A new non-profit organisation called Foster aims to rattle some cages by providing free debt counselling services to qualifying consumers.

Debt counselling can be a lifeline to those who are truly over-indebted and there are many stories (like Johan’s Money Makeover journey) where people benefited significantly from debt counselling.

Unfortunately, debt counselling has attracted some unscrupulous and unethical people who are only interested in the first two instalments which go to cover the debt counsellor’s fees.

Capitec CEO Gerrie Fourie recently warned that there was a worrying trend in debt counselling where “many clients are being advised to go the debt review route when their financial position does not warrant the drastic step.”

A new debt counselling firm called Foster is trying to turn the model on its head. The company aims to rattle some cages by providing free debt counselling services to qualifying consumers.

This has been made possible by donations from individuals, companies and foundations into the non-profit company Foster NPC. Foster NPC then funds Foster (Pty) Ltd and others in delivering free debt counselling to consumers that really need such a drastic intervention.

The non-profit company, not the consumer, is charged for each successful debt counselling case as per the National Credit Regulators fee guidelines.

This means the consumer will not be required to pay the restructuring or legal fees and will not have to pay the monthly debt counselling service fees. The consumer, however, still makes monthly payments toward the outstanding debts and Payment Distribution Agency’s (PDA) fees.

According to Foster CEO Leigh Nooy, Foster’s success will be measured by how effectively it gets a consumer to the clearance certificate stage.

Foster’s mission is to have the highest consumer clearance certificate rate in the industry, with 100% of their clients obtaining a clearance certificate timeously.

Nooy says the non-profit company will also consider funding other debt counsellors in the future.

“We would need to decide on how we select and vouch for the values and purpose we are looking for in DCs, but this would be an option for the future.”

There is obviously a limit to how many consumers Foster can assist as it relies on donations to cover the costs.

Nooy says they believe they have sufficient funds to last three years, and they are confident that they will be able to raise more funds from the credit industry itself which is becoming concerned about how debt counselling is being managed.

Nooy says Foster will only accept customers who will truly benefit from debt review and will advise on alternative solutions to those that require less drastic interventions.

As part of the debt counselling process, Nooy says Foster will create a culture of savings by ensuring that a consumer exits debt counselling with an emergency savings account equating to at least two months’ salary.

While one could argue that all additional funds should be paid to reducing debt sooner, emergencies are a leading cause of over-indebtedness.

Moreover, a consumer under debt review who faces an emergency may be tempted to borrow from the informal market unless they have an emergency fund. If a consumer has the financial ability to withstand an emergency, they will not have to rely on credit in the future.

This article first appeared in City Press.