Marlene Heymans October 2009

1. Payment Distribution Agency Credit Provider Debt Counsellor Consumer Marlene HeymansOctober 2009 Blockages in the Debt Counselling Payment Distribution System

2. Debt Counselling payment system Marlene Heymans

3. Introduction • Investigation into “blockages” in payment distribution: March-April 09 • Findings – Various blockages due to mistakes or (in)actions of Credit Providers, Debt Counsellors and PDAs • NCR meetings with PDAs and larger credit providers to address identified problems – ongoing monitoring. Marlene Heymans

4. Effective Collection Marlene Heymans

5. Blockages in Effective Collection Cash deposits by consumers • The good – Consumer choice, can be distributed within 1 day • The bad – Incorrect references + bank teller faults + fraud + non-vigilant PDA = unallocated and undistributed money Debt counsellors can assist • Help client with completing deposit slips – keep blank slips • Deposit slip reference • ALWAYS • Include the ID of the consumer under debt counselling • DO NOT • Include only a cell-phone number • Include only the name of client or name of spouse/friend making deposit • Remind the bank teller to be very careful when transferring the ID number to the bank system. (Not 1,2,3,4,5,6,) • Remind consumers of their duty to make payments – keep copies of deposit slips. Marlene Heymans

6. Blockages in Effective Collection Debit order / Stop order • The good: • Convenience, increases certainty. • Blockages: • PDA and DC errors on strike account number • Technical errors between PDA and service provider facilitating the debit order • Wrong strike day (too soon or too late). • Debit order failures (failure rate 20%-30%, Christmas 40%) • DC’s switch clients from one PDA to another and back again. • 35 Day hold-on period by PDAs Marlene Heymans

7. Blockages in Effective Collection Debit order / Stop order Debt counsellors can assist: • Apply diligence when specifying account details to the PDA. • D/O instructions must reach PDA in good time. • Choose best possible date to deduct. • Engage with PDA • Validity tests on account number before the first attempt is made to collect money. • PDA report on debit-order failure –i.e. When attempt made, the reason for failure. I.e. Insufficient funds or wrong account number. • Specify and manage earlier deduction date in December. • Take special care when switching clients between PDA’s Marlene Heymans

8. 2 3 1 4 6 5 Debt Counselling system- Effective distribution- correct account number Marlene Heymans

9. Blockages in Effective Distribution Incorrect C.O.Bs • C.O.Bs take too long or do not even arrive from the CP. • Errors on account numbers provided by banks and other credit providers. • Most C.O.Bs are prepared with manual procedures, resulting in data capture errors. • C.O.B. fonts not clear, e.g. number 9 read as number 8. • Statement number, different from “system number at creditor”. Alpha numeric digits added. • Debt counsellors data capture errors from C.O.B. to PDA system. • PDA front end software does not always validate or assist DC • Challenge: No catalogue of detail account specifics of all products. ALL THESE MATTERS RAISED WITH PDAs AND CPs Marlene Heymans

10. Blockages: Account Numbers Debt counsellors can assist: • Compare statement account numbers with those on the C.O.B. • Be aware of the following systems / COB problems • Client unknown to credit provider. An old “blue book” ID number. • Married surnames vs maiden names • Zero balance outstanding. Account may have been written off but is still being collected. • Credit card numbers - often capture error by CP. • FNB card products. Do not use three zeroes at the end. Use the “Plastic number” • Alpha-numeric characters added. Always follow-up, most of the time the old account number will still accept payment, a few instances not. • Most banks and credit providers will negotiate on accounts marked “L” • Notify the NCR of specific account number errors, problems with any credit provider’s C.O.B. Marlene Heymans

11. A B C Blockages: Delivery Method Marlene Heymans

12. Blockages: Delivery Method Delivery Methods • Direct to individual credit product account, if account at bank. • One by one to a suspense account – PDA sends schedule. Creditor suspense account shows: • PDA-AB, 7305260028086 ; 5203 6657 8000 R340.25 • PDA-CD, Accno 000453789 678 R250.30 • One large bulk payment to suspense account. Creditor account shows • PDA-AB ref 66786 R250 667.90 • PDA-CD -012 4963471 R156 598.38 • PDA sends schedules • Three out of four banks prefer direct account payments • Vehicle and Asset divisions prefer “one by one payment” • Retailers / Others receive suspense account payments. Marlene Heymans

13. Blockages in Effective Distribution - Mistakes by PDA / DC / Creditor • PDA does not effect distribution for certain creditors as the destination bank account have not been specified, e.g. doctor, school fees, lawyer. • PDA sends money intended for bank A to Bank B • Brand confusion, e.g. SA Home loans credit card • Wrong creditor, e.g. Nedbank received money intended for ABSA • PDA sends money to home loans in bank A meant for vehicle financein bank A. • PDA supplies credit provider with incorrect or incomplete references on schedules. • Credit provider rejects payment to an account number specified on the C.O.B. Often, PDA mistakes originate from wrong / incomplete instructions from the DC Marlene Heymans

14. Blockages in Effective Distribution - Mistakes by PDA / DC / Creditor Debt counsellors can assist: • Know the credit market and the different credit products and brands. • Apply diligence when specifying a recipient credit provider. Ensure that African Bank is not mistakenly identified as ABSA. • Make 100% sure when specifying an ID, destination bank account or account reference. • Assist the PDA speedily if a wrong reference is flagged. • Do not insert random, incorrect numbers on PDA software. Marlene Heymans

15. Blockages in effective distribution - Delays in getting money to CPs • Month 1 & 2: Application and Determination period • Month 3: 1st Payment to DC • Month 4: 2nd Payment to legal fees • Month 5: 3rd Payment for Creditor but, • Month 6: If D/O, PDA sends payment after 30 days. • Month 7: If suspense account payment then further delay to allocate Significant delays will result in termination of the client Marlene Heymans

16. Blockages in effective distribution - Delays in getting money to CPs Debt counsellors must: • Insist that consumers continue with payments once they applied for debt counselling. • Only take fees as stipulated by DCASA guidelines • Explain fully to consumers: • The total DC fees; • When fees will be recovered; • How this will affect the timing of payment to the credit provider. • Ensure that debt counsellor and legal charges are transparent and disclosed up-front to consumers and credit providers. • Only charge legal fees if incurred. • Consider paying legal costs as if another creditor. Marlene Heymans

17. Blockages in effective distribution - Delays in getting money to CPs The NCR would like to emphasise that it strongly disapproves of the actions of debt counsellors who: • Charge restructure and maintenance fees in excess of DCASA guidelines. • Charge legal fees that are unreasonable or inappropriate. • Entice consumers into debt counselling only to source the up-front fee without making a concerted effort to assist the consumer through-out the process. • Do not take proper care when providing payment and distribution instructions to PDAs. (Provide incorrect or incomplete account numbers and references) • Advertise or hold out that consumers do not have to make payment during the initial application and determination phase. Marlene Heymans

18. Blockages – PDA Reporting Reporting should include: • Debit order failures – Technical error or insufficient funds? • Consumer funds distribution report: • Name of creditor, product house and destination account number. • Method of delivery (direct, bulk or ‘one by one suspense’), delivery date and amount. • If suspense account payment – One by one, payment reference. • If bulk payment with schedule. NB! • Date of payment and value of total payment of batch; • Schedule number – Unique identifier; • The line number of the client on that schedule; • Delivery address and date of the schedule. • Exceptions reporting is very important – which payments were rejected by creditor and what were the reasons. Marlene Heymans

19. Blockages – Ineffective communication and mistrust Comment from a debt counsellor: “Banks do not trust my proposals. They do not see the big picture, they do not want to understand a DC clients’ circumstances.” Comment from bank: “This industry is full of wrong perceptions. There is a perception that creditors and DCs must fight like cats and dogs. We must play open cards with each other. We have a common goal.” Marlene Heymans

20. Complaints by debt counsellors against CPs “I have to send 17.1s so many times.” “C.O.Bs seldom returns within 5 days” “No response on my proposal, at 60 days they jump” “CPs reject my proposals outright, now I go to court first” “The consent order says CP gets R200, CP does not change system interest rate…now my client is shown as in default” CPs do not understand, what I propose is final… I can not favour one CP over another” “The debt counselling division and the product house do not talk to each other” “CPs do not understand that administration is not an option for most clients…sequestration costs too much” “CPs do not want to stop salary deductions and debit orders when I ask them to” Blockages - Mistrust Marlene Heymans

21. Blockages - Mistrust Complaints by credit providers against DC’s • “Some DC’s do not cooperate, they do not submit 17.1s and 17.2s in time” • “Proposals are incorrect, inappropriate or one creditor is favoured” • “Proposal states: R0 for 40 months, time to settle for a home-loan as eventual settlement and another says 84 years to pay credit card.” • “No proposals, straight to court without bothering to let us know.” • “DC’s do not want to negotiate” • “DC’s do not understand how a bank works… I can not accept instalments less than interest” • “DC’s have little knowledge of insolvency legislation – they just want fees and force a client into debt counselling” • “How can I stop a debit order if I have not received a proposal or court date – I have no proof – I assume the client is just buying time” Marlene Heymans

22. Complaints against PDAs DCs say: “PDAs are incompetent” “PDA cant manage debit order collections” “The bank says the schedules from my PDA is a mess” “Can’t give me proof of payment- the bank wants to auction” “The PDA sits on the money for too long” “The PDA software is not very user friendly- not sufficient support and training” “The PDA takes forever to get back to me when I request proof of payment” Complaints against DCs PDAs say: “Some DC’s do not know how to switch on a computer” “DC’s do not load clients on PDA system or approve a distribution scenario” “DC’s give the wrong account numbers and specify wrong recipients” “They switch PDAs and do not inform us to cancel D/O” “DC’s tell the consumer that the PDA sit on the money, but forgot to tell consumers that his first two instalments went for DC and legal fees” “DC’s just fill in 1234567890 instead of proper account references” Blockages - Mistrust Marlene Heymans

23. Blockages - Summary • Educate consumers so they understand their responsibilities and the consequences of non-payment. • Only accept clients and money if you are prepared to participate in good faith throughout the process. • Always send proposals, provide court dates to credit providers. Communicate! • Take exceptional care when providing ID numbers, destination account details and consumer references on PDA systems. • Complaints against PDA’s and credit providers dccomplaints@ncr.org.za – Provide sufficient supporting documentation. Marlene Heymans

24. Marlene Heymans

25. Payment Distribution Agency Credit Provider Debt Counsellor Consumer Panel Discussion