How rogue debt counsellors give the industry a bad name

Rogue debt counsellors give the industry a bad name

If you’re feeling like you’re drowning in debt, you’re not alone. More and more South Africans are turning to personal loans to make ends meet, but this extra borrowing is leaving households vulnerable – and opening the door to scammers who promise help but deliver even more financial stress.

Eighty20’s latest Credit Stress Report, for the second quarter of this year, shows that South Africans are borrowing more and falling further behind. Loan activity grew by 3% in the quarter, outstanding balances rose 1.4%, and overdue balances jumped 3.2%.

Statistics South Africa’s figures paint a similar picture. Between April and June, more than 93 000 summons were issued for unpaid debt, with 26 500 judgments handed down.

DebtBusters’ second-quarter Debt Index adds that 95% of people who applied for debt counselling during the quarter had a personal loan – often taken out to cover basics like groceries, transport or school fees.

The combination of rising living costs, heavy borrowing and mounting stress creates a fertile ground for exploitation.

Debt review, a process under the National Credit Act, was designed to give struggling consumers a structured way to manage their debt and repay creditors in an affordable way. Done properly, it can be life changing.

Data from the National Debt Counselling Association shows that since 2007 more than two million people have gone through debt counselling, paying back over R120 billion to lenders and giving themselves a fresh financial start.

But the same system can be misused by unscrupulous operators, trapping consumers in debt review without their informed consent and cutting them off from further credit when they least expect it.

That is exactly what happened in a case recently heard by the National Consumer Tribunal. A debt counsellor was fined R250 000 after a consumer was placed under debt review without her knowledge or agreement.

According to the Tribunal’s ruling, she was contacted by a company claiming to work with the National Credit Regulator (NCR) to help reduce her interest rates and instalments.

The consumer was persuaded to authorise a new debit order for her three credit agreements on her smartphone. No documents were sent to her, and she was told she would not be charged for the service. Only later, when her bank account began to show problems, did she realise that she had been placed under debt review.

The consumer maintained that she never signed the required forms and asked to have the debt review status removed from her profile. In the meantime, she had been flagged as over-indebted and blacklisted, eliminating her ability to access credit.

The Tribunal found that the counsellor had “acted deceitfully towards the applicant”. It also criticised the National Credit Regulator, which failed to provide information on the counsellor’s registration status or proof that the forms had been signed, noting that the regulator was therefore deemed to have admitted the consumer’s claims.

It said the company claiming to be a debt counsellor displayed marketing practices that “mislead consumers, such as the applicant who did not know that the respondent is a debt counsellor and that she would acquire an adverse credit profile and not be able to access credit”.

The Tribunal said the fine was intended both to punish and to send a strong message that such conduct would not be tolerated. “Such conduct deserves to be visited with a substantial administrative fine to deter the first respondent and other debt counsellors from engaging in such deceitful and exploitative practices.”

FNB, which commented on the case, warns that financial stress makes people more vulnerable to offers that look like quick fixes. “It’s all too easy to take up an offer from someone who calls offering to save you money or reduce your interest rates. That may sound like a lifeline, but it could pull you into something you never agreed to, like debt review,” it says.

MJ Davis, CEO of Retail Loans at FNB, says the case is a stark reminder of how easily consumers can be misled. “Debt review is a serious legal commitment. When entered without full understanding or consent, it can have devastating consequences, especially for vulnerable consumers who are already under financial pressure.”

Scams in the industry remain a long-standing concern, says Benay Sager, chairperson of the National Debt Counselling Association. “We have been concerned for a number of years that scammers operate in the debt counselling industry – much like many other financial services industries,” he says.

Regulators need to do more to name and shame unscrupulous operators, which would increase trust in the industry as a whole, says Sager.

Sager says consumers also need to take responsibility and not sign up to anything without checking credentials.

“We need a well-educated, well-informed consumer base, particularly when it comes to making financial decisions,” he says. Consumers should research debt counselling companies, check that the counsellor is registered with the NCR, and never authorise a debit order or provide personal details to a stranger over the phone, experts say.

Debt counselling remains a powerful tool when used correctly. According to the NDCA, more than R15 billion is repaid to lenders each year by consumers under debt review, money that is recycled into the economy through further lending. For many families, the process has meant keeping their homes, repaying debt in a structured way and eventually regaining financial freedom. But the system depends on trust, transparency and proper regulation.

PERSONAL FINANCE