The National Credit Regulator (NCR) will deal firmly with unethical debt counsellors whose practices put you at risk of legal action by your creditors.
A fifth debt counsellor since November 2009 recently had his registration cancelled by the NCR after the regulator found that, among other offences, he had not been paying money received from clients to a payment distribution agency, which meant that the clients' creditors were not receiving payments.
The effect of the cancellation of Barry Kotze's registration is that he will not be able to practise as a debt counsellor again.
Kotze, based in Centurion, was initially placed under investigation by the NCR in September 2009.
He is the second debt counsellor in as many weeks to have his registration cancelled after the NCR found him guilty of receiving debt repayments from clients but not paying over their money to a payment distribution agency.
There are only 1 870 registered debt counsellors in South Africa, while about 7 000 consumers, with an average of nine credit agreements each, apply for debt counselling every month.
According to the NCR, more than 185 000 consumers have applied for debt counselling to date.
The NCR found that Kotze had:
- Charged fees in excess of the recommended guidelines (see "Recommended fees for debt counselling");
- Failed to process applications for debt review timeously;
- Not applied to magistrate's courts to have debt restructuring plans approved, particularly where clients had already started to make repayments in accordance with restructuring agreements; and
- Failed to maintain adequate accounting records.
Clients must be refunded
Earlier this month, Sash Sahibdeen, a debt counsellor operating from Gandhi Square in Johannesburg, had his registration cancelled and was ordered to repay 12 clients a total of R105 000 by November 22.
He was also ordered to conduct an internal audit of his 263 clients to establish if any other clients needed to be refunded.
If you are undergoing debt counselling because you are over-indebted, your debt repayments should be paid over to a payment distribution agency, which will then pay your creditors.
The five registered payment distribution agencies in South Africa are African Bank Payment Distribution Solutions, Consumer Protection Excellence, DC Partner, Hyphen Technology and National Payment Distribution Agency.
Jan Augustyn, the manager of investigations and prosecutions at the NCR, says he received numerous complaints from consumers who had paid money directly to Sahibdeen while they were under debt review in 2009. "This means that credit providers can take legal action against consumers, because they have failed to keep up with their repayments while under debt review," Augustyn says.
Sahibdeen also failed to notify credit bureaus and credit providers within five business days of receiving applications from consumers for a debt review, thereby contravening the National Credit Act (NCA).
Other debt counsellors who have had their registration cancelled by the NCR are Zolile Njokweni and Petrus Martinus Ferreira.
People who are found to be practising as debt counsellors after their registration has been cancelled can be found guilty of an offence under the NCA and fined and/or sentenced to prison for a maximum of 10 years.
Another debt counsellor, Ralph Zulu, had his registration cancelled last year, but the cancellation order was suspended for one year to February 2011. This means that if Zulu contravenes the NCA before February next year, he will be deregistered with immediate effect.
Zulu's suspended cancellation was dependent on two conditions: he has to assist clients whose debt review processes were terminated due to his failure to comply with the NCA and he has to pay the costs for the NCR-related investigations.
Recommended fees for debt counselling
The National Credit Act states that you must pay a fee of R50 for a debt counsellor to consider your financial circumstances and decide if you are over-indebted. Any additional fees that a debt counsellor may charge you have not yet been regulated.
In the interim, the NCR and the Debt Counsellors' Association have provided a guide to the maximum fees that debt counsellors may charge you for their services.
According to the guidelines, if you, as an individual, earn an income of more than R2 500 a month or if you earn a household income of more than R3 500 a month and a debt counsellor finds that you are over-indebted and agrees to help you restructure your debts, you must pay the debt counsellor a restructuring fee, which will be the lesser of either the first instalment of your debt repayment plan or R3 000.
If the debt counsellor finds you are not over-indebted, you will have to pay a maximum rejection fee of R300 (excluding VAT).
As R3 000 is a large amount of money for someone who is already over-indebted, the Debt Counsellors' Association suggests that you pay a maximum of R500 once your debt repayment plan has been submitted to all your creditors. The balance of the restructuring fee must be paid once all your creditors have accepted the debt repayment plan.
If you withdraw from the debt counselling process after your debt repayment plan has been submitted to your creditors, you will still have to pay the first instalment of the restructuring fee, to a maximum of R500.
Fee subsidy
If you earn an individual income of less than R2 500 a month or a household income of less than R3 500 a month, the NCR has set up a fund to subsidise your debt counselling fees, and you should ask your debt counsellor how you can access this subsidy.
Paul Slot, the director of debt counselling firm Octogen, says, however, that there have been some hiccups with the administration of the subsidy system, which has made a number of debt counsellors reluctant to implement it.
"The administration of the subsidy is outsourced to an independent company, and debt counsellors have to claim the money back from the NCR. However, the money takes several months to be paid out, and the debt counsellor is faced with a situation where he services the client for several months and then has to wait another several months before he is reimbursed.
"The NCR is currently reviewing the process to improve it and, hopefully, it will become much smoother to roll out," Slot says.
Legal fees
If your creditors do not approve the debt repayment plan and the debt counsellor has to obtain a consent order from a magistrate's court, you will be liable for legal fees.
The debt counsellor has to disclose the legal fees to you upfront, and you must agree to them in writing.
If you want your debt counsellor to continue to advise you after your credit providers have accepted the repayment plan, you will have to pay him or her a monthly after-care fee of a maximum of five percent (excluding VAT) of your monthly debt repayments for two years.
After two years, the monthly after-care fee is reduced to a maximum of three percent (excluding VAT) of your monthly repayments.
You have to start paying the after-care fee in the second month after you have paid the debt restructuring fee.
When you should seek debt counselling
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 counselling, 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 counselling.
One of the benefits of debt counselling is that your creditors are not allowed to take legal action against you while you are undergoing debt counselling. But this does not mean that you have a "payment holiday".
If you fail to meet any repayments as agreed by your debt counsellor and your creditors, the protection you enjoy under debt counselling falls away and you expose yourself to legal action by your creditors.
Contacts
If you need advice regarding your debt, you can contact the National Debt Mediation Association on 086 111 6362.
You can also SMS your bank's name to 32 422 and you will receive an SMS that lists all the various banks' contact details, with your bank's contact details at the top, so that you can discuss rearranging your debt repayments to your bank or consolidating your debt if necessary.
You can access information about debt counselling and how to manage your debt on the website of the NCR, www.ncr-finhelp.org.za/home/ or on your internet-enabled cellphone on finhelp.mobi
You can contact the NCR on:
Telephone: 0860 627 627 or 011 554 2600;
Fax: 011 805 4835;
Post: PO Box 209, Halfway House, 1685; and
Email: [email protected] or [email protected]