What you need to know about Debt Counselling
The life of an over-indebted consumer need not be lived in uneasiness. The National Credit Act (NCA) provides relief measures that can work for you. An example would be debt counselling. The Credit Ombud together with the MicroFinance SA have put together a few frequently asked questions and responses when it comes to debt counselling.
1. What is debt review/counselling?
Debt review is a debt relief measure to assist consumers who are over-indebted. A debt counsellor will assess your finances and outstanding debt obligations to ascertain whether debt counselling is the right course of action. The debt counsellor notifies your creditors of the application for debt review and would negotiate reduced payments to credit providers. This relief is offered to over-indebted consumers who struggle to meet their monthly payment obligations. Your debt counsellor will approach a magistrate’s court to confirm that you are an over-indebted consumer and therefore require your debts to be restructured. It is important to note that debt counselling is not free. For this reason, it is essential that you discuss the fees payable with your debt counsellor.
2. What should a consumer consider before getting under debt counselling?
It is imperative that consumers are made aware that the type of consumer who would consider getting under debt counselling is the consumer who is over-indebted and simply cannot meet monthly obligations, which may not only be limited to credit obligations. If you are a consumer who is basically relying on credit for day-to-day expenses and live above their means, then debt counselling is for you. Do note that debt counselling is not a saving mechanism and that you should be employed as you are still required to make monthly payments towards your debt.
3. Can a consumer apply for further credit while under debt review?
When you are under debt counselling/review you cannot apply for further debt. The moment you enter debt counselling, a notice/flag will be placed on your credit profile that will state that you are under debt counselling. This debt review flag alerts other credit/service providers that you may not be extended credit because of you being under debt review.
4. We understand that there are consumers who would complain that they did not apply for debt counselling however when they applied for credit or when they checked their credit reports, they found that they were under debt counselling. How does that happen?
The Credit Ombud has indeed received many complaints from consumers who claim that they were not made aware that they were entering a debt counselling process. They inform our offices that they merely received calls enquiry about their monthly installments being reduced. Consumers are unwittingly entered into debt counselling. Debt counselling call centre agents inform consumers that the consumers debts would be restructured or consolidated. Only registered debt counsellors may offer debt review advise and not the call centre agents. We caution consumers that if they are not certain about the information being provided to them over the phone, that they should rather take down the details of the company calling them and confirm with the NCR whether it is indeed a debt counselling firm duly registered before they agree to anything telephonically.
5. Can a consumer then withdraw in such instances?
Consumers who find themselves in a situation where they were not in agreement to go under debt counselling, may contact the NCR for further assistance.
6. When can a consumer exit the debt review process?
After all debts have been paid up in full and arrears on a bond/mortgage is up to date in terms of the debt counselling restructure, the debt counsellor would assist with the application for a clearance certificate. Once the clearance certificate has been provided to the consumer, the debt counsellor will then update the consumer’s credit profile and remove the debt counselling flag. You cannot voluntarily withdraw from the debt review process.
7. Should a consumer have a debt review complaint, where can they go to get assistance?
For complaints against a debt counsellor or any other debt review matter, consumers may contact the NCR to lodge a complaint and the NCR will investigate the matter.
8. When does the Credit Ombud intervene?
Once a consumer has paid up all their debts and a clearance certificate has been issued to them by their debt counsellor, the consumer may approach our office for assistance should their credit profiles not be updated. The consumer would have to lodge their dispute with the credit bureau and follow the regulated process of allowing the credit bureau 20 working days to investigate. Should the complaint not be resolved within the 20-working day period and the consumer can also prove that they have lodged their dispute with the NCR to get the debt help system updated, then they may approach the Credit Ombud for further assistance.
The Credit Ombud received quite an interesting query relating to debt counselling, about a consumer who was divorced in 2018. While she was married, her husband and her went under debt counselling in 2009. They were married in community of property. Her query was that she was struggling to get credit due to the negative data reflecting on her credit report, although her accounts were all up to date. Our advice to her was that she get in contact with the appointed debt counsellor to check whether the debt review status still reflected on her credit report. Because her accounts were paid up, the debt counsellor would be required to:
·nupdate the debt help system at the NCR (she must provide proof that the debt help system records showed that the status had been updated),
· furnish her with the clearance certificate; and
· provide her with the paid up letters from the credit/service providers. Once the consumer had obtained her clearance certificate, paid up letters and proof that the debt help system had been updated, she may contact the major credit bureaux to lodge her dispute.
If the debt review flag was not removed after the credit bureaux had completed its investigation, the Credit Ombud would be able to assist.
Spouses married in community of property cannot go under debt counselling independently. A joint application for debt counselling must be made.
Once you have entered into the debt review process, you will no longer pay your initial instalments as the debt counsellor will negotiate with your credit providers for you to pay a lower instalment. Lower installments equal to longer repayment terms therefore more interest would be charged on your debts. Consumers should not lose heart as being under debt counselling means that your assets are safe from being repossessed and it stops any legal action from the credit provider. Only debts that do not have pending legal action will be paid through debt counselling. How would you advise consumers to go about getting under debt review?
All debt counsellors are registered with the National Credit Regulator (NCR). We advise consumers that want to go under debt counselling, to check with the NCR whether the debt counsellor is currently registered.