst S129 provides a consumer with various options to make use of remedies to address their situation this is not effective due to:a) Consumers not understanding how to exercise their rights due

to low levels of awareness, inability to access a remedy as the processes are either not clear or laborious and finding objective assistance from a trusted party to guide them through the process.

b) The credit provider is in many instances not trusted to provide a solution to the problem the consumer has with them consumers tend to think “they only do what’s best for them and not me”.

c) Credit providers who send S129 are only interested in making arrangements for their specific credit agreements. There is no portfolio approach resulting in the consumer being “bullied” into making arrangement they cannot keep. Their intention is mostly to pay the credit provider but without a holistic understanding of their situation they just cannot make informed decisions.

d) Without a portfolio approach to rehabilitation it will not work!

The Minister should be empowered to publish regulations relating to the Sec 129 process relating to arrears negotiation and settlement process. This should include:a) Obligation on credit providers to tell

consumers where to gob) The treatment of retrenched or

consumers experiencing change in circumstances (divorce, illness, etc.;) Consider token payments until situation improves.

c) Protection from legal action, handing over to third parties once agreement concluded and consumer pays according to agreement

d) Should include consumers who anticipate default.

e) Circumstances under which the credit provider can refuse to restructure the arrears and proceed with legal action.

f) Protection from harassment of consumers who declare their financial status;

g) Adjustment of the Credit Bureau Record and mechanism to support downscaling;

h) Circumstances under which the agreement comes to an end.

THE NATIONAL RESPONSIBLE CREDIT HELPLINE

Educating and Providing Relief02

THE RC Helpline17

Through the RC Helpline the NDMA aims to reduce the negative impact created by over indebtedness on individuals, families and society in general, through both preventative measures (proactive-) and aftercare (reactive-) interventions. The NRC Helpline ensures that consumers have access to credible and objective information and assistance that addresses the consumer’s unique circumstances, concerns or situation at the time that they call.

The Helpline agents are supported by a team of expert mediators and registered debt counsellors, should a consumer require specific relief. The RC Helpline aims to educate consumers from the time that they are considering taking out credit to the point where they actually take out credit and everything that follows after that, including providing relief where they experience financial hardship or their rights are transgressed.

The Helpline offers :

improved understanding of credit products, concepts and risks; through information, instruction and/or objective advice, develop skills and confidence to become more aware of credit risks and opportunities;facilitate making informed choices regarding options available to address financial hardship; Advice of how and where to access redress;enables effective actions to improve their credit status, financial well-being and become responsible users of credit.

REACH, CAPACITY AND IMPACT18

Reasons given for not being satisfied were:

Consumer had no affordability; Unemployed; Referral;Consumer did not get what they wanted (no payment, consolidation loan or very low instalment) andConsumers were waiting for the NDMA to respond.

The response to how well the NDMA answered questions, 71.2% of consumers answered either very or extremely well.

SERVICE STANDARDS19

Analysis of the responses indicated that consumers felt that:

The information was not clear or complicated to understand;Being advised that you are over indebted does not assist with finding a solution (these instances expenses exceeded income or there was no income); andThey were not happy with the information received as they did not receive an expected outcome or advice e.g. consolidation loan to repay debts).

It was evident that the responses were determined by the emotion of the experience in most instances.

Consumers who are very and extremely likely to refer our service made up 68.3% of all consumers interviewed for the survey. The remainder of the suggestions that would prevent them from recommending our services were:Credit Providers do not accept the arrangements negotiated by the NDMA and will not wipe debt out;Improve the NDMA follow-up service to see if consumers are coping or need help;Listen and not blame consumers for their situation;Communicate in Afrikaans, Pedi and Tsonga speaking officers available to assist consumers who cannot speak English well ; andAdvertise the NDMA service as people do not know of the service and benefits.

Origination Sources20

At present the NRC Helpline attracts a small number of over-indebted consumers (compared to the number experiencing financial hardship) in South Africa as we depend on:

Free editorial based on monthly press releases issued;

Free radio slots and interviews arising from press releases issued;

Face to face interactions with consumers based on joint initiatives with Provincial Consumer Affairs Offices;

Being invited to employer financial wellness sessions and word of mouth.

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ORIGINATION SOURCES21

Analysis of the responses indicated that consumers felt that:

The information was not clear or complicated to understand;Being advised that you are over indebted does not assist with finding a solution (these instances expenses exceeded income or there was no income); andThey were not happy with the information received as they did not receive an expected outcome or advice e.g. consolidation loan to repay debts.

It was evident that the responses were determined by the emotion of the experience in most instances.

Our Services Layout & Capacity22

Audit trail with date, user and time stamp; All activities are tracked and can be traced; Differentiation can be made between referral

sources; Workflow that generates automatic follow-up

actions and reminders The ability to diarise actions per case.

01. Case Management System

02. Helpline Capacity Three Helpline Agents, supported by one backup

agent(capacity to be increased as volumes increase); Currently handling an average of 387 calls per week; Time spent on a call on average ten minutes per call

(ranges from 4-16 minutes dependent on the type of enquiry);

Agents are currently trained to provide information and guidance on credit related matters;

Additional requirements to be identified and

03. Referral Process Pre-referral Process Consumer educated on rights and

responsibilities prior to referral. Referral Process Referral capability exists; Database to store information in place; Monitoring of referrals through reporting

and feedback from organisations referred to:

Various Ombud Offices, NCR, Law Society and Consumer Affairs Offices

04. Hardship Solutions

Senior Mediation Officers with legal, credit, mediation and debt restructuring expertise;

In-house registered Debt Counsellors who assist consumer suited for this solution;

Compliance monitoring team for quality assurance and training purposes.

Solution monitoring team who support and monitor solution progress

Contact Options & ProcessCall from ConsumerCall from Consumer

Helpline086 111 6362

Helpline086 111 6362

Sufficient information?Valid service request.

Possible solution identified

If you are not satisfied with the outcome of the

solution proposed, please contact the NDMA Quality Assurance

Department: 011 326 3459E-mail: compliance@ndma.org.za(Receipt acknowledged within 1 day)

If you are not satisfied with the outcome of the

solution proposed, please contact the NDMA Quality Assurance

Department: 011 326 3459E-mail: compliance@ndma.org.za(Receipt acknowledged within 1 day)

Contact consumer with outcome or status update of

mediation (within 20 days from date of receipt unless circumstances

require extension

Contact consumer with outcome or status update of

mediation (within 20 days from date of receipt unless circumstances

require extension

After receiving information and the matter is logged as a valid service

request, a reference number will be given. Keep this reference number

safe for future use

After receiving information and the matter is logged as a valid service

request, a reference number will be given. Keep this reference number

safe for future use

Information received and assessed (within 11 days). Information received and assessed (within 11 days).

Service Requests(Receipt acknowledged within 2

days)

Service Requests(Receipt acknowledged within 2

days)

Contact Us:

Via email: info@ndma.org.za

Via website: www.ndma.org.za

Helpline: 0861116362

Via fax: 011 781 0589Via post:

P.O. Box 7068, Cresta, 2118

Via SMS: SMS “ASSIST” to 44238 (R1.50/sms)

Contact Us:

Via email: info@ndma.org.za

Via website: www.ndma.org.za

Helpline: 0861116362

Via fax: 011 781 0589Via post:

P.O. Box 7068, Cresta, 2118

Via SMS: SMS “ASSIST” to 44238 (R1.50/sms)

Types of requests:Credit Enquiries

Requests for Assistance

Types of requests:Credit Enquiries

Requests for Assistance

HelplineScreens calls and gives

information according to specific requests

HelplineScreens calls and gives

information according to specific requests

Should the matter be invalid & fall outside the jurisdiction of the

NDMA, the matter will be referred to the applicable party

Mediate possible solutions identifiedMediate possible solutions identified

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24CONTACT US

Physical Address:Fernridge Office Park, Silver Fern Building5 Hunter Ave cnr Bram FischerFerndale, Randburg 2125

Phone: 011 326 3459Helpline: 086 111 6362Fax: 011 781 0589

Email: info@ndma.org.zaWebsite: www.ndma.org.za

SMS Call Back 44238 (R1.50/sms)

Like’ us on (National Debt Mediation Association (NDMA)) http://www.facebook.com/pages/National-Debt-Mediation-Association-NDMA/

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