Debt Review 101
Frequently asked questions about debt review, In this section The National Debt Review Center provides answers to questions that we frequently receive from potential and existing clients with regards to going under debt counselling/ debt review, as well as any other debt related topics. For further information, please contact us at [email protected] or phone 0878221086.
What is Debt Counselling ?
The purpose of debt review is to assist an over – indebted consumer who is experiencing difficulties in meeting all his/her credit obligations in a timely manner. The debt counsellor will assess the financial position and life style of the consumer and make certain recommendations.
The consumer needs to understand that this is a voluntary and a consensual process which will result in a tribunal or a magistrates court, granting an order to restructure the consumer’s financial obligations.
The success of the process depends primarily on the willingness of the consumer to stick to the rearrangement plan and to not inure any more debt by entering into any further credit agreements.
It is important that the consumer understands that debt counselling does not mean that he/she will not need to repay what is owed to the creditor or take the program as a payment holiday.
What is over-indebtedness ?
A consumer is over-indebted if he/she cannot service his/her debts in a timely manner as agreed with credit providers.
The following are some of the indicators of over-indebtedness:
- You borrow money to pay other debts;
- You use your credit card and overdraft facilities to pay debts, buy food and other necessities;
- You skip payments on some accounts in order to pay others;
- You receive letters of demand and summonses from your credit providers and/or lawyers;
- you have judgments against you.
Who can apply for debt counselling?
Consumers who are struggling to meet their monthly debt obligations qualify to apply for debt counselling. These consumers should have a distributeble income, which will be used to offer reduced payments to their credit providers. Consumers married in community of property must jointly apply for debt counselling.
Who can apply for debt counselling ?
Consumers who are struggling to meet their monthly debt obligations qualify to apply for debt counselling. These consumers should have a distributable income, which will be used to offer reduced payments to their credit providers. Consumers married in community of property must jointly apply for debt counselling.
Debt counselling services are offered by debt counsellors registered with the National Credit Regulator (NCR);
Prior to registration, debt counsellors have to successfully complete a debt counselling training course, satisfy prescribed education, experience or competency requirements and display the ability to manage their own finances.
Consumers can verify debt counsellors by checking their registration certificate which has the NCR logo and will indicate the debt counsellors details and registration number.
All registered debt counsellors should have a window decal (green sticker) at their premises and it should be visible;
Consumers can also verify registration of debt counsellors with the NCR.
Who is responsible for payment distributions to credit providers ?
The National Credit Regulator has accredited Payment Distribution Agencies (PDA’s) tasked with collecting consumer’s monies and distributing these monies to the credit providers.
Consumers may obtain more information about accredited PDAs by calling the NCR contact center on 0860 627 627
Debt Counsellors are prohibited from collecting and distributing debt counselling funds to credit providers. This clearly means that consumers should not pay monies over to debt counsellors, but rather use an accredited PDA.
What happens debt review have been completed? Can I take new credit?
Before understanding what you are allowed to do once the debt counselling process has been completed, it is important to understand what happens during the process and why you are unable to take on additional credit while under debt counselling.
When a client signs up for debt counselling, The Debt Counsellor will ensure that all credit bureaus and credit providers are notified that the client is now under debt review. The credit bureaus will then proceed by flagging the clients profile on their system as ‘under debt review’.
This is done in order to ensure that the client is prevented from taking on more credit. The debt counselling process is implemented to rehabilitate client’s financial situation and taking on additional credit will be detrimental to gaining their financial well-being.
However, once the client has paid off their debt, The Debt Counsellor will issue a clearance certificate to their creditors, as well as notify the National Credit Regulator (NCR) and the credit bureau via the NCR Debt Help system. Consequently, credit bureaus will be prompted to remove the ‘under debt review’ flag from the client’s profile, thus now allowing the client to take out credit.
Therefore, once you as our client have paid off all debt under debt review; you will be free to borrow credit again and will be allowed to purchase a house, car, etc.
It is however, essential to make sure that once you have completed debt counselling and managed to sort out your financial situation that you do not rush into taking on more debt. Some people find the process of coming out of debt counselling slightly daunting as they are nervous of getting back into debt, whereas other people rush straight back into the credit process.
Trying to get by on a daily basis without incurring any additional debt can be tricky, especially with the rising cost of living. It is important that you stick to a monthly budget and constantly review it, as well as focusing on saving and investing in order to grow your money.
Will I go to court ?
In order for debt review to be rolled out, a court order has to be granted. The court order is put in place in order to legally protect clients from being hassled by credit providers, as well as to prevent creditors from taking legal action against them.
Our legal team is responsible for combining all debt review court applications from documents, which are completed and signed by clients, as well as their credit providers and the payments cascades that they have set up.
The legal team then sends court applications to corresponding attorneys in the area. All debt review cases must either go to the Magistrate’s Courts or the National Credit Tribunal, in order to be rubber stamped, as per the National Credit Act and granted a court order.
The legal team asks the attorneys to place the matter on a roll for a specific date. Once this has been completed, the legal team will notify the clients and their credit providers about the court date for the debt review case to be reviewed.
The process with regards to granting a court order for a debt review case varies according to the jurisdiction of the court it has been sent to. Certain courts require the actual debt review client to be present at the court at the time of the court order, however in the vast majority of cases, the Magistrate’s Courts would rather allow the matter to be dealt with by our attorneys in the correct jurisdiction, rather than have to deal with it in court.
If the court’s jurisdiction does demand that the client is present and the client is absent, then they have the right to not grant the debt review court order. In this instance, very seldom can a client be excused by the magistrate.
Furthermore, under the Debt Counselling Rules System (DCRS), if the Credit Providers accept your repayment proposal, the interest rates and the terms on their system will be altered immediately, thereby making an appearance in court unnecessary.
What do I do if I am under debt counselling and a credit provider phones or harasses me ?
We suggest that clients advise the credit providers that they have applied for debt review in terms of section 86 of the National Credit Act.
If the credit providers ask for proof, clients will be able to show them proof or advise the creditor to contact our offices.
If the credit providers do not desist in this practice, please send a complaint through to www.ncr.org.za
On many occasions, credit providers sell their books of debt and thus, clients can be harassed by another debt collector.
Debt collectors still have to follow the National Credit Act, therefore allowing clients the right to threaten to report them.
What is reckless lending and how do we investigate it ?
Reckless lending is something that has become a vital concern, as many South African consumers have fallen victim to it. If you feel you have entered into a credit agreement and witnessed a case of reckless lending, immediately contact The National Debt Review Center for immediate assistance.
According to the National Credit Act, the regulations about reckless lending go as follows:
- (1) A credit agreement is reckless if, at the time that the agreement was made, or at the time when the amount approved in terms of the agreement is increased, other than an increase in terms of section 119(4)-
(a) the credit provider failed to conduct an assessment as required by section 81(2), irrespective of what the outcome of such an assessment might have concluded at the time; or
(b) the credit provider, having conducted an assessment as required by section 81(2), entered into the credit agreement with the consumer despite the fact that the preponderance of information available to the credit provider indicated that-
(i) the consumer did not generally understand or appreciate the consumer’s risks, costs or obligations under the proposed credit agreement; or
(ii) entering into that credit agreement would make the consumer over-indebted.
According to us, an account will be considered as reckless if:
- The credit provider did not do a proper assessment;
- The client did not understand the risks of the credit;
- The credit caused the client to become over-indebted;
It is a complete defense for the credit provider to say that the client was dishonest.
Reckless lending can be identified by the following:
- The client’s net income is less than their debt obligations per credit report
- No recent change of circumstance or accounts taken out afterwards
- No fraudulent activity by the client
The credit agreement will have to have been entered into after the 1st June 2007, and the information on the agreement would have to be correct at the time of application, so that the information you have given to the credit provider is truthful.
If the credit agreement is reckless then we would recommend taking this to court and the magistrate would be able to make a judgement on the matter.
Reckless lending does not apply to agreements before June 2007 or any of the following:
- A school loan or student loan;
- An emergency loan;
- A public interest credit agreement;
- A pawn transaction;
An incidental credit agreement;
What is prescription or prescribed debt ?
Prescription was introduced as means of protecting South African consumers from unscrupulous credit providers, who are accountable for recklessly lending credit and have contributed to the detrimental debt crisis South Africa currently faces.
Prescription in South Africa can be better understood by reading the following.
South African consumers have the two defenses, induplum and prescription, against credit providers:
- Induplum: The in duplum rule simply put, states that upon default, the interest charged against a consumer cannot exceed the capital outstanding, that is to say, all a consumer can only ever pay as a maximum, is double the original debt amount at the time of default.
- Prescription: Prescription in South Africa refers to old debt, which occurs when it is no longer obligatory for a debtor to pay off their debt. Unfortunately, many South African’s are not aware that debt can prescribe.
The Prescription Act 68, implemented in South Africa in 1968, enforces the regulation of prescription and states that debt can be considered as prescribed if the following requirements occur:
- If in anyway, verbally or in writing, have failed to acknowledge the existence of the debt
- Have not made a debt repayment for that particular debt in the last three years
- If you have not been summonsed in respect of the debt within a period of three years
If the debt has prescribed – You are not legally obligated to pay for it.
However, with regards to prescription in South Africa, it is important to bear in mind that not all debt prescribes in a period of three years. The following types of debt are likely to take an extended period of time to prescribe:
- Judgement debt only prescribes after 30 years
- Mortgage/Home loan debt
- Debts owed to the state/municipality. E.g. Tax, Municipal Debt, TV licenses
It is perfectly legal for a debt collector or attorney to demand payment for a prescribed debt. It is up to a debtor to raise prescription as a defence.
The purpose of prescription in South Africa is to compel creditors and collections agents to collect money owed to them within specified period and not delay recovery so that it accumulates massive amounts of interest and costs.