Search for ways to cut backlog of unresolved debt

2010-07-31 10:32

Reducing the backlog of unresolved debt ­review cases remains a major challenge for the National Credit Regulator (NCR).

Each month the NCR receives 7 500 new applications, on top of the 180 000 consumers who have applied for debt counselling.

A task team that was set up to look at ways to reduce the backlog says factors such as capacity constraints in the judicial system, inadequate ­operational compliance by credit providers and debt counsellors, and possible abuse of the process by consumers are responsible.

The head of the task team, Advocate Neville Melville, says the backlog disadvantages both credit providers or indebted consumers because some cases drag on for years.

“It poses a risk to the financial system and it is also contrary to the intentions of the National Credit Act.

“The act requires that indebted consumers get back on their feet and into the economy as soon as possible,” says Melville.

The task team found that there was a lack of standardisation of debt review documentation as well as problems relating to the receipt and ­distribution of consumer repayments.

They also established that there is no provision in the act for interim payment arrangements pending the date of the magistrates court hearing.

Melville says this results in payment interruptions being treated as defaults.

There is also no effective collection mechanism to ensure that consumers continue making monthly payments to meet their obligations in terms of restructured payment plans, he says.

The NCR says the report highlights the fact that there are shortcomings on the part of both debt counsellors and credit providers.

NCR chief executive Gabriel Davel says there are 1 642 debt counsellors registered with the NCR and believes that many debt counsellors do not provide realistic debt restructuring proposals to credit providers. They also do not provide follow-up support to consumers to ensure that they continue to meet their financial obligations under the new arrangement.

The task team also found cases where debt ­counsellors promoted the debt review process as a payment holiday with no realistic intention of ­effective rehabilitation, says Davel.

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