While debt review can be a lifeline for an over-indebted consumer, it should not be entered into lightly.
You need to be aware that once you enter debt review, you cannot apply for new credit, and you cannot exit debt review until all your debts are settled.
There is no process in the National Credit Act (NCA) that enables voluntary withdrawal from the debt review process after you have applied for debt review in the prescribed manner and form.
This is according to the updated National Credit Regulator (NCR) Debt Review Withdrawal Guidelines which were issued recently. This follows a high court ruling in 2019 that clarified that if you were overindebted 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 change, and you can afford to resume the original repayments, your only option is to accelerate your repayments to settle the debts sooner.
Many consumers find themselves under debt review without fully understanding the implications. We receive many complaints from people who believe they have been put under debt review without their consent.
Misleading information from call centre agents
If you are contacted by a debt counselling call centre and you never actually signed anything, then you can lodge a complaint with the 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 contacting them,” says debt counselor Corné Myles, who says that organisations digitalise the forms on WhatsApp and can generate Form 16 at the push of a button.
“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 is a statutory process and has prescribed timelines that must be adhered to. Someone 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 the 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 to consumers.
They are also in contravention of the NCA, as only qualified debt counsellors – not call centre agents – may advise consumers on debt review.
Debt review advertised as debt consolidation
Moreover, many unscrupulous debt counsellors tell consumers that they are offering “debt consolidation” and market their services as just simplifying your debts into one payment. Yet once you sign Form 16, the debt review process is trigerred.
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 now be flagged.
The next step is for the debt counsellor to determine whether you are over-indebted. If you are not over-indebted, the creditors will be notified and the flag dropped. If, however, you are determined to be over-indebted, the debt counsellor has an obligation to discuss the terms of the repayment plan with you before it is finalised.
The debt counsellor issues Form 17.2 to credit providers and updates the credit bureaus via the NCR’s Debt Help System (DHS). You are now fully under debt review.
The Magistrate Court is required to grant a debt re-arrangement order. However, the debt review will commence prior to the Magistrate issuing the court order.
What is not clear is whether a consumer has the option to halt the process before Form 17.2 is issued, which happens withing five to ten days.
Myles says that a good debt counsellor will first discuss the repayment quote and give the consumer a chance to opt out, but many debt counsellors do not.
“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 for the consumer to reconfirm in writing their decision to proceed before Form 17.2 is issued.
Once a debt counsellor has found that you are over-indebted and issued a Form 17.2, the Magistrate Court is required 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 you must present to the Magistrates Court new or additional facts to support the fact that you are not over-indebted and that you are able to pay contractual repayments, including any arrears that exist at that point in time.
If the Magistrates Court finds that you are over-indebted, the debt review process continues, and you cannot withdraw from debt review.
The only way to end or exit debt review is in terms of section 71, through the issuance of a clearance certificate by a debt counsellor once the all the substantive and procedural statutory requirements have been met.
Lodging a complaint
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, the debt review process will end and the listing on the credit bureaus removed.
A common complaint 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 statement. The onus is on the client to compare these statements with the PDA statement and query any discrepancy with the debt counsellor.
In some cases, credit providers have included fees on the statement that were not part of the court agreement.
Transferring to a new debt counsellor
You can transfer to another registered debt counsellor at any stage during the debt review process. When a consumer is transferred the following applies:
- The debt review process does not start afresh. The transferring debt counsellor must supply all relevant documents to the receiving debt counsellor upon transfer.
- The receiving debt counselor may not charge a new application fee, administration fee, restructuring fee or legal fee if these fees were already paid by the consumer to the previous debt counsellor.
- An after-care fee can only be charged by the receiving debt counsellor from the date of transfer.
- A consumer is required to pay all outstanding debt counselling fees for work actually completed up to the date of transfer before the transfer date.
If you stop paying, a debt counsellor could withdraw or suspend their debt counselling services. 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 the suspension of services. For the duration of the suspension, you will remain on the same DHS status that was applicable at the time of suspension. In other words, you will remain under debt review.
Exiting debt review
It is important to note that there are unscrupulous fraudsters advertising that they can assist with exiting debt review. They cannot. The only way for you to exit debt review is to demonstrate to your debt counsellor that all obligations under all credit agreements (excluding a mortage) have been paid in full. Then your debt counsellor may issue a Form 19 clearance certificate.
If you elect to pay your credit providers directly (i.e. not via the PDA), you will remain under debt review and will have to provide paid-up letters to your debt counsellor when requesting a clearance certificate.
You cannot be under debt review without a debt counsellor. You remain 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 you can have your debt review status removed from the credit bureaus is to make payment of the full outstanding amount owing on the terminated credit agreement(s), excluding any previous concessions.
This article first appeared in City Press.