in South Africa
Credit Management- and
Debt Collection Industries
The credit granting-, credit management- and debt recovery industries in South Africa have come under severe pressure during the past decade. Reforms to legislation and codes of conduct have changed the landscape and the protocols applicable of the industry. Gone are the days that we have one Act governing participants in the debt recovery industry. We now have to comply with many different pieces of legislation and compliance has become a minefield.
Without attempting to create a comprehensive list of all the compliance issues a debt recovery specialist faces in South Africa, the most pertinent regulatory issues relate to:
- Fees, disbursements, the maximums that may be charged and charging for fees that are not allowed;
- Fees and interest and how they affect the provisions of section 103 of the National Credit Act, together with the application of the common law In Duplum Rule;
- The prescription of debt and the risks associated with ignoring their provisions;
- The protection of personal information and how this impacts on the responsibility to manage, store and transfer debtor data safely.
This list is far from exhaustive and only highlights some of the aspects that our industry is grappling with. What is of concern, is the fact that, notwithstanding the fact that some of the above compliance issues have been around for years, many debt recovery agents continue to resist compliance simply because it doesn’t suit the revenue models.
In short, some break the law because, according to them, they won’t make money if they were compliant. No wonder our industry has to constantly fight against a reputation of being rogues.
Attempts to regulate our industry have not seen its end and we can expect to see requirements for affordability studies in the post-default (i.e. the collections) phase of credit management. There is also little doubt that, given time, more emphasis will be placed on harassment of debtors and what can be accepted as unreasonable contact or pressure.
The draft Debt Collectors Amendment Bill changes the landscape drastically for lawyers and debt collectors alike. If passed in its current poorly-drafted form, it will cause havoc and create uncertainty. However, once it is refined, it will finally drive a nail into the coffin of the common law In Duplum Rule and all other non-NCA processes that so many debt recovery specialists like to apply.
Software providers have, by virtue of the services and products they supply, tacitly taken up the responsibility of compliance on behalf of their masters. Their masters are either their clients, or the business owners that own the software (in the case of home-grown or in-house developed software), credit providers or the industry regulatory bodies.
The software vendor cannot be separated from the user. A law firm or collection company using specific software can only comply with regulatory requirements if the software complies therewith. If the software doesn’t comply, the user doesn’t comply… no matter how badly he wants to.
Yet, it is the user of the software that carries the risk. It is the user that is subjected to compliance and the associated disciplinary codes for non-compliance. This raises the multi-million Rand question: “Should software developers and vendors be specialists in the industries in which they supply their software?” The answer … “How else?”
Ask yourself how you would react in the following scenarios: A software vendor visits you to demonstrate its software. During the demonstration, you ask the vendor if he has any legal skills or understands anything about the debt recovery industry. He says “No, but I don’t need to… I just build the software.” My bet is that you would end the meeting pretty quickly.
Why is it then, that debt recovery specialists accept a non-compliant software from software vendors that do not have the required legal understanding? So often, the developer programming the software is a young guy with a weird hairstyle and a fuzzy attitude with absolutely no legal knowledge. That, dear colleagues, is a source of concern.
Yet, the biggest creator of risk in our industry is not the under-skilled software vendor. It is the ‘I know everything in-house software developer‘. Software engineers that purpose-build software for their own environments often get their owners into trouble as it becomes impossible to stay abreast of compliance requirements.
It becomes very expensive to develop one’s own bespoke software and you remove your ability to change software once you realize that you need something else. Bespoke home-grown software comes with an enormous risks and eventually distract the business owner to the extent that it destroys value.
The most common reasons for business owners developing their own bespoke software are that (a) they believe they can develop a software themselves at a lower cost; and (b) they want to continue with their non-compliance because it suits their revenue models. I’ve heard companies remark that the functionality of Section 103 (i.e. limiting fees and interest) must be deactivated in their software as it has reduced their revenue.
Furthermore, the growing needs of credit providers in South Africa to have transparency and feedback from the companies that collect their debt, places a bigger responsibility on the owner of those companies. Having under-skilled software vendors creates a risk that data is not managed and transferred correctly and safely … which can lead to reputational damage of the business owner and ultimately the credit provider.
In the end, everybody loses. We need to make sure the people developing software for our industry understands the law and build all compliance requirements into their software.
I think it has become time for a ‘Software-Industry-Compliance’ sanity check. In the same way that a consumer is entitled to the peace of mind of knowing that the vehicle they buy will not spontaneously catch fire, a user of software is entitled to the peace of mind of knowing that the software he uses complies with all aspects of the law.
Chief Executive Officer,