Capitec recently sent out a warning to its customers about false advertising by certain debt counselling companies.
The warning stated: “Have you ever been promised immediate debt relief or a payment holiday that doesn’t affect your credit score? If it sounds too good to be true, it probably is, so think twice. There is a lot of fake news about debt review and debt counsellors in the market.”
Certain debt counselling companies are putting out adverts which do not fully explain the consequences of debt review, and which make false promises.
We have received complaints from people who say they have made enquiries in response to these adverts, but that after sending through the relevant information, they find that they are suddenly listed as being under debt review without specifically agreeing to the process.
While affected consumers are lodging complaints with the National Credit Regulator, this appears to be taking a long time to resolve. In the meantime, these consumers are unable to access credit and are expected to pay fees to the debt counsellor.
“I got lured into debt counselling by promises of lower payments, not knowing my name would be blacklisted. For two months I have been paying R4 800 and I’ve checked with one of my creditors to discover that I’m now in arrears meaning they haven’t been paying,” Oliver wrote.
Lebogang wrote, “I entered into debt review thinking that it was debt consolidation. I’ve been trying to exit but I see that it is impossible.”
Capitec commissioned research via the Meraki research company, which highlighted a number of challenges prevalent within the debt counselling sector.
The research found that 70% of clients do not know the difference between debt counselling and debt consolidation, clients do not understand the debt review cost or that they cannot access credit under debt review. Ten percent of the clients did not know who their debt counsellor was.
“These issues include miscommunication and misrepresentation, lack of understanding of options, and lack of awareness of the debt counselling process and consequences. Put that together with unscrupulous conduct from some debt counsellors, and you get some serious challenges for clients,” says Capitec.
Unfortunately, these bad practices are undermining the good work done by debt counselling.
Stuart wrote to us about his debt review experience: “It’s been two years of financial freedom that could have been depression and high blood pressure. I’m officially off the program and would recommend it to everyone.”
Capitec’s research found that 31% of clients were happy with their debt counselling process and, importantly, more recent applicants showed a higher percentage of satisfaction.
Debt counselling can be a lifeline
Debt counselling is a lifeline for those who genuinely find that they cannot meet their monthly repayments without going into default. It can protect assets such as their home and car from being repossessed. However, people need to understand what they are entering into and what their obligations are.
Benay Sager, CEO of DebtBusters agrees that while there are misleading adverts by debt counsellors, Capitec is painting the entire industry in a bad light and in doing so, is discouraging clients who would benefit from debt review.
Once a client enters debt review, the bank would not be able to bring legal action and the debt counsellor could negotiate a lower interest rate for the client.
“It does not help to educate the consumer around fake news, rather it creates the context for a reader to distrust debt review and debt counsellors who are regulated in terms of the NCA and have a crucial role to play in helping to rehabilitate consumers who are in this situation,” says Sager.
In its statement, Capitec did make some alarming comments that once you enter debt review you may not access credit for ten years. The debt counselling rules system is designed to resolve cases within 60 months. According to DebtBusters the average time for its clients to exit debt counselling and receive a clearance certificate is 55 months.
If a consumer wished to purchase a big-ticket item such as a house or car after exiting debt review, the banks would look for six to 12 months of responsible payment behaviour post debt review. The average period would be six years before a consumer could purchase a home, for example.
Capitec says the ten-year figure relates to the fact that a large percentage of clients go under debt review but then over time due to non-payment, debt review is terminated and sent to external debt collectors.
“Due to the costs of debt review, they may be further in debt upon termination. Our monitoring of current trends suggests that many clients who go under debt review today, will not have settled their existing credit 10 years from now. We suspect that the client conduct here is in part driven by a lack of understanding of what the process entails, which in turn influences the conduct seen.”
Ultimately debt review is like most things in life: it works if done properly, but it is not a short-cut or magic bullet to solving your financial woes.
How to choose a debt counsellor
If you receive a cold call offering debt consolidation or any form of debt relief, do not provide the caller with any information. Rather ask for the company website and do you own research first.
If you do decide that debt review in an option, do your homework before you sign Form 16.
Ideally you should work with a debt counsellor who is recommended by family and friends who have received good service.
You should always check that the debt counsellor is registered with the National Credit Regulator. Also work with a debt counsellor who is a member of the National Debt Counselling Association or the Debt Counsellors Association of South Africa as they have agreed to a code of conduct
Benay says a good debt counsellor will fully explain the process and the consumer’s obligations. They should also explain that you would not be able to access any credit for the duration of debt review. Once you have entered debt review you can only exit when all debt (apart from your mortgage) is settled.
A good debt counsellor will disclose all fees including the fact that the first two months of the installment are paid to the debt counsellor to cover fees and that the creditors only receive payment from month three.
Clarify with the debt counsellor, in writing, whether you will have an opportunity to withdraw from the process of debt review even after you have completed Form 16, and have received a quotation and payment restructuring proposal.
In order to provide a debt repayment schedule that is able to resolve within 60 months, many counsellors use the Debt Counselling Rules System (DCRS). This is achieved if a debt counsellor is able to negotiate a better interest rate with creditors. Find out if the debt counsellor follows this approach or simply extends the period of the debt. If the debt is simply extended, it could take up to seven years to fully pay off the loans.
When are you under debt review?
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. 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. It becomes difficult to stop the process from then on.
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 and all information is sent from the credit providers to the debt counsellor. 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 found to be over-indebted, the debt counsellor has an obligation to continue with debt review after discussing the terms of the repayment plan with you.
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. If you are not over-indebted or your financial situation has changed prior to the court order, you are able to provide this information to the Magistrate who will then not issue the court order.
What is not clear in the legislation is whether a consumer has the option to halt the process before Form 17.2 is issued, which happens within five to ten days. According to the legislation, a debt counsellor is required to continue with the debt review process if the consumer is found to be indebted.
This article first appeared in City Press.
Myself and my husband did enquiries with 2 debt counseling companies just to get quotes and compare at the end of the day when we made a decision to go with a 3rd company but to do debt consolidation we found out that one of the other companies had gone and placed me under debt review already. I was so mad as then the decision was out of my hands. That was 4yrs ago almost. We’re nearing the end of our term end of this yr… We can’t wait !
This is the issue. But have you found it useful in terms of learning to live without credit?
I would also just add that the courts make the actual determination of whether the consumer is or is not over indebted (the legal term). At first, the Debt Counsellor has an initial look (a review of the consumer’s debt) and then makes a determination if the consumer “appears” to be already over indebted (or not) or is likely to become over indebted if nothing changes in the near future. They then make a suggestion about the consumer’s whole situation to the courts (or tribunal) who make the ultimate call regarding if the consumer is actually over indebted or not.
Just a small point but it does make a difference in some situations.
A debt counsellor has only 2 decisions to make: 1. Ito section 79 read with section 86(7) and regulation 24(7) determine if the consumer is over indebted. Form 17.2 with option (b) determines the consumer is over indebted and the process begins. Roets v Van Vuuren Directive 3 September 2019 refers. In this after the assessment the debt counsellor must provide the consumer with a letter of acceptance. If a consumer is NOT over indebted then the debt counsellor MUST reject the application ito section 86(7)(a) and issue the form 17.2 with option (a). 2. The other decision is ito section 71 read with regulation 27 when a consumer demonstrates that all debt as prescribed subject to the debt review order has been paid in full. (Reminder the consumer has to demonstrate compliance with the debt review order, not the debt counsellor.) Any other onus placed on a debt counsellor is a possible offence ito section 157 of the NCA.
Renee you are completely correct. The problem is that unscrupulous debt counsellors put people under debt review and the only recourse is through NCR which is taking way too long to respond
A company may not offer debt counselling services ito section 47(1) of the National Credit Act. Ito section 44 of the same Act a debt counsellor is a natural person. Staff may only do administrative work ito section 136 of the NCA.
sorry section 163 not 136. Apologies