On 30 November 2012 the National Credit Regulator (NCR) published a Notice of Intention to Withdraw Approval of the Credit Industry Codes of Conduct (the Notice)1.

In the Notice, the NCR states that a review of the various industry codes was recently undertaken. The codes in question are:

• the Code of Conduct of Credit Providers to Combat Over-Indebtedness;
• the Debt Counsellors' Code of Conduct for Debt Review; and
• the Payment Distribution Agencies’ Code of Conduct for Debt Review

(collectively, the Codes).

The Notice states that the NCR's review has determined that the Debt Counsellors’ Code of Conduct for Debt Review, among other things, lacked accountability with regards to implementation, monitoring and reporting; was unconstitutional; and conferred excessive jurisdiction on the Credit Ombud.

In relation to the Code of Conduct of Credit Providers to Combat Over-Indebtedness, the Notice claims that investigations have uncovered evidence of significant reckless lending by credit providers, which was contrary to their commitments as enshrined in the Code and the National Credit Act (NCA)2.

The Notice furthermore states that the NCR has determined that the National Debt Mediation Association has failed to report annually to the NCR as required by the Code of Conduct of Credit Providers to Combat Over-Indebtedness; and that the Payment Distribution Agencies Code of Conduct for Debt Review contains similar provisions to those set out above, which are contrary to the NCA.

The Notice states that, in light of the above, the NCR intends to withdraw its approval of the Codes as well as its recognition of the National Debt Mediation Association, Debt Counsellors Association of South Africa, Association of Payment Distribution Agencies and the Credit Ombud, in terms of any role they perform under the relevant Codes.

Interested parties were invited to comment on the intentions of the NCR as set out in the Notice on or before 13 December 2012.

The Chief Executive Officer of the NCR, Ms Nomsa Motshegare, has indicated that the reason for the step is that larger credit providers have caused over-indebtedness among consumers. She has also commented that despite a sustained increase in defaults, unsecured lending continues to grow rapidly in South Africa.

The notification by the NCR that it intends to withdraw its support and recognition of the Codes is widely regarded by the credit industry as a precursor of further action by the NCR against industry players.

First published by Webber Wentzel