Payment Distribution Agency (PDA)
A Payment Distribution Agency or PDA for short is an entity described in the National Credit Act and has the mandate to collect funds from consumers who are in the debt counselling process, and then distribute those funds to the consumer’s credit providers.
The idea of a Payment Distribution Agency came about during the implementation of the National Credit Act back in 2007. Government needed an effective way for debt counsellors to disburse consumer funds to credit providers. Debt counsellors did not have the infrastructure to build payment systems and allowing this type of collection and payment function to happen inside a debt counselor practice would have created a real risk of consumer funds being misappropriated.
One of the solutions for over-indebtedness predating debt counselling is administration. Consumers could apply for an administration order and then an attorney or administrator would collect consumer funds and pay it to the consumer’s creditors. This system unfortunately did not work effectively and was one of the main reasons why debt counselling was introduced. Funds were only paid over to credit providers every three months. The payments were also very small in most cases, and in some cases did not even cover the bank fee relating to the transaction. There were also cases where the administrator or attorney never made any distributions to credit providers and simply took consumer funds for themselves. This was not efficient enough to effectively address the massive problem of millions of over indebted consumers.
In order for debt counsellors to collect funds and effectively disburse funds to credit providers would require a debt counsellor to have extremely well-built systems and procedures which would have required a substantial investment into the development of payment systems.
The government identified the challenges related to this, and also recognized the shortcomings of the processes related to administration. They introduced Payment Distribution Agencies as a solution to ensure that disbursement of consumer funds happen effectively. Debt Counsellors where also directed to not collect their own fees, but that all debt counsellor fees are to be collected through a PDA as well.
During the early days, some companies who have been collecting for administration orders tried to adjust their systems to fulfill a function of a PDA. There were many challenges and today the only PDAs that are still around are the ones who specifically developed systems to cater for debt review collections.
For quite a few years PDAs were entities only created by the creative thinking of the National Credit Regulator, and it was only in late 2014 that the National Credit Amendment Act no 19 defined what a Payment Distribution Agency is and required a PDA as an entity to register with the National Credit Regulator. Prior to this, the NCR only managed the PDAs through extensive service level agreements.
The registration requirements for PDAs are quite significant and a person or organization who do not have the required systems, infrastructure and liquidity in place will not be able to operate as a PDA. All Payment Distribution Agencies are required by law to register with the National Credit Regulator.
A PDA is required to safeguard consumer’s funds, keep balances and also issue consumers with payment statements.
All PDAs are also required to belong to an association. Currently there is only one association for PDAs and it is called The Payment Distribution Agency Association of South Africa or PDASA for short.
Today, PDAs disburse billions of Rands to credit providers each year through the debt counselling process. It has become the cornerstone that underpins the success of the debt counselling process.
At this point in time there are only a few registered Payment Distribution Agencies in South Africa. A list of the registered PDAs can be found on the NCR website.
Links to some of the registered Payment Distribution Agencies.
Hyphen PDA: https://www.hyphenpda.co.za/
DC Partner: https://www.dcpartner.co.za/