Consumers no longer forced to lodge non-bank credit complaints with National Credit Regulator

Fallen out with a credit provider or a debt collector? Consumers now have another avenue of dispute resolution after the Credit Ombudsman reached agreement with the National Credit Regulator (NCR), allowing complaints to be lodged with either agency. 

It’s a big deal for consumers, who are no longer forced to lodge with the NCR, which is overrun with complaints about credit providers and beset with complaints about its own lack of service to the public.

The ombudsman is a highly regarded, public-facing office which offers an independent, efficient and free service.

The memorandum of understanding (MOU) between the NCR and Credit Ombud allows collaboration in terms of the National Credit Act (NCA), specifically in complaints resolution and investigation of disputes between non-bank credit providers, including debt collectors, credit bureaus and consumers. 

The NCR regulates credit providers, enforces the NCA, registers industry participants and proposes policies to the trade and industry minister, while the Credit Ombud is a voluntary body that engages in the resolution of disputes between the non-bank credit industry and consumers. Its members are bound by its recommendations.

Section 139 of the NCA provides that the regulator may refer the dispute to an ombud with jurisdiction to assist the credit provider and consumer to resolve the dispute. The NCR has now agreed that all disputes against members of the Credit Ombud will be referred to that office for resolution. These disputes include clothing and furniture retail accounts, microlenders and other non-bank loans. 

In November 2020, the commencement dates of certain provisions that relate to ombuds under the Financial Sector Regulation Act came into force. This means that any financial institution falling within the definition in the act would be obliged to belong to the ombud scheme.

Working together is pivotal to building and maintaining the spirit and objectives of the NCA. Newly appointed Credit Ombudsman Howard Gabriels said it expects to see an increase in the number of disputes, and that it has already established protocols with the NCR to align their communications systems to ensure that disputes are transferred efficiently between financial ombuds. Such a system already exists between the insurance, credit and banking ombuds, so calls are transferred to the ombuds with jurisdiction. Calls between these offices are also free.

“We are confident that the improvement in our systems will allow us to effectively deal with any increase in the number of disputes,” Gabriels said, adding that the NCR recognition of its position as an ombud should give consumers confidence that any dispute against a credit provider will be dealt with in an impartial and professional manner. 

“The Credit Ombud always seeks to create an environment where both consumers and credit providers can feel comfortable that disputes will be resolved in a fair manner, taking both sides into consideration. The services of the Credit Ombud are free of charge to consumers. We do hope consumers will approach our office.”

The ombud is now considering its funding model and will aim to recruit new members to help it increase its budget. It is hoped that the new platform for consumers and providers will allow them to resolve issues amicably and leave the regulators to their work. 

The NCR told Business Maverick that under the Credit Ombud constitution, consumers are not bound by rulings or decisions of the Credit Ombud and may refer a matter to the NCR, which is why the MOU was entered into — to facilitate cooperation and collaboration between the offices. Rulings are binding on members of the ombud scheme, however. 

“In line with the National Credit Act, the NCR may refer a complaint to an ombud with jurisdiction. This process has always been in place and the MOU is just to formalise the process.

“Instead of consumers having to lodge complaints only with the NCR, they can approach the Credit Ombud as well. Therefore, consumers will have more than one forum to approach when they have complaints with their credit agreements, as long as it is not complaints against banks.”

The NCR has come under heavy criticism for failing to act against reckless lenders — in particular pawn-while-you-drive scams — for botching the club fees issue in its pursuit of Lewis Stores, and for siding with Bayport on emoluments attachment orders (also known as garnishee orders), which was brought by Summit Financial Partners and the Stellenbosch University law clinic on behalf of 10 consumers. 

The applicants had approached the court for a declaratory order on the “in duplum” rule (meaning “double the amount”), which, under common law, means that interest on a debt ceases once the total amount in arrears equals the outstanding principal debt. With the introduction of the NCA, the statutory in duplum rule capped all other costs too, including collection costs, administration charges, service fees and credit insurance. They wanted the court to define the allowable “collection costs”, in terms of the NCA. For years, credit providers and lawyers have argued that collection costs exclude legal fees and interest.  

The judgment, handed down on 13 December 2019, clarified that collection costs include all legal fees incurred by a credit provider before, during and after litigation against a debtor. Aspects of this judgment are now on appeal, but it was nevertheless hailed as a major victory for consumers.

Clark Gardner, CEO of Summit Financial Partners, criticised the NCR at the time, saying it was noteworthy that in this case, the applicants were opposed by, among others, the NCR — the very entity entrusted with acting as a “referee” in the credit market. Instead, Summit and the law clinic had stepped in, in the absence of the regulator. DM/BM