The role of the consumer and debt counsellor in the debt review process

Debt Review and the consumer
Consumer and debt counsellor is one teem
The consumer and debt counsellor should be one team

DEBT REVIEW processes vs CONSUMER vs DEBT COUNSELOR and the facts you should know

The latest statistics show that about 10 million South Africans have bad debt due to three or more missed monthly payments during the Covid-19 lockdown time. If you are one of them, it is now critical to take control of your finances. One of the best solutions that we strongly recommend is for you to apply for professional debt relief assistance before it’s too late.

Debt Centre the home of Consumer Debt Support and Debt Eezy contributes this article about debt review to consumers, providing valuable information to help them better understand the whole process. We want to share the facts you should know about your debt review application and when to contact a registered debt counsellor to help you.

We have come to realise that many consumers have lost their trust in the concept of debt review because of the unfulfilled promises made by some agencies when they applied for debt relief. Three years down the line they suddenly got the rude awakening that nothing has changed much and they are worse off than they were before.

Debt review is a very effective medium available to consumers in South Africa that can help them settle their debt and save their valuable assets. This is possible with the services of a registered debt counsellor over a longer period of time.

We want to state the very important fact that debt review is not a system that means the monthly interest rates on the debt automatically fall away or stop. Neither does it mean the debt counsellor will take over all the debt and deal with it without the client’s involvement. It becomes a relationship between the debt counsellor and the consumer from start to finish.

Yes, the debt counsellor has the mandate to negotiate for lower instalments and interest rates with the creditors, but consumers must not forget that they are the ones who signed for the debt and that it is their money paying for it.

Consumer’s monthly debt versus restructuring: The purpose of debt review is to calculate and use less money from a consumer’s income in a monthly repayment plan, to cover all his or her creditors’ debt in one divided distribution of smaller payments.

Restructuring of debt must be reasonable and fair to all parties. Consumers are entitled to living expenses to take care of themselves and their immediate family. The creditors are also entitled to a share of the consumer’s income to reduce the debt total over a longer period of time, as per the restructured repayment agreement.

I often hear consumers say they can only afford a specific amount to cover their debts. It would be safe to state that every consumer’s application is dealt with on its own merit. Various factors are taken into account regarding affordability for the debtor and what to offer the creditors. One simply cannot work on the smallest amount without proper assessment by a professional.

Working without a monthly budget and not prioritising debt repayments according to these calculations will mean that nothing gets resolved. Debt review can be restructured over 5 years or 8 years, depending on the various credit agreements in the debt portfolio. That is why a good and thorough assessment is needed to determine the client’s financial situation against his or her debt obligations.

Creditors and debt collectors: It is customary for creditors to sell their bad debt book to debt collector agencies and to close the accounts on their side without notifying the consumer. The debt collector will then take over the responsibility to collect the debt with their added fees on top of the outstanding balance. This has been a frustration in the debt industry for years, and to date there is no reasonable mediation to resolve or improve the situation.

Many of these accounts are sold after the consumer applied for debt review. The debt collection company will try to convince the consumer that the specific account is not part of their debt review and will demand an immediate way to pay, causing the confused consumer to panic and oblige.

The best way to deal with this kind of situation is to obtain all the information from that debt collecting agency without submitting to their threats, and to forward the details to your debt counsellor to assist you in the matter.

The services of a Payment Distribution Agent (PDA)

  1. Monthly distribution payment statements will be send via email to the consumer.
  2. They calculate the monthly interest for every distribution balance on all the accounts.
  3. They send out notices to the debt counsellors when the consumer’s debt is almost paid up.
  4. They record the latest outstanding balances after all the distribution payments have gone out to the creditors.
  5. They collect the first of the consumer’s monthly payments and pay the debt counsellor’s fees (DC fees), as well as all other necessary costs.
  6. The PDA’s distribution fees are fully disclosed on the monthly statements.
  7. If any funds are returned to the PDA, they will send a notification to the debt counsellor to contact the creditor and resolve the issue.

What consumers should do

  1. Check your monthly statements received from the PDA to make sure that all your accounts were paid.
  2. Make sure what the fee structure and service charges are.
  3. When an account is close to settlement, you must ask your creditor to forward you the latest outstanding balance statement and forward it to your debt counsellor.

The once-off DC fees and the statutory debt review monthly deductions

Visit our website https://www.debtcenter.co.za/pricing/ to find out about all the fees and payments involved in your debt review application. It is important to know all the facts and the terms and conditions as you proceed

 Here at Debt Centre we do our utmost to ensure that our clients understand how reckless lending allegations are investigated and what the relevant fees are.

Interest rates and what you should know: All legal credit agreements and repayment contracts involve fees and interest rates, with a credit life insurance to protect the consumer in the event of death or unemployment. When an account is being restructured, all those costs have to be included in the calculation, as well as the original term of how long the debt would take to get paid in full.

Beware of unrealistic advertising regarding the interest on debt. We often hear of debtors being promised that when they apply for debt review, the interest rates will be reduced! This is half the truth and it’s actually misleading.

The debt counsellor does not have the authority to override the creditor’s rights. Various personal factors of the consumer’s circumstances can assist the debt counsellor to negotiate with the creditors for a reduction in interest rates.

When the restructured proposal is presented to the creditors, they normally consider the debtor’s full financial situation and what they need in order to take care of their families. Most creditors agree to reduce their interest rates and service fees to help their clients.

The In Duplim rule – Unfortunately not all creditors agree to reduce interest rates, and therefore the In Duplim rule would then apply. As per sections 103 (5) of the National Credit Act, the In Duplim rule is enforced under debt review. This is a statutory rule of law that credit providers try to ignore. (It specifies that interest on a debt will cease to run when the total amount of arrears interest has accrued to an amount equal to the outstanding principal debt.)

By capping the amount of interest that can be charged by creditors, consumers are able to pay less and exit debt review sooner. For example, if your default balance is R100 000, the maximum amount that you would pay back under debt review is R200 000 as no more interest will run on your account.

The debt counsellor can negotiate and request for interest rate reductions, but the creditors have the right to reduce it or not. They take into account the debt counsellor’s recommendations of why the consumer can’t pay more, normally due to their over-indebtedness, and they look at how the debt could be resolved with the option of the contractual interest rate reduction.

Higher payments could place the consumer back into being over-indebted and not honouring the contract, therefore the creditors would rather consider reducing the interest consensually. The term of the debt repayment will then be reduced, which means the debt will be cleared over a shorter period of time and the consumer saves thousands of rands in interest.

The role of the court

When creditors are unreasonable and unwilling to assist the debt counsellor to help the consumer, the matter can then be heard by the court.

The debt counsellor’s findings can prove that the consumer is over-indebted and they can motivate a lower interest on the creditors’ agreements and an extended term over which the debt will be paid pack. At the end it will be the court that grants the consent for debt restructuring and declares the consumer over-indebted. The court is there to be reasonable and fair to all parties.

You need to connect with us, please go to this link https://www.debtcenter.co.za/inquiry/ and will call you.

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In conclusion

It is nowhere stated in the National Credit Act that creditors may be forced to reduce their interest rates when they are requested to do so by a debt counsellor. It is important that consumers understand the whole process and that they have to pay the interest included in the reduced amount of their monthly payments. Remember, the interest and fees were on the account anyway. When you do get reduced interest rates it is a gift and not a right. I hope this blog helps you with your journey in debt review.

Message from the author

Covid-19 has been a curveball that has forced many of us to face issues around our health, finances and mortality. Having to come to terms with the fact that you can no longer pay your monthly debt obligations is a difficult realisation for anyone. Debt review is not the end of the world and it has helped many consumers in the past to adjust to their new circumstances and take control of their finances. I pray for you during these difficult and trying times. May everyone reading this blog have food to eat and be safe. Until next time, God bless you.


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