Does intention speak louder than words? An excursion into debt intervention provisions

April 1st, 2020

No person who has served the debt counselling industry would dispute the dire plight of consumers of credit. The remedy of debt counselling, as introduced by the National Credit Act 34 of 2005 (the NCA) (an exceptional measure crafted from the vestiges of the Usury Act and affording – as its sole purpose – respite to over-indebted consumers) does not offer a viable gateway to financial wellness.

The stated intention of Parliament’s Portfolio Committee on Trade and Industry in introducing the National Credit Amendment Bill B30 of 2018 was, specifically, to offer respite to those financially distressed consumers who were ineligible for the existing debt repayment remedies of administration, personal insolvency and debt counselling. It then fell to the Portfolio Committee to translate its intention into a law that gives effect to that intention in direct and unambiguous language. The result is the National Credit Amendment Act 7 of 2019 (the Act), which was assented on 15 August 2019.

Unfortunately, the debt counselling provisions of the NCA have drawn repeated criticism from the courts for the inconsistent quality of its drafting. This – according to those members of the judiciary – rendered the courts’ discernment of the legislature’s intention therein an unenviable task. In practice, this resulted in conflicting interpretations of the debt counselling provisions by and within various courts. The consequence, in practice, was numerous delays in finalising the debt counselling court application, which constituted a significant prejudice to the affected consumers.

The inability to readily ascertain the intention of the crafters of a statute – from the wording of its provisions – threatens the successful implementation and enforcement of that statute. In the case of debt counselling, this resulted in periodic regulations, as well as numerous resorts to the judiciary for guidance and clarity.

This article will consider provisions of the Act, largely pertaining to debt intervention so as to gauge whether the wording of those provisions pose any impediment to the realisation of the legislature’s stated intention.

The definition of the term ‘debt intervention’ in s 1 of the Act does not expressly permit a consumer who is currently under debt counselling to apply for debt intervention. While the study on the socio-economic impact assessment of the Act commissioned by the Department of Trade and Industry (, accessed 25-3-2020) (the study) found that 13 941 consumers who were under debt counselling at the time of the study met the requirements for debt intervention, this wording would place in question the eligibility of such a consumer for debt intervention.

Could it have been the intention of the lawmakers not to explicitly refer to the very category of consumers that debt intervention was designed to assist?

The requisite skill set and competencies of the ‘suitable employee of the National Credit Regulator’ or ‘suitable person employed by the State’ stipulated in s 15A have not been outlined in that section. Regulation 10(a)(ii) requires a debt counsellor to undergo a comprehensive training course prior to being registered with the National Credit Regulator (NCR). Section 15A(2)(b) deems a debt intervention officer to be a registered debt counsellor. However, the provision makes no mention of the nature and scope of the training that this functionary must undergo before they can be said to be sufficiently equipped to offer this service to the targeted consumers. It is anticipated that these matters will be clarified in the regulations and ironed out by the NCR.

A concerning consequence is that the provisions immerse the NCR as an important functionary in a process it is charged with administering. As noted by the study, the NCR has been relegated to a role player in the debt intervention process, yet the Act is silent as to who will ensure compliance by the NCR itself. Put plainly, the regulator would essentially be unregulated.

Further, would the relegation of the NCR to that of a role player in a process ipso facto render it susceptible to offences in terms of the Act?

These could not have been the intentions of the legislature.

It would be of comfort to the NCR that it already possesses a software platform that will enable it to maintain a record of the debt intervention process as required by ss 69A, 70, 71(1A) and 71A of the Act, subject to the necessary enhancements.

The provisions position the NCR as a crucial role player in the process, thus arousing the identical concerns raised under s 15. Furthermore, would the NCR be guilty of an offence should it fail to submit proof of a debt intervention order to the credit bureau within two business days as required by s 71A(3A) read with s 157 of the Act?

These could not have been the intentions of the legislature.

The introduction by the legislature of mandatory reckless lending investigations by the debt counsellor in s 86(6)(b) and the subsequent mandatory referral to either the NCR or the magistrate’s court in s 82A are to be praised as an important antidote with which to alleviate the plight of the targeted consumers. Most debt counsellors wilfully elected not to investigate reckless lending because, to their minds, the assessment was far too laborious and time-consuming to be a financially viable exercise. This significantly disadvantaged the affected consumers as it unilaterally deprived them of a statutory remedy afforded specifically by the legislature. It must be noted that neither
s 86 of the NCA nor reg 24 makes the debt counsellor’s statutory responsibility to investigate reckless lending conditional on it being financially viable to the debt counsellor. An added disincentive to debt counsellors was the absence in the legislation of a clearly defined process that detailed the applicable time frames and reciprocal responsibilities pertaining to the production of the affordability assessment documentation by the credit provider and finalisation of the reckless lending assessment by the debt counsellor.

In an effort to ensure debt counsellors conducted the reckless lending assessment, the NCR – through the Credit Industry Forum (CIF) – facilitated the development of a reckless lending process document, which sought to bridge the statutory lacuna. The CIF decided, however, to shelve the process document pending the introduction of s 82A and the amended s 86(6)(b) of the Act. It may prove prudent to explore – in supplementation of s 82A(2), particularly as regards the responsibilities of debt counsellors – the extent to which the foundational work already completed by the CIF could form the basis of regulations on the reckless lending assessment process. This appears to have been envisaged by the legislature in s 171(1)(bB)(ii)(aa) of the Act, which is encouraging.

Debt counsellors could yet experience challenges in determining the scope of their mandate, as s 82A refers to ‘reasonable grounds to suspect that a credit agreement [is reckless]’ whereas s 86(6)(b) refers to any of the credit agreements that ‘appear to be reckless’. This could result in abuses of the remedy by exploitative debt counsellors and, in that regard, it is not clear whether the credit provider would be entitled to costs for the unfounded referral by the debt counsellor. This would have an adverse effect on the legislature’s intention.

Immediately evident from the exposition of the debt intervention process in s 86A is the pivotal role played by the NCR in the functioning – not regulating – of the process. This elicits the same discomfort expressed earlier in reference to ss 15A, 69A, 70, 71(1A) and 71A.

The NCR is required to perform an adaptation of the Form 17.1 and 17.2 procedure staple to the debt counselling process and is responsible for negotiating with the consumer’s credit providers (ss 86A(3), 86A(4), 86(4), (5) and (6)), yet the specifics of the adaptation have not been outlined in those provisions.

Section 86A(6)(c) requires the NCR to assess whether credit agreements are unlawful or amount to prohibited conduct by the credit provider, which is not required of a debt counsellor under s 86(6)(b), and is a further important remedy for the targeted consumers introduced by the legislature. The section requires a referral to the National Consumer Tribunal (NCT) for an ‘appropriate declaration’, however, neither s 87 nor the new ss 87(1A) and 87A specifically stipulate the NCT’s power to make the ‘appropriate declaration’. The result could be a bifurcation of referrals between the general debt intervention application procedure under ss 137(1A) and 142(3)(fA) of the Act and the separate referral to the NCT under ss 89(5) and 90(4) of the Act read with s 164(1). This could also have a significant impact on the internal operations of the NCR.

As stated earlier, s 86(5) requires the parties to a debt counselling application to negotiate in good faith so as to arrive at a mutually acceptable repayment solution. Yet, notwithstanding the express reference to this negotiation process in s 86A(4) of the Act, it is unclear from the wording of s 86A(8)(b) whether such negotiations would in fact take place as it appears to suggest that the NCR must refer the repayment proposal to the NCT as soon as a credit provider does not accept the original proposal and before counter-proposals even could be exchanged. While fully-fledged negotiations may occur in practice, as much is not directly mandated by the wording of the provision.

Could these have been the intentions of the legislature?

Prescription is an important defence to a financially embattled consumer. The Act specifically ascribes it to a consumer under debt intervention whose debt repayment obligations to a credit provider have been suspended by an order of the NCT. The crucial issue is always whether prescription has already run its course. However, the framing of this defence in s 87A(4)(b) is sufficiently abstruse that an impatient debt intervention role player could find attaining the correct timeframe envisaged by the legislature a challenge.

Eight months after the granting of the debt repayment suspension order by the NCT, the NCR is required to assess whether the consumer’s finances have improved to the extent that resumption of debt repayment via a reduced repayment plan is feasible. Should the NCR conclude that the consumer’s situation has not improved to that degree, ss 87A(5)(b)(ii) and 87A(5)(c)(ii) authorise it to request the NCT to order an extension of the suspension period or, ultimately, to write-off ‘the whole or a portion’ of the total debt owed by the consumer. These orders will have a significant impact on credit providers. They would want to have sight of the NCR’s assessment. As much is required by the audi alteram partem rule. However, s 87A(5)(d) makes specific reference to the process to be followed in s 86A(9), which requires the NCR to ‘inform each credit provider … of such referral and invite such credit providers to make representations’ – it places no clear obligation on the NCR to make its assessment available to the credit providers. It could very well come to pass that, in practice, considerations of common sense and practicality would compel the NCR to attach its assessment to the notification and the legislature could very well assert that to have been its intention. It is merely the thesis of this article that much is not immediately apparent in the wording selected by the legislature.

In conclusion, this article has endeavoured to highlight, for consideration, certain disjuncture between the legislature’s intention and the actual wording of selected provisions of the Act as passed by it. Learning from the debt counselling experience, any disjuncture should be resolved by regulations to ensure the much-needed recourse introduced by the legislation does not elude many targeted consumers. Fortunately, promulgation is not expected before 2021. It could yet fall to debt counsellors and credit providers once again to offer support to the NCR by co-operating to devise – under the guidance of the NCR – workable and practical solutions to the disjuncture until such time as they are remedied or clarified by regulations or amendments and for it the targeted consumers and the credit industry as a whole would be indebted (just not over-indebted).

Peter Michaels BSocSci LLB (UCT) is a legal practitioner at Herold Gie Attorneys in Cape Town. Mr Michaels was the former Legal Adviser responsible for debt counselling at the National Credit Regulator.

This article was first published in De Rebus in 2020 (April) DR 39.