Deb review hasn’t been cast in good light over the past few years with many consumers being scammed or have bad experiences with debt review companies. Many consumers looking for debt review can be easy targets for scammers or illegal practitioners who want to make a quick buck. So how do you know how is a legitimate service provider and who is a wolf in sheep’s clothing?
How can you protect yourself from winding up with an incompetent or unethical debt counsellor?
Being informed about the debt review process and knowing your rights will give you a measure of protection, but there are questions you can ask a debt counsellor before you engage their services. Their answers to these questions can help you to be more discerning.
1. What’s your registration number?
In terms of the NCA, debt counsellors must be registered by the regulator. To verify a debt counsellor’s registration number – known as an NCRDC number – phone the NCR call centre on 0860 627 627.
2. Are you a member of the Debt Counsellors Association?
Paul Slot, the chairman of the Debt Counsellors Association of South Africa (DCASA), says all DCASA members are required to sign a code of conduct and the association will handle any consumer complaint. To date, about 700 debt counsellors have signed the code.
Compliance with the code can be enforced, which allows for better consumer protection
Debt counsellors who are convicted of contravening the code lose their membership to DCASA. Last year DCASA received 431 complaints from consumers about debt counsellors. Slot says the association successfully mediated 77 percent of complaints received.
3. Which payment distribution agency do you use?
Slot says you should only ever use the services of a debt counsellor who works with a payment distribution agency (PDA) that is accredited by the regulator.
There are only four accredited PDAs. They are the Consumer Protection Excellence, DC Partner, Hyphen Technology and the National Payment Distribution Agency.
Debt counsellors may not act as debt collectors and are prohibited from collecting and distributing payments to credit providers once your debts have been restructured.
4. Do you use an accredited debt counselling system?
Good debt counsellors use software systems to help them determine your level of indebtedness, Slot says. If they don’t work this out accurately, the debt repayment proposal (also called a restructured repayment plan) that they draw up for you could be flawed. This has serious repercussions: your creditors and later a court may turn down the proposal and enforce a credit agreement that you can’t afford.
Slot says systems accredited by the NCR Task Team include Maximus, Eminence DC Software, DC Express, Debtwise, Simplicity and Care.
5. Are you being investigated by the NCR?
Slot says since the regulator cannot give you this information, you need to ask the debt counsellor. The NCR is updating its website so that it will reflect the names of all registered debt counsellors, but it says it can not publish the names of those who are under investigation because this could compromise the investigation or damage the reputations of those found to be compliant.
6 Do you follow the NCR Task Team restructuring rules?
Slot says that if a debt counsellor doesn’t, it means that you won’t benefit from fee and rate concessions that debt counsellors can negotiate for you in terms of the Debt Counselling Rules System (See “What is DCRS?”).
“This is a substantial benefit available to consumers,” Slot says. “The benefit on a debt of R150 000 can be R94 000 over 60 months or R1 580 per month. To many consumers, this reduction in payment is key to being able to cope.”
7. Is your fee structure in line with NCR guidelines?
In terms of the NCR’s fee guidelines, a debt counsellor can charge you an application fee, a rejection fee, a debt counselling fee (referred to as a restructuring fee), and a monthly after-care fee.
Slot says the only upfront fee that you may be charged is the statutory application fee of R50. If after assessing your finances, a debt counsellor determines that you are not over-indebted (in other words, not eligible for debt counselling), you will be charged a rejection fee of R300, excluding VAT. Apart from the application fee and rejection fee, all other fees are worked into your restructured repayment plan, which is paid monthly.
The debt counsellor’s fee comes out of your first instalment and is the lesser of the first instalment or R6 000 excluding VAT. This means that if your instalment is less than R6 000, your debt counsellor may not charge you the maximum fee of R6 000.
In addition to the debt counsellor’s fee, you will also be required to pay a monthly “after-care” fee. This is five percent of your monthly instalment to a maximum of R400, excluding VAT, for 24 months. Thereafter it reduces to three percent of the monthly instalment to a maximum of R400 a month until you’ve paid off all your debt.
You may also be liable for legal fees but these must be disclosed to you upfront and in writing. Remember also that if you withdraw from the debt counselling process, you may be liable for the full fee, depending on where the application is in the debt review process when you withdraw.
8. Which attorney would you use to represent me in court?
Sometimes it is impossible to avoid going to court. Although the National Consumer Tribunal has been empowered to issue consent orders that previously only a magistrate’s court could make, if just one of your creditors rejects the debt restructuring plan your debt counsellor has drawn up for you, you will need to go to court.
Philippa Davis, the founding member of DT Debt Counselling, says you need to ensure that your debt counsellor is working with an attorney who is proficient in the complexities of debt review matters and who can set the matter down at court within the 60-day restructuring window.
9. Are you planning to leave the industry?
Slot says if a debt counsellor is planning to leave the industry or sell his or her book, you have a right to be informed of this because it can interrupt the service that you receive and affect you adversely.
10. How does the debt review process work?
The purpose of asking this question is to establish how the debt counsellor operates and if they follow the process or take shortcuts. So before you ask this question, you need to know exactly what the debt review process involves.
What is DCRS?
The Debt Counselling Rules System (DCRS) is a set of rules used by all parties in the credit industry to provide consistency and reliable debt restructuring outcomes for people under debt review.
DCRS is run through a software system that effectively stores mandates from credit providers to debt counsellors, allowing debt counsellors to extend the terms of your debt and reduce interest rates on the debt until you can afford the repayments.
But not all debt counsellors are using the system, so before you engage the services of a debt counsellor you need to check whether the counsellor is using it.
Those using DCRS say it contributes significantly to the success and efficiencies of debt review. They say it helps clients stay the course, and at the same time speeds up their rehabilitation and gets them out of debt review faster.
Manage your debt safely effectively
If you have any more questions on debt review, the process and the authenticity of the service, feel free to contact us. To Speak to one our consultants about debt review contact us here.