Debt Counselling – Is It Working?

By Adv Randolph Samuel @ Lucid Living

In December 2009 the National Credit Regulator (NCR) announced that it had set up a task team, to determine solutions to the problems being experienced in the current debt counselling process.

Introducing the Task Team, Gabriel Davel, CEO of the NCR said “while it was to be expected that there would be teething problems in implementing the National Credit Act (NCA), we decided we needed to act decisively to bring the debt counselling situation under control”.

According to the NCR the Debt Counselling Task Team would initially focus on “quick wins”. The NCR was hopeful that the team would be able to bring about a significant improvement in the backlogs that are impacting negatively on both consumers and creating increasing risk to credit providers.

The Task Team recently issued its report, “wherein its developed a number of proposals which it believes could make a significant improvement in resolving the backlogs” in the debt counselling process, according to the NCR.

The Task Team found that debt counselling has assisted consumers to deal with the negative impact of the financial crisis and the resultant job losses and negative impact on incomes. It may also have helped to curtail repossessions and in preventing a decline in the housing market.

“This is an encouraging sign,” says Advocate Neville Melville, chairman of the Debt Counselling Task Team. “We urge all the affected parties to contribute to establishing an effective debt counselling process, in order to deal with the impact of the financial crisis in a responsible manner, while protecting consumers and minimising any negative impact on the financial sector.”

The proposals of the Debt Counselling Task Team include:

  • For credit providers, improvements in their policies and procedures; greater co-operation between different business units in restructuring debt; improved administration to ensure that credit providers do not delay the conclusion of cases;
  • For debt counsellors, greater consistency in performing affordability assessments; introducing standards to ensure that realistic debt restructuring proposals are developed; and improving communication with both consumers and credit providers.

Based on the NCR’s statistics as at end of March 2010, 1,642 debt counsellors were registered with the NCR and over 160,000 consumers have applied for debt counselling. On average some 7,500 people enter debt counseling every month. monthly repayments made by consumers under debt counseling was R167.9 million for March alone.

The findings of a research report into debt counseling, has revealed further positive results:

  • 79% of debt counselling clients were happy with the outcome of the debt counselling process;
  • 91% of debt counselling clients stated that they would recommend debt counselling to those who needed it; and
  • The vast majority of debt counselling clients felt that their ebt counsellor was knowledgeable and provided them with useful information in terms of managing their finances.

The Task Team concluded that there was significant support, from all stakeholders, for debt counseling. Moreover they observed that debt counselling played a critical role in offering financially vulnerable consumers and embattled creditors an alternative (to expensive legal battles, inevitable repossessions and bloated balance sheets) that would better serve our recovering economy.

The NCR remains optimistic that the Debt Counselling Task Team’s recommendations and the draft regulations (once implemented) will resolve the issues, currently hindering efficiencies in the debt counselling process.