New debt counselling deal will benefit consumers

2011-01-15 10:09

A new debt counselling agreement has been entered into between debt counsellors and credit providers which will make life easier for consumers.

Until recently, the debt counselling process was not a resounding success. It was a process that faced many challenges. On the one side you had the banks taking a very militant stance, refusing to sign off on debt counselling ­repayment agreements, and so forcing the matter to be heard in our already overburdened magistrates courts. The backlog reached tens of thousands, taking up to 18 months to receive a court order to approve the repayment plan.

In the meantime the banks would cancel the debt review and attach the assets anyway.

On the other side you had a surge in the number of debt counsellors from seven to 1?800 – some saw it as a get-rich-quick system and ­others were just incompetent.

Clients were encouraged to ­apply for debt counselling just to get out of paying for goods and in other cases unrealistic payment plans were handed to the banks.

There were also serious issues with the payment distribution agencies. As part of the debt review, the amount needed each month to settle all the accounts was deducted as a lump sum from their bank account each month.

This payment was meant to be distributed to the various ­creditors. In some cases these funds were not being paid to ­creditors and even though people were paying, their goods were ­being ­attached.

In the middle of all this sat the indebted client whose needs were not being met.

The banks, debt counsellors, payment distribution agencies and regulators sat down and hammered out a code of conduct and rules on how debt counselling would work.

If the debt review follows these rules, the banks have committed to accepting the proposal.

As part of the agreement, credit providers have committed to assisting customers to settle their debts in a reasonable amount of time by lowering or even cancelling interest and fees on a loan.

This means that if you apply for debt counselling the interest on unsecured loans (like credit card and store card accounts) may be reduced to a level you can afford and in some cases you will repay capital only.

Further to this agreement and due to the enormous backlog in the courts (about 26?000 cases are waiting to be heard), the banks have also agreed to a moratorium not to terminate the debt-review process or attach property if your case has not yet been resolved.

This agreement is in place until June this year and is available to people who entered debt counselling before November 30 last year (when the new rules were introduced).

This applies to clients who are currently making payments on agreements and who will meet at least 80% of the contractual ­instalment of their mortgages, and 70% of the instalment of their ­vehicle finance, by March.

The idea is to help people keep their homes?– there are about 22?000 South Africans under debt review who have mortgages.

To find out if you qualify, contact your mortgage bank:
Absa: 0861 005 901
First Rand Bank: FNB: 0860 111 005
Wesbank: 0861 288 272
Nedbank: 0860 109 279
Standard Bank: 0860 439 770
You can also contact the National Debt Mediation Association on 0861 116 362.

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