A number of new legislations could bring significant changes to the collections industry this year.
For much of the business world, 2014 proved to be a turbulent year. Many companies devoted a significant chunk of resources to reviewing and amending their IT policies and systems to be compliant with the looming Protection of Personal Information (POPI) Act.
The biggest concern from the collections industry was to ensure that storage and processing of consumer data and contractual obligations between debt collectors and providers complied with the new regulations. For most of the larger and medium-sized players, this was not an issue as they had the resources to address these issues.
However, companies face an even greater challenge in 2015 as some major legislative changes will be emerging from the wings. These will have a major impact on any player involved, whether directly or indirectly, in the provision of credit and the collection of management thereof.
The first of these is the National Credit Amendment Act, which is expected to be promulgated this year. This new piece of legislation will outlaw the sale and collection of prescribed debt. After three years of non-payment or acknowledgment of debt, it will fall away entirely. In addition it will make it illegal to sell or attempt to collect this debt. Companies could be looking at around 18 months of non-payment before they are allowed to place books for sale, compared to the current 25 to 30 months.
Another significant legislative change should be an amendment to the Magistrates’ Court Act, which would change the way courts function. This will make it more difficult for credit providers and debt collectors to pursue efficient and cost effective legal actions.
Finally, new rules around the granting of credit are expected to be introduced, which would make the provision of credit linked more closely to affordability. Companies could be looking at around 18 months of non-payment before they are allowed to place books for sale, compared to the current 25 to 30 months.
These changes could have a ripple effect on credit providers as many are already sitting on books with significant volumes of prescribed debt. They may have to radically change their strategy going forward to avoid a recurrence of this in the future.
One trend that should emerge in 2015 is companies will go to pursue the issuing of a summons and proceed to judgment before debts are prescribed. This would increase costs significantly, particularly for companies with large volumes of customers such as micro lenders, fashion and furniture retailers, banks, telcos and medical aids.
We could see many credit providers move from managing their own accounts to outsourcing them to external collections agencies. Outsourcing provides the scalability and flexibility companies need to be able to quickly work on large volumes of accounts without having to increase staff headcount or implement expensive new IT systems.
More extensive use of outsourcers and champion challengers is being seen. These companies are then able to accurately assess the best agency for their needs and cancel unproductive mandates, something that they would otherwise be unable to do on an internal mandate.
Whatever direction credit providers choose to take, it’s clear that the year ahead is sure be a transitional one. For companies that fail to either upgrade their internal systems or take smart advantage of outsourcing, 2015 could prove to be a year of even greater turmoil than the one that preceded it.