10 questions to ask a debt counsellor

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Illustration: Colin Daniel

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Last month, Cape Town-based Christoph Bornman was stripped of his registration as a debt counsellor. Bornman, who is also a lawyer, had more than 4 800 clients under debt review. He charged clients illegal fees – “collection commission” – and exposed them to considerable risk by failing to follow the debt review process as prescribed in the National Credit Act (NCA). Bornman has applied for leave to appeal.

How can you protect yourself from winding up with an incompetent or unethical debt counsellor? Being informed about the debt review process and knowing your rights will give you a measure of protection, but there are questions you can ask a debt counsellor before you engage their services. Their answers to these questions can help you to be more discerning.

1 What’s your registration number?

In terms of the NCA, debt counsellors must be registered by the regulator. To verify a debt counsellor’s registration number – known as an NCRDC number – phone the NCR call centre on 0860 627 627.

2 Are you a member of the Debt Counsellors Association?

Paul Slot, the chairman of the Debt Counsellors Association of South Africa (DCASA), says all DCASA members are required to sign a code of conduct and the association will handle any consumer complaint. To date about 700 debt counsellors have signed the code.

“Compliance with the code can be enforced, which allows for better consumer protection,” he says.

Debt counsellors who are convicted of contravening the code lose their membership to DCASA. Last year DCASA received 431 complaints from consumers about debt counsellors. Slot says the association successfully mediated 77 percent of complaints received.

3 Which payment distribution agency do you use?

Slot says you should only ever use the services of a debt counsellor who works with a payment distribution agency (PDA) that is accredited by the regulator.

There are only four accredited PDAs. They are: Consumer Protection Excellence, DC Partner, Hyphen Technology and the National Payment Distribution Agency.

Debt counsellors may not act as debt collectors and are prohibited from collecting and distributing payments to credit providers once your debts have been restructured.

4 Do you use an accredited debt counselling system?

Good debt counsellors use software systems to help them determine your level of indebtedness, Slot says. If they don’t work this out accurately, the debt repayment proposal (also called a restructured repayment plan) that they draw up for you could be flawed. This has serious repercussions: your creditors and later a court may turn down the proposal and enforce a credit agreement that you can’t afford.

Slot says systems accredited by the NCR Task Team include Maximus, Eminence DC Software, DC Express, Debtwise, Simplicity and Care.

5 Are you being investigated by the NCR?

Slot says since the regulator cannot give you this information, you need to ask the debt counsellor. The NCR is updating its website so that it will reflect the names of all registered debt counsellors, but it says it can not publish the names of those who are under investigation because this could compromise the investigation or damage the reputations of those found to be compliant.

6 Do you follow the NCR Task Team restructuring rules?

Slot says that if a debt counsellor doesn’t, it means that you won’t benefit from fee and rate concessions that debt counsellors can negotiate for you in terms of the Debt Counselling Rules System (See “What is DCRS?”).

“This is a substantial benefit available to consumers,” Slot says. “The benefit on debt of R150 000 can be R94 000 over 60 months or R1 580 per month. To many consumers, this reduction in payment is key to being able to cope.”

7 Is your fee structure in line with NCR guidelines?

In terms of the NCR’s fee guidelines, a debt counsellor can charge you an application fee, a rejection fee, a debt counselling fee (referred to as a restructuring fee), and a monthly after-care fee.

Slot says the only upfront fee that you may be charged is the statutory application fee of R50. If after assessing your finances, a debt counsellor determines that you are not over-indebted (in other words, not eligible for debt counselling), you will be charged a rejection fee of R300, excluding VAT. Apart from the application fee and rejection fee, all other fees are worked into your restructured repayment plan, which is paid monthly.

The debt counsellor’s fee comes out of your first instalment and is the lesser of the first instalment or R6 000 excluding VAT. This means that if your instalment is less than R6 000, your debt counsellor may not charge you the maximum fee of R6 000.

In addition to the debt counsellor’s fee, you will also be required to pay a monthly “after-care” fee. This is five percent of your monthly instalment to a maximum of R400, excluding VAT, for 24 months. Thereafter it reduces to three percent of the monthly instalment to a maximum of R400 a month until you’ve paid off all your debt.

You may also be liable for legal fees but these must be disclosed to you upfront and in writing. Remember also that if you withdraw from the debt counselling process, you may be liable for the full fee, depending on where the application is in the debt review process when you withdraw.

8 WHich attorney would youuse to represent me in court?

Sometimes it is impossible to avoid going to court. Although the National Consumer Tribunal has been empowered to issue consent orders that previously only a magistrate’s court could make, if just one of your creditors rejects the debt restructuring plan your debt counsellor has drawn up for you, you will need to go to court.

Philippa Davis, the founding member of DT Debt Counselling, says you need to ensure that your debt counsellor is working with an attorney who is proficient in the complexities of debt review matters and who can set the matter down at court within the 60-day restructuring window.

9 Are you planning to leave the industry?

Slot says if a debt counsellor is planning to leave the industry or sell his or her book, you have a right to be informed of this because it can interrupt the service that you receive and affect you adversely.

10 How does the debt review process work?

The purpose of asking this question is to establish how the debt counsellor operates and if they follow the process or take shortcuts. So before you ask this question, you need to know exactly what the debt review process involves.

Eight debt counsellors deregistered to date

Lawyer Christoph Bornman’s deregistration as a debt counsellor brings to eight the number of people who have had their registrations revoked by the National Consumer Tribunal (NCT) since 2007.

Bornman’s appeal against his deregistration was dismissed in March when a full bench of the North Gauteng High Court upheld an earlier ruling that found he had contravened the National Credit Act (NCA). Bornman failed to follow the debt review process as prescribed in the Act and charged consumers fees he was not entitled to charge as well as fees for services he failed to render.

These and other offences are in breach of the provisions of section 86 and regulation 24 of the NCA as well as the conditions of registration as a debt counsellor. The following individuals also had their registrations revoked for similar offences:

* Jacqueline Kibogo of Johannesburg was deregistered this month;

* Susanna van Dyk of Vanderbijlpark was deregistered in January 2012;

* Zimkitha Zilo of Cape Town was deregistered in May 2011;

* Barry Kotze of Centurion was deregistered in November 2010;

* Jugdeesh Sahibdeen of Johannesburg was deregistered October 2010

* Petrus Ferreira of Port Elizabeth was deregistered in April 2010; and

* Zolile Njokweni of Cape Town was deregistered in November 2009.

The National Credit Regulator (NCR) has also applied for the cancellation of the registration of the following debt counsellors:

* Themba Malashe of Johannesburg. The NCR is waiting for a hearing date from the tribunal.

* Johan van Zyl of Durban. The NCR is waiting for a hearing date from the NCT.

Ralph Zulu of KwaZulu-Natal had his registration suspended for one year in September 2009. The suspension has lapsed and he is working as a debt counsellor again.

Bornman has applied for leave to appeal to the Supreme Court of Appeal (SCA) to have the North Gauteng High Court’s decision overturned. A date has yet to be set for his application to be heard. If leave to appeal is granted, the appeal may be heard by the North Gauteng High Court or SCA.

Although Bornman was instructed by the NCT to hand over his client files to the NCR so that the files could be allocated to other debt counsellors, the NCR can not enforce this order until the appeal is finalised, says Nurunisa Soobrayan, legal adviser in investigations and enforcement at the NCR.

When asked what advice the regulator would give to Bornman’s clients, Soobrayan said they were “free to elect a debt counsellor of their choice should they be unhappy with the service delivered by their current debt counsellor”. Unless these clients are able to find debt counsellors who will take on their cases pro bono, they will have to incur another round of debt counselling fees. As for Bornman’s clients whose creditors have not been paid, Soobrayan says there is nothing more the can do. It opposed Bornman’s initial appeal and is opposing his current appeal.

What is DCRS?

The Debt Counselling Rules System (DCRS) is a set of rules used by all parties in the credit industry to provide consistency and reliable debt restructuring outcomes for people under debt review.

DCRS is run through a software system that effectively stores mandates from credit providers to debt counsellors, allowing debt counsellors to extend the terms of your debt and reduce interest rates on the debt until you can afford the repayments.

Ian Wason, the chief executive officer of Debtbusters, says DCRS allows for the term of a credit agreement to be extended to 360 months from the date of inception on home loans and 84 months on vehicle loans.

The normal term of a home loan is 240 months and on vehicle finance the maximum term is normally 60 months.

“Interest rates can by reduced to 7.5 percent. For unsecured debt like credit cards and personal loans the terms can be extended to 60 months and reduced to zero percent if necessary. Monthly administration fees will also be reduced.”

Wason says that when credit providers accept the repayment plan produced by DCRS, they amend their systems to reflect the restructured interest rate and term immediately, and there is no need for the debt counsellor to take the matter to a magistrate’s court to obtain a court order to the effect that all parties consent to the repayment plan – that is, provided all credit providers agree and are using DCRS. Wason says this saves all parties from a costly and administrative legal process. A DCRS proposal can be taken to the National Consumer Tribunal instead of to a magistrate’s court.

But not all debt counsellors are using the system, so before you engage the services of a debt counsellor you need to check whether the counsellor is using it.

Those using DCRS say it contributes significantly to the success and efficiencies of debt review. They say it helps clients stay the course, and at the same time speeds up their rehabilitation and gets them out of debt review faster.

“For a company like Debtbusters, this means we can get 90 percent of our clients to ‘solve’ and get out of the debt review within 60 months,” Wason says.