While debt review can be a lifeline for an over-indebted consumer, it should not be entered into lightly. Over-indebted consumers need to be aware that, once they enter debt review, they cannot apply for new credit and it cannot be exited until all the debts are settled.
No process exists in the National Credit Act (NCA) that enables voluntary withdrawal from the debt review process after the consumer has applied for debt review in the prescribed manner.
This is according to the recently updated National Credit Regulator Debt Review Withdrawal Guidelines.
The updates were made following a high court ruling in 2019, which clarified that, if you were over-indebted and entered debt review, you had to settle all your debts that were included in the court order, apart from your mortgage. Even if your circumstances changed and you could afford to resume the original repayments, your only option would be to accelerate your repayments to settle the debts sooner.
Many consumers find themselves under debt review without fully understanding the implications. City Press receives many complaints from individuals who believe they have been put under debt review without their consent.
If you are contacted by a debt counselling call centre and you never actually signed anything, then you can lodge a complaint with the National Credit Regulator (NCR). If, however, you signed form 16, then you effectively gave the debt counsellor permission to obtain all your credit details and set the process in motion.
“There are thousands of people trapped under debt review due to call centre agents having contacted them,” says debt counsellor Corné Myles, who adds that organisations digitise the document on WhatsApp and, at the push of a button, form 16 is generated.
“Consumers have no idea. They think it is an assessment, but, once they agree, form 17.1 is issued within five days to get a certificate of balance, then they send out form 17.2 and you are now under debt review,” says Myles.
As the NCR explains, debt counselling as a statutory process has prescribed timelines that must be adhered to. A consumer is under debt review when they have applied for debt review in the prescribed manner, which means the completion of form 16 and provision of required information.
While the NCA requires debt counsellors to advise consumers of the entire process before the application is completed, many call centres do not fully explain the process.
They are also in contravention of the National Credit Act, as only qualified debt counsellors may advise consumers on debt review, and not call centre agents.
Moreover, many unscrupulous debt counsellors tell consumers that they are offering “debt consolidation” and market their services as a simplification of your debts into one payment. Yet once the consumer signs form 16, they have triggered the debt review process.
The NCR explains that, within five days of receipt of the application, the debt counsellor must notify the credit providers by means of form 17.1. Your accounts will then be flagged.
The next step is for the debt counsellor to determine whether an individual is over-indebted. If the consumer is not over-indebted, the creditors will be notified and the flag dropped; if over-indebted, the debt counsellor has an obligation to discuss the terms of the repayment plan with the consumer before it is finalised.
The debt counsellor issues form 17.2 to credit providers and updates the credit bureaus via the National Credit Regulator’s Debt Help System (DHS). You are then fully under debt review. The magistrates’ court is required to grant a debt rearrangement order, however, the debt review will commence prior to the issuing of that court order.
THE RIGHT TO DECLINE
What is not clear is whether a consumer has the option to halt the process before form 17.2 is issued which happens within five to ten days.
“It is up to the consumer to stop the process before 17.2 is issued, which happens within five to 10 days,” explains Myles.
Myles says that a good debt counsellor will first discuss the repayment quote and give the consumer a chance to opt-out. Myles says that many do not, however.
“They skip the step and run like the wind with form 16 to get to 17.2 so they can receive that first payment”. The problem with the current NCA regulations is that there is no requirement in writing for the consumer to reconfirm their decision to proceed before form 17.2 is issued.
Once a debt counsellor has found a consumer over-indebted and issued form 17.2, the magistrates’ court is required to make an order, as contemplated in section 87 of the NCA. The only way to exit debt review at this stage is to present additional facts to the magistrates’ court.
This means that the consumer has to present to the magistrates’ court the new or additional facts to emphasise that they are not over-indebted and that they are able to pay contractual repayments, including any arrears that exist at that time.
If the magistrates’ court finds the consumer over-indebted, the debt review process continues, and the consumer cannot withdraw from debt review. The only way to end or exit the debt review is in terms of section 71 through the issuance of a clearance certificate by a debt counsellor once all the substantive and procedural statutory requirements have been met.
. If you have been put under debt review without due process, you can lodge a complaint with the NCR, which commits to resolving complaints within 90 days depending on the complexity and nature of the complaint.
If the NCR finds that the correct debt review process was not followed, it will be deemed that the consumer did not apply for debt review, the process will end and the listing on the credit bureau will be removed. Email email@example.com.
. If your debt counsellor is not assisting you, or not providing you with required information, you can also lodge a complaint with the NCR. One of the main complaints is that the Payment Distribution Agency (PDA) statements do not match the credit providers’ statements. By law, the credit provider must send the client their monthly statements.
The onus is on the client to compare these statements with the PDA statement and query any discrepancy. In some cases, credit providers have included fees on the statement that were not part of the court agreement.
. A debt counsellor may not remove a consumer from debt review unless they can demonstrate that all obligations under all credit agreements (bar for a mortage loan) have been paid in full. Then a debt counsellor may issue a form 19 clearance certificate. It is important to note that there are some unscrupulous individuals advertising that they can assist customers to exit debt review. They take your money, but you remain under debt review.
. You can transfer to another registered debt counsellor at any stage during the debt review process.
. The debt review process does not start afresh. The transferring debt counsellor must supply all consumer and debt counselling-related documents to the receiving debt counsellor on transfer.
. The receiving debt counsellor may not charge a new application, administration, restructuring or legal fee if these fees were already paid by the consumer to the previous (transferring) debt counsellor.
. An aftercare fee by the receiving debt counsellor can only be charged from the date of transfer.
. A consumer is required to pay all outstanding debt counselling fees for work actually completed up to date of transfer before the transfer date.
. If you stop paying, a debt counsellor could withdraw or suspend their debt counselling services to the consumer. This does not mean you are out of debt review, however. To suspend services, the debt counsellor will submit form 17W(b) to all credit providers and update the DHS to reflect suspension of services. For the duration of the suspension, the consumer will remain on the same DHS status that was applicable at the time of suspension. In other words, the consumer remains under debt review.
. Paying the creditor directly: If a consumer elects to pay their credit providers directly rather than via the PDA, the consumer remains under debt review and has to provide paid-up letters to the debt counsellor when requesting a clearance certificate.
A consumer cannot be under debt review without a debt counsellor. The consumer remains liable for payment of debt counselling fees as set out in the NCR Debt Counselling Fee Guidelines for work actually completed.
The only way that the consumer can have their debt review status removed from the credit bureau will be to make payment of the full outstanding amount owing on the terminated credit agreement(s), excluding any previous concessions.
While there are serious issues around the way some debt counsellors conduct themselves, debt review gave Grace Bekwa the opportunity to get her finances back on track after experiencing financial misfortune.
Five years ago, Bekwa landed a great job, but the role required that she have a car. A “friend of a friend” was selling his car and she paid him with a personal loan of R60 000 from Standard Bank.
As Bekwa had not owned a car before, she was not aware that she needed to change the car into her name at the licensing department. A few months later, she was stopped at a roadblock and informed that she was, in fact, driving a stolen car.
She lost the car and still owed Standard Bank R60 000.
“But I needed a car for work. My employer provided me with a loan to buy a new one, but I was already struggling to meet the repayments on the personal loan,” says Bekwa, who now owed a total of R160 000 in personal debt and soon fell into arrears on her Standard Bank loan.
The bank handed her over to a debt collection agency, Credit Works. She could only afford to repay R1 000 a month, but this was not enough to service the interest and fees that were clocking up on the outstanding debt.
“It had increased from R58 000 to R65 000 and I realised that I would have to increase the instalment if I was to ever reduce the debt, but I could not afford to,” says Bekwa, who shared her story on a Facebook group called Legal Talk SA. She was told to contact debt counsellor Corné Myles.
Myles was able to put Bekwa under debt review and negotiated a zero-interest rate on the Standard Bank loan.
That meant Bekwa’s R1 000 instalment went straight to paying off capital. “It has helped me so much. I was really able to see progress for the first time.
“My finances improved and it taught me lessons about managing my money. I don’t spend for the sake of spending, and I have even managed to pay off my employer loan,” says Bekwa, who is using the instalment she was paying to her employer to increase the debt review payments. This means she will be free of debt by the end of the year.
“Grace was in a tight spot due to circumstances, but she did her research and phoned me. We consulted for a long time – it was particularly important that she understood the consequences of entering debt review,” says Myles, who adds that going into debt review is like going on a diet – it is difficult to stick to and the results won’t be immediate, but if you stick to it, it can be life-changing.
Myles says that, while it is a debt counsellor’s job to get the best possible outcome for their client, the success of debt review rests with the consumer.
“Grace is one of my favourite clients. She would check her statements each month, she was on top of it all the time and when she had extra money, she paid in more – and look at her now,” says Myles, adding that the onus remains on the consumer to constantly check both their PDA statements and the statements from the credit providers.
“We often see cases where credit providers don’t send statements or don’t allocate correctly or even add administration or other fees that were not in the court order. Grace insisted they send the statements to her and if there was a discrepancy, she let me know,” says Myles.
She explains that consumers need to remember that they are paying the debt counsellors an ongoing service fee and the debt counsellors should be available to sort out any issues.
But Myles warns that debt review is a five-year journey and it is not for everyone.
“It takes a lot of discipline and learning to live on a budget. It can take up to five years to settle the debts and, during that time, there is no access to any credit.”
She adds that credit providers want to see that the customer is making some sacrifices, especially if they are giving interest rate concessions.
“I have clients who got so used to living on credit cards, they just could not cut their lifestyle choices. They enter debt review but then stop payments after three months.”
She explains that what they don’t realise is that they can never get out of debt review until those debts are paid off: “They contact me and ask how they can ever get out, and I have to explain that they must first settle their debts.”
Myles says that, because of the onerous conditions of debt review, she counsels her clients first and makes sure that they are ready to make the commitment. Unfortunately, not all debt counsellors take the time, and many are simply telephone sales people earning a commission to sign someone up. A good debt counsellor will have a proper conversation with you before getting you to sign anything or commit you to debt review.