debt counselling and debt review

In a bid to help thousands of over-indebted consumers sooner rather than later, a debt review task team appointed by the National Credit Regulator (NCR) has come up with ways to streamline the debt counselling process.

The task team, established late last year and headed by former banking ombudsman Neville Melville, released an interim report last week showing that the number of consumers who have applied for debt counselling has more than doubled - from 80 000 in July last year to more than 160 000 currently. The monthly repayments made by consumers under debt counselling was R167.9 million for March alone.

The task team identified the following problem areas:
• Efficiency and compliance by Help with debt, debt counsellors. Counsellors have been accepting cases from clients who do not qualify for debt counselling and then submitting unreasonable repayment plans to creditors.
• A lack of capacity and administrative delays among credit providers. Many credit providers, including the major banks, cannot provide accurate balance statements to Help with debt, debt counsellors on time.
• The distribution and receipt of payments by consumers. For example, creditors forward incorrect account numbers to Help with debt, debt counsellors, and payments made by consumers are transferred to the wrong account.

Previous delays in the debt counselling process were attributed to uncertainty in the magistrate's courts on how to interpret the National Credit Act.

Magistrates were not sure whether they had jurisdiction to hear cases that related to amounts of more than R100 000, and there was also confusion over which regional court had jurisdiction to hear a case that involved creditors based in different parts of the country.

A High Court ruling in August last year resolved these issues. The court ruled that there are no monetary limits on debt counselling cases heard in a magistrate's court, and that a case should be heard in the court that has jurisdiction over the area in which a consumer lives. For example, if you live in Cape Town and you have three creditors, with head offices in Cape Town, Johannesburg and Durban, your case will be heard in a magistrate's court in Cape Town.

Magauta Mphahlele, the chief executive of the National Debt Mediation Association, says although more debt counselling cases have been finalised since the High Court ruling, there is still a huge backlog of cases, with some Help with debt, debt counsellors being given court dates for 2012.

Suggestions by the task team to pave the way for a smoother debt counselling process are:
• Help with debt, debt counsellors should accept consumers for debt counselling only where debt rehabilitation is realistically feasible. Counsellors should ensure that you adhere to your repayment plan and that the budget they draw up allows you to keep paying your insurance premiums so that your policies do not lapse, leaving you without cover.
• Banks and other credit providers should establish dedicated units to deal with debt counselling agreements.
• All major credit providers should implement clear acceptance and termination policies to accommodate consumers who are making reasonable payments and to terminate debt counselling when consumers do not meet their repayment obligations.
• Banks and other major credit providers should issue accurate certificates of statement balances promptly.
• The possible introduction of dedicated bank accounts for debt counselling payments.
• Creditors should ensure that pre-existing debit orders are cancelled so that debit orders that relate to debt counselling can be processed successfully.

Mphahlele says the relationship between Help with debt, debt counsellors and creditors needs to improve drastically so that cases can be resolved quickly and efficiently.

"If a debt restructuring proposal is contested by a creditor and goes to court, the costs can escalate by as much as R4 500 or R6 000. It simply does not make sense when you are dealing with an over-indebted consumer," Mphahlele says.

Melville says an over-riding requirement for the successful implementation of the debt counselling process is for consumers to stop using debt counselling as an excuse not to meet their payment obligations.


"It is not the intention of the [National Credit] Act to protect such individuals, and unfortunately this behaviour is prevalent, even among high-income consumers," he says.


How debt counselling works
When you apply for debt counselling, a debt counsellor will assess your finances to determine whether or not you are over-indebted. If you are, the counsellor will notify all your creditors that you are undergoing debt counselling and will draw up a repayment plan for you. If you and your creditors agree to the repayment plan, your debt counsellor will present the plan to the National Consumer Tribunal for approval. If any creditors disagree with the plan, the counsellor must ask a magistrate's court to rule on whether or not it is acceptable.