National Credit Regulator steps into dispute in crisis-ridden financial industry

Business Maverick recently reported how financial artificial intelligence company Ubiquity AI had informed the National Credit Regulator  (NCR) of its intention to file a liquidation application against DC Partner at the Cape High Court – which could have negative repercussions for consumers under debt review.

In response to the article, a spokesperson from the NCR, Lebogang Selibi took the unusual step of contacting Business Maverick to inform us that the NCR will oppose any liquidation application brought by Ubiquity, in effect giving DC Partner – a licensed payment distribution agency – a lifeline.

Ubiquity AI’s CEO, Kaveer Beharee, confirmed to Business Maverick that while the company did indeed send the NCR a letter and subsequently a Section 345 notice was served on DC Partner to inform it that liquidation proceedings would commence, Ubiquity has not received any written responses from the NCR.  

Selebi told Business Maverick: “The NCR is aware of a contractual dispute between DC Partner and Ubiquity AI. Should the liquidation be launched, the NCR will oppose the application to protect the interests of consumers under debt counsellors.”

This contradicts the NCR’s legal adviser Nthupang Magolego who spoke to Business Times after the story breaking on Business Maverick, confirming that consumers will not be affected by any possible liquidation application as consumers’ funds are legally protected.

Both Beharee and DC Partner CEO Herman Joubert have confirmed this.

The burning question now is, why is the NCR taking such an extraordinary position in what seems to be an ordinary commercial dispute between two private sector companies?

If you take out a loan and for some reason, can’t pay the instalments, the debtor – normally a retailer or a bank – can technically reclaim the object and you lose all the payments you have made up till then. Since this is unfair, a new system has been introduced, where you could opt to be part of the National Credit Regulator system, and your debt is transferred to a business like DC Partner which takes over the loan. But as a result, loan rates normally go up and the debt takes longer to pay off.

Politicians came under pressure to reduce the interest rates that businesses like DC Partner can charge, which the government has done. The problem now is that the rates are so low that it’s hard for these businesses to make a profit.

Business Maverick asked the NCR pertinent questions relating to this case. The NCR had failed to respond by the time of publishing. 

It could be that any legal action against the Payment Distribution Administration (PDA)  industry will expose the mess which the industry is in.

The PDA industry has been in a death spiral since the new National Credit Act Regulations came into effect in 2016, with PDAs struggling to survive under the industry’s current regulation fee system which is set by the government.

The situation is dire. In October 2016, Clive Pintusewitz, the then-CEO of the DCM group which owned a PDA called NPDA (now called Intuitive), confirmed in a media article that both NPDA and DC Partner had made an urgent application to the Department of Trade and Industry to have regulations amended.

In that article  Pintusewitz stated: “We are unsustainable. If this doesn’t get fixed, we will go out of business.”

DC Partner declined to respond to the questions relating to sustainability, which Business Maverick sent via its public relations representative. This is “proprietary” and “privileged” information, they stated. However, in submissions by DC Partner and NPDA to Parliament’s Portfolio Committee on Trade and Industry in 2017, both parties complained about the two regulatory constraints that have brought the PDA industry to its knees.

The first issue relates to national credit regulations amendments which have resulted in regulated fees plummeting to the extent that some PDAs are making greater losses on their consumer books.

The second issue, which inexplicably remains to this day, is that PDAs are annually losing millions to banks.

Banks, seemingly under the direction of the Banking Association of SA (Basa), refuse to refund PDAs, when consumers (under debt review) reverse debit orders after the PDA has paid the consumer’s bank.

According to one former industry executive, these two issues have created a perfect storm in the PDA industry. He said some of SA’s four PDAs are barely surviving.

The industry’s position has dramatically deteriorated, all under the eye of the regulator, which under the National Credit Act, is compelled to have acted and advised the Minister of Trade and Industry to review and address faulty regulation or of any destabilising risks in the industry.

As the implementing authority of the NCA regulations, it is unclear what the NCR has done to address the looming crisis or regulatory erosion.

The NCR did initiate a regulatory review at the end of 2018, but there have been no regulatory proposals or subsequent amendments since then. BM