Statutory debt counselling is designed to provide over-indebted consumers with an alternative to the traditional remedies for defaulting on your debt: administration and sequestration.

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Rehabilitation – and, to some extent, empowerment – of the over-indebted consumer is at the heart of debt counselling. One of its big attractions is that the process is regulated and designed to protect you from harassment from your creditors and the loss of crucial assets. Unlike sequestration whereby you must apply to a high court for a rehabilitation order, you can be rehabilitated as soon as the debt counselling process is terminated – with no negative listing remaining on your credit record.

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The fees are as follows:

* An application fee. A fee of R50 is payable by anyone who applies to a debt counsellor for a debt review – this is an assessment of your finances to determine whether or not you are over-indebted and eligible for debt counselling.

* A rejection fee. If a debt counsellor determines that you are not over-indebted (in other words, not eligible for debt counselling), you are liable for a rejection fee of R300 (excluding VAT).

The application and rejection fees are the only fees that you must pay directly to a debt counsellor. All the other fees are worked into your restructured repayment, which is a single amount paid monthly to a payment distribution agency (PDA). A PDA is an entity accredited by the NCR to collect repayments from over-indebted consumers and to distribute them to credit providers (see point 5, below).

* The debt counsellor’s fee – also known as a restructuring fee – is a maximum of R6 000 (excluding VAT), or the first instalment of your restructured repayment, whichever is the lesser. This means that if your instalment is less than R6 000, your debt counsellor may charge you no more than the instalment.

* After-care fees. In addition to the debt counsellor’s fee, you will be required to pay a monthly after-care fee, which is paid to your debt counsellor. This is five percent of your monthly instalment to a maximum of R400 a month (excluding VAT) for 24 months. Thereafter, it decreases to three percent of the monthly instalment to a maximum of R400 a month, until you’ve paid off all your debt the fees listed above are the maximum fees and in practice the debt counsellor’s fees paid by consumers are usually much lower.

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DEFINITIONS

What is debt counselling?

Debt counselling is a regulated process whereby a debt counsellor negotiates, on your behalf, with all your creditors, to have the term of each credit agreement extended and the instalments reduced. Your debt counsellor may also appeal to your creditors to reduce the interest rate/s on your credit agreements so that you can afford to pay off all your debt as soon as possible.

What is a debt counsellor?

A debt counsellor helps over-indebted consumers to become debt-free and credit-healthy by way of the regulated debt counselling process. A debt counsellor must be a natural person – in other words, a company cannot be a debt counsellor – qualified by and registered with the National Credit Regulator. In terms of the National Credit Act, a debt counsellor may not work for a credit provider, debt collection agency or credit bureau. A debt counsellor is not a financial adviser and hence is limited to dealing with over-indebtedness and the restructuring of your debts.

 

NOT ALL CREDIT IS ‘EQUAL’

Not all accounts on which you are charged interest are classified as “credit agreements” in terms of the National Credit Act (NCA). Municipal accounts, cellphone accounts, legal bills, school fees, and doctors’ and hospital accounts are examples of “incidental credit agreements”. With these types of accounts, the interest falls due only if you fail to pay for the goods or services on time, usually within 30 days.

In effect, these accounts are treated as if they were a credit agreement only if you default on the payment and are charged interest.

If you are over-indebted, your debt counsellor should be able to include incidental credit agreements in debt counselling. However, some creditors – mobile communications companies, in particular – argue that incidental credit agreements ought not to be included in debt counselling.

Kedilatile Malakalaka, manager of debt counselling at the National Credit Regulator (NCR), says in terms of section 86(2) of the Act, credit agreements (including incidental) where legal steps have not been taken should be included in a debt review. “Non-compliance by credit providers in this regard should be reported [to the NCR],” she says.

The Act caps the interest rate that can be levied in terms of an incidental credit agreement. It is currently two percent a month.

The Act defines an incidental credit agreement as an agreement in terms of which an account was tendered for goods or services that have been provided to a consumer, or for goods and services that are to be provided to a consumer over a long period of time, and where either or both of the following conditions apply:

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A fee, charge or interest became payable when payment of an amount charged in terms of that account was not made on or before a determined period or date; and/or

Two prices were quoted for settlement of the account, the lower price being applicable if the account is paid on or before a determined date, and the higher price being applicable due to the account not having been paid by that date.