The National Credit Regulator (NCR) has won an important case in the North Gauteng High Court which confirms that it is entitled to accredit Payment Distribution Agents (PDAs) as part of the debt review process.

Under the National Credit Act (NCA), over-indebted consumers are entitled to apply for their debts to be re-arranged through a registered debt counsellor. As part of this process, consumers are still required to make repayments to their credit providers, although this may be at a reduced monthly rate.

Because vast amounts of money have to be collected from consumers and paid to credit providers, the NCR developed a system to control the receipt and distribution of consumers' payments to the credit providers. From the commencement of the system to the end of June 2010 a total of R2, 1bn had been distributed by the PDAs to various credit providers.

"We found that rearranged payments should not be left to the consumer to make because their over-indebtedness is often the result of them being unable to manage their own financial affairs," says NCR Senior Manager: Education & Strategy, Peter Setou. "The requirement that payment be made, not by the consumer, but rather by an appointed agent, underpins the effectiveness of the debt review process."

However, the NCR became concerned about the criminal behavior of some debt counsellors and unaccredited paying agencies, which resulted in consumers' monies being stolen or not being paid over to creditors.

"If a consumer under debt review fails to comply with the relevant provisions of the NCA whilst under debt counselling, the process can be terminated and credit providers can take legal action to recover the debt," explains Setou.
To curb the theft of consumer money and maladministration the NCR issued a tender two years ago and accredited five PDAs. This was to prevent the risk of loss to consumers through misappropriation of repayments while consumers were under debt counselling.

"In accrediting these PDAs, audits were undertaken to ensure that such entities have the requisite infrastructure to perform the function of payment distribution," says Setou. "The NCR also ensures that such entities have adequate insurance cover to compensate consumers in cases of loss."

But Debt Monitoring SA, which had been collecting money from over indebted customers despite not being an accredited PDA, applied to the High Court to order the NCR to approve them as a PDA. It also wanted the NCR to stop preventing debt counsellors from engaging or rendering payment distribution services to credit providers on behalf of their clients. They argued that the NCR should not impose as a condition of registration that debt counsellors only be allowed to use accredited PDAs.

"If debt counsellors were allowed to carry out payment distribution, the NCR would not be able to monitor and control the system as it is able to do now," says Setou.

The court dismissed Debt Monitoring SA's application, with costs.

"This judgment has strengthened the NCR's resolve to ensure that consumers' and credit providers' interests are protected in the debt counselling process," concludes Setou. The NCR will continue to enforce the Act and specifically ensure that debt counsellors only use accredited PDAs. Consumers are also urged to check whether their debt counsellors are using accredited PDAs. If in doubt they should contact the NCR