Dodgy Debt Counselling
The NCR has it’s work cut out for it as it attempts to pull unscrupulous debt counsellors back into line.
Dodgy Debt Counselling
With the promulgation of the National Credit Act in June 2010 there have been various allowances and statutory measures installed in order to curb the level of indebtedness in South Africa. The act also caters for consumers who have found themselves over-indebted. In order to cater for this over-indebtedness, the act allows for the consolidation of debt and thus regularized monthly payments. This process is to be overseen by a registered debt counselor who; once receiving the money from his client- the debtor- is then to pass this payment on to a payment distribution agency who ensures that creditors are paid according to the debt review agreement.
It seems that the administration of funds through the above-mentioned debt counselors has been where much of the National Credit Regulators difficulty has arisen. Dodgy or unethical debt-counselors have failed to pass on the debtor’s monthly repayments to their listed creditors resulting in legal action against the debtor.
According to the NCR, there are 7000 consumers applying for debt counseling every month and only 1870 registered debt counselors in South Africa. Further to his, 185 000 consumers have registered for debt counseling to date. For many an indebted consumer, the advent of the National Credit Act provided a means to consolidate debt and start afresh with a regularized sum payable every month and determined according to affordability. However this helping hand has been abused by many people acting unethically in their position as a registered debt counselor or being completely phony and disappearing with indebted consumer’s money.
Some of the obstacles that the NCR has encountered with crooked debt counselors are:
- Fees charged in excess of the recommended guidelines.
- Failure to process applications for debt review timeously.
- Not applying for the approval of debt restructuring plans to the magistrate, despite the fact that the clients had already started making repayments in accordance with said restructuring agreement.
- Failure to maintain adequate accounting records.
This abuse of power by the registered debt counselors has resulted in the NCR banning many practitioners and being forced to clamp down on dishonest debt counselors. There are prescribed processes and procedures as well as fees that need to be understood by the consumer in order to avoid any nasty surprises. It seems a shame that a process designed to lend a helping hand has become yet another tool for unscrupulous practitioners.
“You are considered to be over-indebted if your living expenses and your debt repayments exceed your income.” If you are over-indebted, you can either approach your creditors or appoint a debt counsellor, who will check your income and expenses, and then draw up a repayment plan so that you can pay your creditors and meet your living expenses. Once you agree to undergo debt counseling, this will be reflected on your credit record, and you will not be able to access further credit until your debt counsellor signs a clearance certificate that states that you have repaid all the debt for which you underwent debt counseling. One of the benefits of debt counseling is that your creditors are not allowed to take legal action against you while you are undergoing debt counseling. But this does not mean that you have a “payment holiday”. (Personal Finance, 2010, Clampdown on Dodgy Debt Counselors, www.persfin.co.za, accessed on 1 Dec. 2010)
Anyone under debt counseling should make sure that they are aware of the formalities which need to be followed in order for a valid debt restructuring agreement to be formulated as well as the fees which they can expect to be charged.
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