DEBT REVIEW – NATIONAL CREDIT ACT 34 OF 2005
THE DEBT REVIEW PROCESS IN TERMS OF THE NATIONAL CREDIT ACT 34 OF 2005
DEBT REVIEW – INTRODUCTION
Debt review, otherwise known as debt counselling, is a debt solution targeted at South African consumers who are over indebted and struggling to manage their finances. The debt review process, which was introduced by the National Credit Act 34 of 2005 (the NCA), is a process whereby a debt counselor assesses a consumer’s outstanding debt and implements a restructured debt repayment plan.
The consumer makes one monthly debt repayment to a payment distribution agency, which will then pay all the clients credit providers.
While under debt review, the consumer is legally protected by the NCA from creditors. This means that creditors are prohibited from further hassling the consumer. However, the consumer is also prohibited from becoming further indebted, i.e. applying for more debt.
The consumer makes an application to a debt counselor to have him/herself declared over-indebted. The consumer must provide the following documents to the debt counselor when making the application:
- Copy of his/her identity document/passport.
- A copy of the most recent salary/wage slip.
- If the consumer receives overtime or allowances that are not of a regular nature, then the last 6 months’ salary/wage slips are required in order to determine an average.
- The consumer’s most recent creditor statements and credit cards.
- The consumer’s last three months bank statements for all bank and investment accounts.
- The consumer’s last two months credit card statements for each credit card.
- The consumer’s latest home loan statement.
- A list of debts from friends and/or family.
If the consumer and his/her spouse share an income and expenses or if they are married in community of property, then the consumer must provide the following, further documents:
- A copy of the spouse/partner’s most recent salary/wage slip.
- If the spouse/partner receives overtime or allowances that are not of a regular nature, then the last 6 months’ salary/wage slips are required in order to determine an average.
- The spouse/partner’s most recent creditor statements and credit cards.
- The spouse/partner’s last two months bank statements for all bank and investment accounts.
- The spouse/partner’s last two months credit card statements for each of credit card.
Upon application, the debt counsellor is entitled to charge certain approved fees. These are as follows:
|An application fee, limited to the amount prescribed in terms of Schedule 2 (2) of the Act, recoverable directly from the consumer upon receiving an application for debt review.||R50.00|
|A rejection fee in respect of consumers whose applications have been rejected in terms of section 86(7)(a) of the NCA.||R3 000.00 (excl. VAT)|
|A restructuring fee of the lesser of the first instalment of the debt re-arrangement plan in respect of a consumer whose applications have been accepted in terms of 86(7) (b) or 86(7) (c).|
· Single Application (once off)
· Joint Application (once off)
R6 000.00 (excl. VAT)
R6 000.00 (excl. VAT)
|Should the Debt Counsellor fail to submit proposals to Credit Providers or refer the matter to a Tribunal or a Magistrate Court within 60 business days from date of the debt review application the Debt Counsellor has to refund 100% of the fee paid by the consumer (excluding the application fee).|
|A monthly after-care fee payable to the debt counsellor.|
· Payment of the monthly after-care fee is to commence in the 2nd month after the application fee has been paid.
· Should the consumer withdraw from the process after completing the application, a fee equal to 75% of the restructuring fee (i.e. R4 500.00 (excl. VAT)) is payable by the consumer.
|5% of the restructured amount up to a maximum of R400.00 (excl. VAT) for the first 24 months, thereafter reduced to 3% of the restructured amount up to a maximum of R400.00 (excl. VAT)|
|Legal Fees.||A legal fee for a consent order of R750. Any additional legal fees to be negotiated separately with the consumer and the debt counsellor and the debt counsellor must be able to produce pro-forma invoices|
Upon application, the debt counselor is required to inform all credit providers and credit bureau of the application within 5 business days after accepting the application by means of a prescribed form (i.e. the Form 17.1). Within a further 5 business days of receiving the notification the credit provider is required to provide a Certificate of Balance (COB) providing the debt counselor with account information required for the assessment. This information assists the debt counselor to do an accurate affordability assessment, and thereafter provide an accurate declaration of whether the consumer is over-indebted.
If the consumer is found by the debt counselor not to be over-indebted or not to be legally eligible for debt review, the debt counselor will reject the application and send a Form 17.2 to the credit providers and credit bureaux, marking the paragraph that confirms that the consumer is not over-indebted.
If the consumer is found by the debt counsellor to be over-indebted and legally eligible to be under debt review, the debt counsellor should, within 30 days of the consumers application notify both the credit provider(s) and the Credit Bureaus that the consumer is indeed over-indebted and the debt counsellor will inform all parties by means of the “Form 17.2” notice, marking the appropriate paragraph that confirms over-indebtedness.
THE COURT APPLICATION
Once the application is accepted and the consumer is found to be over-indebted by the debt counsellor, a court application is launched in the Magistrate’s Court for a debt review order.
THE PAYMENT DISTRIBUTION AGENT
Once accepted under debt counselling, the consumer will pay a monthly instalment to the Payment Distribution Agent (the PDA) which will then be distributed to the credit providers. The PDA is also responsible for the provision of monthly statements to the consumer and payment schedules to debt counsellors, employers and credit providers as well as attending to queries from the respective parties.
The consumer may opt to make payments directly to the credit providers and not use a PDA. However, when making direct payments, the consumer must note the following:
- The consumer remains responsible for making all payments as arranged, in full and on time.
- Proof of payments must be sent to the debt counselor on a monthly basis for record keeping and to enable provision of after care service as a consumer cannot be under debt review without a debt counselor.
- Consequences of making short or late payments.
- There is a risk of termination of the debt review process by the credit providers.
- Debt counselling fees are payable to a debt counselor for services rendered and this includes payment of aftercare fees.
- For a debt counselor to issue a clearance certificate, all after care fees must be up to date.
- Where the debt counselor has suspended provision of service, the consumer must provide proof of settlement letters from credit providers for a debt counselor to issue a clearance certificate.
TERMINATION/CANCELLATION AND TRANSFER OF DEBT REVIEW
It is important to note that once a debt review court order has been obtained a consumer cannot terminate or withdraw the debt review process; they can however approach the court to rescind the order or apply for an order that declares that the consumer is no longer over-indebted. Consumers can only withdraw or terminate the debt review process prior to declaration of over indebtedness.
The debt counselor does not have statutory powers to terminate or withdraw the debt review process. The credit provider can withdraw a credit agreement from debt counselling and proceed with legal action if the consumer defaults on the debt counselling payments or if the debt counselor does not finalise the process within the prescribed time limits. However, a credit provider is not entitled to terminate debt review after the debt counselor has referred the matter to the Magistrate’s Court for a debt review order while the hearing is still pending.
The consumer may be transferred to another debt counselor subject to payment of all debt counselling fees where it has been established that the previous debt counselor followed the correct process.
In terms of section 71(2)(b)(i) of the NCA, a debt counselor must issue a Clearance Certificate (Form 19) if the consumer has fully satisfied all the debt obligations under every credit agreement that was subject to the debt re-arrangement order or agreement. Once a Clearance Certificate has been issued, Credit Bureaus will be required to remove all the information relating to debt counselling.
The consumer may also finish debt counselling early after he/she has settled all unsecured loans and cleared the arrears on the home loan.
National Credit Act 34 of 2005