Consumer Friend Recognised by RCS

On the 5th of March RCS held their Annual EDC Awards Celebration for 2020. This year, the event was held in a virtual fashion and highlighted top outsourced debt collection organisations that have made a considerable impact in recovering funds on behalf of RCS.

Consumer Friend was once again announced as the winner of the prestigious EDC of the year (specialised) award, which was accepted by Director, Scott van Staden. Consumer Friend provides RCS with specialised business support services for debt rehabilitation and debt review. A key focus of the business is ensuring cash flow optimization, through unique collections and debtor management strategies.

"We appreciate the recognition from RCS and are pleased to have had the opportunity to provide stellar service to RCS for over 13 years," said van Staden.

Burn that excess Debt! It's time to detox and declutter.

January 2021, a month like no other. The new year customarily comes with resolutions; weight loss, spiritual and mental health goals. It does, however, seem as though 2021 has prompted us to deviate slightly from this as the topmost goal is now to focus on being appreciative of our true 'assets' - our loved ones.

While we are humbly appreciative of our 'assets', in the spirit of detoxing and decluttering for the new year, we must understand that excess debt which we may have accumulated does not go away. Discipline is required to give effect to the detox and declutter and, ultimately to get rid of all the excess debt. In this way, you are in control of your debt as opposed to being controlled by debt.

The Credit Ombud appeals to consumers to use January to detox and declutter debt and to consider the following:

  1. Only apply for credit when the need arises and not for 'wants'. If you have a need for credit, consider your affordability. Conduct an affordability calculation of your income and expenses.
  2. Be self-disciplined and create a monthly budget. Your budget allows you to have a clear perspective of what is your income against your expenses. It can also help to understand your spending patterns and how you may adjust these to reach your goals.
  3. Prioritize your spending. Now is the perfect time to re-look at your spending habits and make changes. If you have been fortunate to still have an income, spend less on luxuries and add a little extra towards your debt repayments.
  4. Remember that credit comes with interest and other additional costs accruing. You should consider these additional costs when applying for credit.
  5. Buying on credit should be for 'big-item purchases', like a home. If you have been prudent to budget for an item, pay cash or purchase through lay-bye.

Clutter overwhelms - you do not know where to start to tidy up. A routine way to declutter would be by putting items in order systematically; then deciding whether you want to keep, throw away or donate the items. If you cannot manage to declutter on your own, you call the professionals to help. The aim is to pay off existing debt and not take-on further debt. To do this, we must commit to:

The process isn't an easy one, however, once all the toxins are gone and there's no clutter, we can have a clean start. With financial knowledge acquired while detoxing and decluttering our debt, we will make wiser financial decisions.

Consumers can contact the office of the Credit Ombud for FREE assistance if they experience any issues relating to credit agreements with non-bank credit providers such as the clothing and furniture retailers as well as micro-lenders, fraudulent listings, emolument attachment orders ("garnishee orders") or general complaints about their credit bureaux listings. The office can be contacted on 0861 66 28 37; on the website www.creditombud.org.za; email us at ombud@creditombud.org.za or send a SMS to 44786 and we will call you.

NCR Circular on Standardised Court Orders

Towards the end of 2020, after deliberations with various related stakeholders, the NCR issued a circular developed by the CIF with proposed operational solutions to standardize debt review court orders. It further addresses the inability of debt counsellors to comply with the 2012 Regulations due to delays by the courts to make the granted court orders available within 5 working days.

The following must be included in a debt review court order:

The circular goes further to address general exclusions from court orders. The Circular refers to 2 clauses that should be excluded and not be referred to in the court order. They are:

The final part of the circular remedies the inability of debt counsellor to comply with the 2012 Regulations due to courts not providing the court order within 5 working days.

The following working days have been extended:

Should you require a copy of the Regulations, please don’t hesitate to let us know.

Industry Ready to Commence After Festive Season

Whilst most of the bigger debt counsellors remained open with skeleton staff during the festive season, all debt counsellors are due to return to work between the 1st and 2nd week of January 2021.

The courts are due to open the 2nd week of January 2021.

UPDATE: 08 January 2021

Towards the end of January 2021, the NCR issued a circular wherein they authorised the transfer of several consumers from debt counsellors who have been deregistered or whose registration has lapsed.

They provided the details of the debt counsellors to whom the consumer will be transferred. Whilst the circular stated that we will be contacted by the new debt counsellors to facilitate the transfer, we have proceeded to get in touch with the new debt counsellors to obtain a list of the affected consumers.

Once we have these details, we will proceed with the transfer on our system.

Old Mutual Finance (Pty) Ltd Appoints Core Connect for Outsourced Debt Collection

KWAZULU-NATAL, 6 NOVEMBER 2020 – Old Mutual Finance (Pty) Ltd. has mandated Core Connect, as one of its service providers, to collect First and Second placement accounts.

The Core Connect business model is built on the principle of mutual and maximum benefit for all parties involved in the debt recovery process. Based on a solid foundation of highly skilled staff, sound collections methodologies and cutting-edge technology, Core Connect is strategically positioned to improve yield performance across the various sectors of the debt collection industry.

"Our business process includes scientific debt segmentation and data-driven collection strategies which incorporate industry best practices to maximise collections. Business analytics is key to our operation, allowing us to identify trends early in the collections cycle. Quality control is also an integral part of our process, resulting in satisfied Clients with excellent collection rates," said Meloshini Naicker, Head of Collections at Core Connect.

A message from our CEO at the Virtual 2020 Debt Review Awards

Consumer Friend wins "Best Retail Finance Credit Provider" at the Debt Review Awards 2020.

Consumer Friend appointed to Administer EDCON (RCS Book) Debt Review Portfolio

Consumer Friend, the largest subsidiary of the Upstream Group, provides comprehensive outsourced services for accounts receivables that have become part of the Debt Review process.

Consumer Friend has recently been appointed to take over the Debt Review administration process for a significant portion of the RCS-Edcon portfolio.

ABSA recently sold its Edcon store card portfolio to the RCS Group. This includes the Edgars' and Jet Stores consumer credit portfolio. RCS has been a client of Consumer Friend since 2008 and as such this newly acquired RCS portfolio becomes an extension of the existing and long-standing RCS and Consumer Friend business relationship. "We are fully satisfied with the working relationship that we have with Consumer Friend," said Unati Manyela, Recoveries Manager at RCS.

Through a combination of skilled people, efficient processes and leading-edge technology, Consumer Friend performs at the forefront of the Debt Review industry consistently providing superior, relevant and professional solutions.

ISO 9001:2015 Certification for Consumer Friend

The quality policies of Consumer Friend span the entire breadth of its operations. From our Client service and recruitment policies through to the core service of outsourced Debt Review management, Consumer Friend is committed to consistently delivering the highest quality service.

This has once again been evidenced by the recent ISO 9001 2015 certification award to Consumer Friend.

The International Organization for Standardization (ISO) is a national network of Institutes of 147 countries with a central secretariat in Geneva, Switzerland. The organization establishes best practice standards for companies and certifies them after a successful audit of their systems and processes.

The significance of ISO certification is two-fold.

  1. The documentation of operating procedures ensures that Consumer Friend operates at the most efficient levels.
  2. The certification assures clients that Consumer Friend's quality standards are amongst the best in the world.

Bi-annual independent audits are conducted to ensure that Consumer Friend continues to meet the ISO 9001:2015 standards. Consumer Friend is a proud member of the Upstream Group of Companies.

Lendcor (Pty) Ltd chooses Consumer Friend for Outsourced Debt Review Solutions

KWAZULU-NATAL, 18 June, 2020 - Lendcor, an established leader in the prudent financing of home improvements, operating mostly in rural areas, has mandated Consumer Friend, the leader in outsourced Debt Review solutions, to manage their Debt Review portfolio.

Consumer Friend will provide Lendcor with Debt Review administration in the form of workflow management and the related customer services. The Consumer Friend offering to Lendcor includes Credit control and the services of receipting, balance management and collections.

All Industry participants in this process will have access to the DReX™ platform, which provides an intelligent and omni-channel integrated portal for managing Debt Review workflow, credit control and related compliance.

"We are committed to assisting Lendcor with the Debt Review process, and necessary compliance in terms of the Protection of Personal Information Act (POPIA) and the National Credit Act (NCA), via our unique DReX system. We are also confident that we will be providing world-class service to their customers and the debt counsellors involved in the process," said Scott Van Staden, a Director of Consumer Friend.

RCS 11th Annual EDC Awards 2019 EDC of the Year

On the 13th of March RCS held their Annual EDC Awards Celebration for 2019 at Steenberg Estate in Cape Town. The awards highlight top outsourced debt collection organisations that have made a considerable impact in recovering funds on behalf of RCS.

Consumer Friend has once again won the prestigious EDC of the year (specialised) award, which was accepted by Director, Scott van Staden and Head of Collections, Meloshini Naicker.

Consumer Friend provides RCS with specialised business support services for debt rehabilita-tion and debt review. A key focus of the business is ensuring cash flow optimisation, through unique collections and debtor management strategies.

We the management and staff at Consumer Friend are extremely proud of this award and appreciative the recognition from RCS.

Special report: South Africa’s unsecured lending crisis

Earlier this year, Differential Capital released a comprehensive analysis of the South African unsecured lending market in which it argued that despite the well-meaning legislation that had created this industry, it was essentially dysfunctional. Instead of empowering disadvantaged South Africans, as was the intention, it had become largely exploitative.

"We accept the need for financial inclusion," the report noted. "However, we contest that high-cost loans (specifically short-term loans) are detrimental to this endeavour. Our research shows that predatory lending is almost systemic to the industry, except for the 'big four' banks."

Consumers on the edge

The default rate for consumers who only have unsecured credit is 48%. For those with both unsecured credit and other credit, this rises to 56%.

Around 81% of those with an unsecured loan earn less than R15 000 per month, and 36% earn less than R5 000 per month. In total, borrowers in this segment owe R137 billion, and, on average, are paying 33% of their net income to service this debt.

Read: Class action lawsuit aims to shut down 'scam' lenders

Perhaps most alarmingly, the total value of unsecured loans outstanding has grown since 2015, while the number of consumers who have a loan has dropped. The result is that the average consumer owes nearly 50% more than they did four years ago.

One of the main reasons for this is that lenders are not competing on value, but on loan size. Consumers are simply shopping around for the biggest loan that they can get at the lowest monthly repayment, even if that means extending the loan over many years.

The cost is hardly a consideration. This is reflected in the all-in cost of credit over different terms.

Unintended consequences

For Naeem Badat, co-founder of Differential Capital, this shows an industry that isn't working as it was intended. The ideal of financial inclusion is not being met.

"All that's happening is that consumers are becoming more and more indebted," he says. "If they were becoming emancipated, you would expect the opposite."

For Adrian Saville, professor in economics, finance and strategy at the University of Pretoria's Gordon Institute of Business Science (Gibs), this is the key failing of the way the industry has developed.

"If this was lending going into education and small business building, South Africa would be awash with well-educated people starting small businesses," he says. "But we're not. Instead we're awash with over-indebted low-income earners buying consumer goods."

The contradiction

The potential for unsecured lending to facilitate economic development is well appreciated. In many parts of the world, it has allowed those who are excluded from the economy to gain a foothold by giving them some way to access capital.

However, this is not what has happened in South Africa. By encouraging a profit-driven industry, the legislation has led to something entirely different.

"There was a noble desire for financial inclusion, but although the regulations are intentioned in a certain way, they enable something else," says Badat. "Even if you are trying to enable sustainable lending in South Africa, the framework of this market means that you simply can't compete."

The question is how you address this. One school of thought is to seek firmer regulation, but that has two obvious drawbacks.
The first is that more regulation would make unsecured loans more difficult to access, forcing more people to turn to the unregulated mashonisas (loan sharks). The problem is the demand for credit as much as the way that it is met.

The second is that regulation is sometimes impossible to enforce. As Deborah James, a professor of anthropology at the London School of Economics, points out, many borrowers are in rural areas where they have few choices.

"Some of these areas are just so far off the beaten track, you just can't imagine any regulation easily being put in place, or enforced," she says.

The myth of self-regulation

There is also no prospect of the industry moderating its own behaviour. According to Differential Capital's analysis, since 1990 one bank in South Africa has failed every two years on average. This is unquestionably a high-risk industry, yet lenders are still eager to operate in this space because of the outsized returns they can earn.

"If I am making a loan of R100 to three people and one of them fails, but in 12 months I can get R150 back from two of them, I've got my money back in year one and then we're into profit," says Saville.
"If you can put the cost of credit up against non-performing loans and get the former to outweigh the latter, you actually have a viable model for as long as you can keep the bottle spinning."

It is not enough of a disincentive that the bottle keeps running into obstacles. This is what happened with Saambou, with African Bank, and with The Business Bank, which became Capitec. Yet practices are not improving.

The average term length and average loan size have been growing, but the average credit score of new borrowers has been going down.
"The numbers are scary," says Zwelakhe Mnguni, chief investment officer at Benguela Global Fund Managers. "There is going to be somebody who hits the wall."

The bigger picture

When this happens, it could not only entail systemic risks to the financial sector, but also represent a direct cost to the fiscus if government has to step in again to issue a bailout. Unsecured lending in South Africa is therefore more than a moral hazard. It presents meaningful socio-economic risks to the country as a whole.

"The industry has been mired in controversy, and in the press for the wrong reasons," says Badat. "We've seen bank failure after bank failure, which comes at a cost to society. Our estimates are that 85% of government employees have unsecured loans. That is police officers, state-owned enterprise employees, municipal workers – and ultimately it's the South African taxpayer who is paying for that."

It is also the reality that over-indebtedness leads to levels of desperation that can spill over into unrest. The most pertinent example was the Marikana tragedy: numerous studies have found that the miners demanding higher wages were under severe financial strain due to unsecured loans being paid back through automatic deductions from their bank accounts.

An overhaul

South Africa is therefore in an extremely difficult position. Having allowed the unsecured market to develop the way it has, there is now no obvious way out.

What is clear, however,is that the situation cannot be allowed to perpetuate.

"Even if you are in favour of capitalism overall, you should want an environment that is not completely extractive," says James.

The solutions, however, have to be creative, because South Africa's environment means that the demand for credit is not simply going to disappear. The levels of unemployment and income inequality make that impossible.

"If you are a parent looking your child in the eyes knowing that you don't have money to pay for their studies, your only salvation is probably to take a loan to let that child go and pursue their dreams at university," says Mnguni.

Ambitious

Any attempt to change the industry must therefore be part of a much broader push to changing the economic reality of the people who seek out these lenders. But it must also involve serious efforts to improve education and influence behaviour.

Read: The SA lender you've never heard of with almost no bad debt

"There are numerous examples of ways in which you can change behaviour quite spectacularly through informal interventions," says Saville.

"One is Latin American telenovelas [TV soap operas], where women were shown in influential and aspirational positions, and the behaviour of people watching shifted to the shape of these influencers. Other examples include prize-linked savings schemes or the creation of savings groups that make saving aspirational."

Critically, any practical solution to the unsecured lending problem in South Africa must also provide alternatives.

That means making some sort of modest finance available to people to allow them to escape from the debt traps they are in. How this is offered and administered would have to be carefully thought out, but it is somewhere that the private sector could work successfully with government to produce results that benefit everybody.

"I don't think you can hit this with a magic stick and cause it to happen overnight," says Saville. "This is about behaviours and financial literacy and shifting the system. But something has to be done."

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