If you’re overindebted and suspect you’ve been granted credit recklessly, the National Credit Act (NCA) provides for such debt to be written off. A debt counsellor can help you with this by interrogating your credit agreements and your credit report to establish how exposed you were to debt when you were given the credit and whether your creditors properly assessed if you could afford to take on more debt.
If a debt counsellor finds evidence that you were granted credit recklessly, he or she is compelled to take your case to court or the National Consumer Tribunal (NCT). A magistrate or the tribunal will decide whether to set aside all or part of your obligations in terms of the credit agreement, or to suspend the agreement altogether.
After looking for evidence of reckless lending, a debt counsellor negotiates on your behalf with all your creditors to extend the term of your credit agreements and reduce the interest rates. This is done to arrive at a repayment plan that you can afford and that satisfies all your creditors. Convincing all your creditors to consent to the plan is part of the debt counsellor’s challenge.
While you are in debt counselling (or review), as long as you pay according to the repayment plan that has been accepted by your creditors and/or made an order of court, you are protected from being hounded by your creditors, and they cannot take legal action against you to attach your assets. Instead of paying multiple creditors each month, you pay one affordable amount – known as a “rehab” amount – which is disbursed among all your creditors.
In spite of the benefits of debt counselling, many people are put off by the cost and because, while they are in debt review, they are prohibited from acquiring more credit, unless it’s a debt-consolidation loan.
Debt counselling fees, which are contained in non-binding guidelines set by the regulator, are paid upfront from your first month in debt review. Once you’ve been found to be overindebted and accepted into debt review, your creditors are notified and the debt counsellor takes his or her fee from the money that you would have paid towards your debts.
In addition to an upfront fee, which is a service fee for restructuring your debt and negotiating with your creditors, you may be charged a legal fee for your case to be taken to court or to the NCT. This fee is usually paid in your second month in debt review. On top of these fees, a debt counsellor can charge you an “after-care fee” of five percent a month of the amount that goes to all your creditors. So, the bigger the rehab amount, the bigger the after-care fee to the debt counsellor.
If credit is found to have been granted recklessly and is written off, it reduces the amount paid to creditors, which means that the debt counsellor receives a smaller after-care fee. This can result in a conflict of interest for the debt counsellor, which is why you must insist that your debt counsellor does, in fact, do a reckless lending assessment.
In order to be eligible for debt counselling, you have to be overindebted. But it is possible for a consumer who is not overindebted to be the victim of reckless lending. For example, if a credit provider enters into a credit agreement with a consumer who did not understand the risks, costs or obligations of the credit agreement, that agreement can be classified as reckless.
You don’t have to rely on a debt counsellor for help if you suspect you’re the victim of reckless lending.
You can either engage a lawyer, which will cost you, or you can go directly to the tribunal or the National Credit Regulator (NCR) and lodge a complaint against a credit provider.
In terms of amendments to the NCA, which came into force late last year, the regulator has the power to set aside or annul a credit agreement that is found to be reckless.
But the NCR does not have the same powers as a magistrate, who can not only set aside a reckless loan, but can also order a credit provider to refund you the interest paid on the loan. The NCR can’t impose a fine on the credit provider, whereas the tribunal can.
The amendments to the NCA also introduced regulations on how affordability assessments must be done. The regulations, which came into force in September last year, impose more stringent requirements on lenders to verify your income and to take all your expenses into account.
Although these new regulations make it easier for debt counsellors to prove reckless lending, good debt counsellors have been obtaining reckless lending orders for years.
Debt counsellor Deborah Solomon says, when you are looking for a debt counsellor, make sure you engage the services of one who is not only registered by the regulator, but has at least five years’ experience.
Although you may not be overindebted, you might still be struggling to maintain your debt repayments. In this case, you may need to try negotiating with your creditors to give you better terms or reduced instalments.
You also need to do a thorough budgeting exercise, to see where you can trim your expenses. If you aren’t already using a free budgeting app such as 22seven, try one. You will be surprised to find out exactly what you’re spending on food and fuel and other expenses.
Take-aways and restaurant meals, as well as costly subscriptions to DStv or magazines, are a luxury and cutting out these can free up money to repay debt.
A good strategy is to pay a little extra towards your smallest loans or accounts, so that you can pay these off quickly. Eliminating a debt, no matter how small, will give you a psychological boost and simplify your life a little, because you will have one less debt to service. If you continue with this strategy, you can eventually eliminate all unsecured debt and have extra to put towards your living expenses or use to pay off secured debt.