Most of us have received spam calls promising to solve our debt problems and to reduce the interest rates on our loans. In some cases, the caller pretends to be representing the National Credit Regulator (NCR) or claims to be from some government programme.

The truth is that these calls are coming from call centres to try and generate leads for debt counsellors. Anyone who provides information to them invariably finds themselves under debt review, trapped with no escape.

While there are many ethical debt counsellors who see this as a longer-term business, there are those who prey on vulnerable consumers and whose only interest is the first two instalments under debt counselling which do not go to the debt repayment but rather cover the fees for restructuring the debt and court orders.

I receive so many complaints from members of the public who have been duped by these call centres. Once they are under debt review, they are effectively trapped, unable to get out of the process – whether they are over-indebted or not.

Complaints to the NCR, which is the government agency which oversees the debt counselling industry, go unanswered or take many months to resolve.

A sad case study of one victim

Gregory Hlatshwayo is one such victim. According to Mr Hlatshwayo, in May last year he was contacted by a company called Law Aid Africa, who claimed they could assist him to reduce his interest payments.

Mr Hlatshwayo was not over-indebted. He had a small balance on his credit card, plus car finance – which he was paying with ease. He had a credit score of over 700 which is considered excellent.

Nevertheless, he was interested to know how his interest could be reduced and the agent assured him that this had nothing to do with debt review. Mr Hlatshwayo says that although he answered some questions, he never sent a copy of his ID, nor did he complete any forms.

Suddenly he discovered that he had been flagged as being under debt review. The debt counsellor had issued Form 17.1 to all credit bureaus and credit providers to inform them that Mr Hlatshwayo had applied for debt review. This should not be done without the signed consent form (Form 16) and a copy of the client’s ID.

Once Form 17.1 is issued and the debt counsellor has received all the information from credit providers, the consumer is then assessed for over-indebtedness. On this basis, Form 17.2 is either approved or rejected.

Because Mr Hlatshwayo was not over-indebted, Form 17.2 was rejected. At this stage, the debt review flag should have been withdrawn via a request from the debt counsellor to the NCR.

However, before issuing the rejection letter, the debt counsellor first demanded that Mr Hlatshwayo pay an amount of R5 691 for work done in terms of issuing Form 17.1.

These fees were made up of an admin fee of R350, a restructuring fee of R3 841.30 (even though no restructuring was required) and a reckless lending investigation fee of R1 500 (even though this was clearly not warranted).

In desperation Mr Hlatshwayo paid the amount, yet the flag was not lifted.

He raised a complaint with the NCR in February 2024. With multiple emails back and forth, and requests for more information, the latest response he received from the NCR on 4 May was that “we received a response from the registrant, and we are currently evaluating the matter. We will provide with the outcome of our evaluation as soon as it is finalized.”

Adv. Kedilatile Legodi, acting company secretary at the NCR says that while the NCR endeavours to resolve complaints within a period of not more than 90 days from receipt, this depends on several factors such as the time taken to gather all relevant evidence, the level of cooperation from the parties involved, and the nature of the complaint.

“For some complaints, formal investigations – which include appointment of inspectors –  are instituted and this process usually takes time as these inspectors usually conduct onsite investigations for factual findings and recommendation of appropriate enforcement action or redress for consumers.”

In the meantime, Mr Hlatshwayo has been unable to use any form of credit, including his credit card, for the last year. He is unable to buy a new car, even though he has already paid off his previous one, and the flag affects all financial agreements he tries to enter into, including insurance contracts.

How the system is supposed to work

The National Credit Regulator has a system called the Debt Help System (DHS) where an individual is flagged as being under debt review. This system is the main conduit that feeds information related to debt counselling to the credit bureaus.

When Form 17.1 is issued and the debt counsellor is in negotiation with the consumer, the debt counsellor will flag the consumer with status code “A” on the DHS. This means the consumer has applied for debt counselling and it is being assessed.

If there is a rejection due to the consumer not being over-indebted, the debt counsellor is meant to inform all credit providers and the credit bureaus as well as the NCR. The NCR then changes the status to Code “B” on DHS.

Only the NCR can move the status of a debt counselling application to B. However, Mr Hlatshwayo’s status code on DHS is “C”, which indicates that the consumer is over-indebted. This means that his application will proceed. Given that Form 17.2 was issued with the option for rejection, this is a grave error on the part of the debt counsellor.

Because the debt counsellor flagged Mr Hlatshwayo as being over-indebted, the NCR does a further investigation which requires proof that he is not over-indebted. In Mr Hlatshwayo’s case this should not be difficult as he has already settled his car finance and has an excellent credit score.

Law Aid Africa says they had informed the NCR that the debt review application has been rejected. “This is an ongoing process and we have requested the consumer’s status be updated to status B numerous times, with the NCR rejecting each time,” a spokesperson said.

Law Aid Africa did not explain why Mr Hlatshwayo’s debt review had been given Code C, nor why they had charged restructuring and reckless lending investigation fees. Although they claim that Mr Hlatshwayo’s version is incorrect, they informed me that they cannot provide the correct information due to confidentiality under the POPI Act.

Adv. Legodi says that the NCR has received similar complaints and investigates each case based on its own merit.

“Consumers affected are encouraged to report this to the NCR by initiating a formal complaint utilising the prescribed complaint form (Form 29), attaching all supporting documents and relevant information that can assist the NCR with the investigation.

“This practice is frowned upon by the NCR and enforcement action is taken against anyone found non-compliant for this practice of misleading consumers, misrepresenting debt counselling and bringing the industry into disrepute.”

Unintended consequences of a system change

In speaking to several debt counselors about Mr Hlatshwayo’s experience, many have raised concerns about the way that the National Credit Regulator changed the process two years ago.

Since March 2022, the National Credit Regulator no longer allows debt counsellors to change the debt review status of their clients on the Debt Help System which would allow them to exit debt review.

As the Debt Counsellors Association of South Africa (DCASA) explains, this change by the NCR was in response to unethical debt counsellors who were transferring the clients under debt review to their practices and then changing the client’s statuses by rejecting them. However, many of these people should not have had their names cleared from debt review.

“Since this was stopped, the latest trend is to transfer clients under their name with promises of a clearance certificate and there have been instances of fake paid-up letters together with the clearance certificates to remove the debt counselling flag even though the consumers were over-indebted and had not settled their debts,” says DCASA.

Under-resourced NCR battling to keep up

However, the change had unintended consequences. It meant that only the NCR could change the status. But the NCR is under-resourced, and with so many complaints coming in from consumers like Mr Hlatshwayo who have been fraudulently placed into debt review, the NCR takes a long time to investigate.

Affected consumers have had to find alternative routes, including going to the magistrate’s court. Only a magistrate’s court or the National Consumer Tribunal can find that a consumer is not over-indebted. However, this takes time and money.

The National Credit Act does not provide for a cooling-off period within the debt counselling period. As many of these consumers are contacted via call centres, they should receive the same rights that the Consumer Protection Act gives to consumers who make purchases via direct marketing sales, which is a seven-day cooling-off period.

However, the situation is such that once Form 17.1 has been issued, the consumer is flagged as being under debt review and only the NCR, or a court, can reverse it.

As one debt counsellor says, “in my opinion there should be a process to rectify fraud/error and also allow the  consumer to voluntarily withdraw after application before being declared overindebted.”

Adv Legodi says this will have to be considered for legislative amendment.

According to the National Debt Counsellors’ Association (NDCA), “limiting the debt counsellor’s access to some of the functionality on DHS, which feeds credit bureaus, has been a source of confusion and frustration in the industry ever since it was implemented in March 2022.

“Administrative functions that could in the past be carried out by debt counsellors are no longer accessible to them, delaying timelines and, as is evident in this case, frustrating consumers.”

Both DCASA and the NDCA mentioned they have been engaging the NCR since March 2022 to reverse this decision but have been unsuccessful.

Adv Legodi says that the NCR will in due course implement changes to DHS, and debt counsellors will be enabled to update the status codes.

“Given the consumer protection mandate conferred to the NCR by the NCA, the NCR always has to find measures to balance the rights of all stakeholder concerned. Exploitation of consumers was observed and this decision was taken to proactively address this as well as to implement provisions that ultimately strengthens the process going forward.

“In addition, the NCR does investigate conduct of unscrupulous debt counsellorss and takes action were necessary.”

This article first appeared in City Press.