Anne-Carien du Plooy
THE National Credit Act introduced debt counselling in 2007 as a debt-relief measure that could assist over-indebted consumers through providing budget advice, negotiating with credit providers for reduced payments and restructuring debt, thereby protecting the consumer from legal action by credit providers.
Debt counselling is by no means a savings mechanism, and consumers should beware of misleading advertising that markets debt counselling by promising consumers monthly savings of about 60%.
Consumers contemplating debt counselling should first understand the terms and conditions. Debt counselling is not a free service; costs and fees are applicable.
Not everyone can qualify for debt counselling. In order to qualify for debt counselling, consumers must have a disposable income to enable negotiation for the reduction of instalments.
Only over-indebted consumers can qualify for debt counselling. If a consumer does not qualify, they will be rejected. It is therefore important for consumers contemplating debt counselling to approach only registered debt counsellors, who will advise them of all the terms and conditions and the costs and fees, as well as conduct proper financial assessments to determine whether the consumer can qualify for debt counselling.
The important considerations before contemplating debt counselling are:
- Consumers married in community of property need to apply for debt counselling jointly. What this means is that when two people are married in community of property, one of them cannot undergo debt counselling independently. Only those married out of community of property can apply for and undergo debt counselling independently.
- Consumers under debt administration cannot apply for debt counselling.
- Consumers cannot apply for or be granted any new credit while they undergo debt counselling.
- Consumers can exit debt counselling only once they have settled all their short-term debt, which includes vehicle finance, credit and store cards, and loans, and have received a clearance certificate from their debt counsellor.
- If a consumer has a home loan account, payments have to be up to date in terms of the debt counselling re-arrangement order before a clearance certificate is issued.
- A consumer will be eligible to apply for, or be granted, new credit only once they have been issued with a clearance certificate by a debt counsellor.
Remember that debt counselling is not offered free of charge. It is imperative that consumers understand this and are aware of the costs upfront. Debt counselling fees are as follows:
- Application fee: R50, payable upfront and in full before commencing the assessment.
- Administration fee: R300, payable upfront and in full, per debt counselling application.
- Attorney’s fees: To be agreed upon with the attorney and communicated with the consumer when applying for debt.
- The restructuring fee is either equal to the distributable amount or a maximum of R8 000 for a single applicant. For consumers married in community of property, the restructuring fee is either equal to the distributable amount or a maximum of R9 000. The restructuring fee is a once-off fee payable in month one after the debt counsellor has drafted and submitted the restructuring documents.
- After the assessment, if the consumer or debt counsellor strongly feels that there is reckless lending, the consumer is liable to pay a once-off fee of R1 500.
- The after-care fee is payable monthly after month two of the debt counselling service. The fee is equal to 5% of the distributable amount up to R450.
- Submission of the National Consumer Tribunal (NCT) fee of R500 (excluding NCT filing fee).
- Once the restructuring process is complete, a consumer can either make their payments directly to their credit provider or through a registered Payment Distribution Agent.
- Consumers should request a receipt from the debt counsellor upon payment of the application and administration fees. Debt counsellors are prohibited from collecting and distributing debt counselling funds to credit providers.
Before signing up for debt counselling, consumers are advised to request information from their debt counsellor on how their debts will be restructured.
Once signed up, consumers should also request to be given all debt counselling-related documents, such as their application form, restructuring proposal and court order.
The National Credit Regulator also advises consumers to make use of debt counsellors who are in the vicinity of where they live or work, because this will enable them physically to visit the debt counsellor’s office if the need arises. It is also important to have your debt counsellor’s contact details, name, physical address, etc readily available.
Anne-Carien du Plooy is the acting manager: education and communication at the National Credit Regulator.
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