# Regulatory Compliance Category > National Credit Act Forum >  DEBT REARRANGEMENT PROCESS

## Eugene

(a) Voluntary Debt Rearrangement

Although the primary function of a debt counsellor is to relieve over-indebtedness in terms of the debt review process (detailed in section 86), the Act allows the assistance of consumers who are not over-indebted but who are " ... nevertheless experiencing or likely to experience, difficulty satisfying all ... [their] obligations under credit agreements in a timely manner, the debt counsellor may recommend that the consumer and the respective credit providers voluntarily consider and agree on a plan of debt rearrangement" (section 86 (7)(b)). The debt counsellor uses discretion to decide whether a consumer meets the debt re-arrangement requirements. The Act does not prescribe an application procedure for this remedy. It appears that the decision must be made based on the application for over-indebtedness that does not meet the necessary criteria. There is, therefore, no separate debt rearrangement process. Again, the discretion of the debt counsellor in this situation must be exercised in an objective manner.

Nature of a Voluntary debt rearrangement

The plan of voluntary debt rearrangement is not defined. However, it does generally refer to a contractual arrangement that is concluded between the consumer and the creditors on how payments will be made. In this situation, the debt counsellor cannot impose any condition, but is permitted to facilitate the conclusion of the agreement, in writing and signed by the consumer, all creditors and the debt counsellor (Regulation 24(9)). The role of the debt counsellor in the plan is decided at the discretion of the creditors and the consumer. If the parties agree, they can extend the debt counsellor's functions to include:
Ã¢â¬Â¢	collection of money from the debtor,
Ã¢â¬Â¢	payment of living expenses of the debtor, 
Ã¢â¬Â¢	prioritising the payment of debts (which may be based on the duration of the debt)
Ã¢â¬Â¢	Monitoring of payments.

The Consent Order

As already indicated, the terms of the rearrangement agreement cannot be prescribed, but only proposed by the debt counsellor. If the parties agree, the debt counsellor may redraft the agreement as a consent order (similar to a Tribunal or court order). He is required to apply in terms of section 138 of the Act with the Tribunal or a court where it will be confirmed as an order of the Tribunal or a court. It should be noted that this is purely an administrative function and no evidence is necessary to support the confirmation. The format of such application may still be prescribed by the Tribunal or the Court. It should also be noted that the Tribunal and a court cannot comment or interfere in the agreement.

(b) Involuntary Debt Rearrangement

A debt rearrangement can become involuntary. This happens when the parties are unable to agree on a voluntary arrangement. In this situation, the debt counsellor makes a recommendation to the Magistrates' Court in terms of section 86(8) (b). The Magistrates' Court will have discretion in this matter.

There is no separate application for debt rearrangement. This matter is determined at the discretion of the debt counsellor. Any consumer encountering difficulty in paying debt should use the over-indebtedness process described below.

On receipt of the application the debt counsellor will inform all creditors that are listed in the consumer's application and every registered credit bureau, that an application has been submitted by the consumer to be declared over-indebted. The debt rearrangement will be finalised depending on whether it is voluntary or involuntary. The voluntary debt rearrangement is finalised and regulated in terms of the agreement. The consequences of an involuntary debt rearrangement in terms of a court order will depend on the decision of the Magistrates' Court.

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enyaw (29-Jul-08)

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## Eugene

Debt Review Process

The primary purpose of debt counselling is to assist consumers who are over-indebted. 

(a) Entry Points into the Debt Counselling

There are four points of entry for a consumer to enter the debt review process namely:

a) A referral by the Court;
b) A referral by the National Credit Regulator; 
c) A referral by a credit provider; or
d) A voluntary application by a consumer

A debt review may be initiated by a magistrate in terms of section 85(a). Section 85(a) allows a magistrate to refer a customer to a debt counsellor if at any proceedings it is alleged that a person is over-indebted. A debt review can also be initiated by the National Credit Regulator in terms of section 139 (1) (b) of the Act. This will occur when the Regulator is of the view that complaint appears to relate to over-indebtedness.

Credit providers can also assist in initiating a debt review. Section 129 of the Act prescribes that if a consumer is in default of payment, the .credit provider can bring the default to the attention of the consumer and advise him that he/she can refer the matter to a debt counsellor should the consumer wish to be declared over-indebted. A credit provider is permitted to continue with legal action if:
(a) the consumer fails to respond to the notice of the creditor, or
(b) the consumer refuses the advice of the creditor and does not refer the matter to a debt counsellor

It is anticipated that most applications for debt review will be done directly by consumers in terms of section 86 (1) of the Act. There are no restrictions on debtors who can apply, or how many times they may apply. Anyone who is prepared to pay the prescribed fee may apply for debt review.

(b) Application process for Debt Review

Debt counsellors are required to receive and attend to all debt review applications that are sent to them. It should be noted that all credit agreements are subject to the debt review procedure. The only exception is if the credit provider has proceeded with legal action against the consumer in terms of section 129 of the Act. The debt review process will also apply to pre-existing credit transactions (except if they refer to reckless). The applicant is required to pay the application fee stipulated in schedule 2 of the Regulations (R 50.00). On receipt of the application, the debt counsellor is required to send the consumer proof of receipt of application. There is no prescribed time limit for this but it is suggested that this takes place immediately.

Any person who applies for debt counselling must complete Form 16 of the Regulations.

Once an application has been received by a debt counsellor, the requirement is to give notice concerning the application to all registered credit bureaus. Form 17.1 must also be sent to all credit providers listed on the application. Both notices must be sent within 5 days of receiving the application for a debt review. The notices can be sent via fax, e-mail or registered mail, provided the debt counsellor keeps proof that the notices were sent, and the date and time of sending.

The debt counsellor is required to verify all information contained in Form 16 by requesting documentary proof from the consumer, contacting the credit providers and employers, or by any other method.

A credit provider will have 5 days from receiving a request from a debt counsellor to verify any information. Should the credit provider fail to respond within the given 5 days, the debt counsellor may accept the information provided by the consumer as being correct. It is important to note that the credit provider may, at a later time, contest the information held by the debt counsellor.

The debt counsellor is required to make a ruling concerning the over-indebtedness of a consumer within 30 days of receiving the application for debt review. The debt counsellor has 5 days from the date of the decision regarding the over-indebtedness to advise the credit providers and all registered credit bureaus. If the consumer was found to be over-indebted, the debt counsellor will have 60 days from receipt of the application for debt review to provide a restructuring. The restructuring proposal may be by way of an agreement between the credit providers and the consumer, or alternatively by court order. Should a debt counsellor fail to do the debt restructuring within the 60 days allowed a credit provider may, on notice to the debt counsellor, proceed with legal action against the consumer. This is done in an attempt to avoid consumers from 'hiding' in the debt review process.

To determine whether a consumer is over-indebted a debt counsellor will need to consider the consumer's financial abilities to meet debt obligations in at the 'end of each month. This may include obtaining a credit bureau report containing information any possible bad debt/judgments the consumer has. A debt counsellor will make a decision based on the "the preponderance of available information at the time of determination" whether the consumer will be able to meet his/her financial commitments. Even if the consumer if able to meet financial commitments, but the debt counsellor is of the opinion that this may soon not be the case, the consumer may qualify for debt restructuring.

After considering the over-indebtedness application, the debt counsellor can make any of the following recommendations to the Magistrates' Court, or whilst attempting to obtain consensus amongst the credit providers on how to restructure the consumer's debt:

Ã¢â¬Â¢	Extending the period of the agreement and reducing the amount of each payment due accordingly
Ã¢â¬Â¢	Postponing, during a specified period, the dates on which payments are due under the agreement
Ã¢â¬Â¢	Extending the period of the agreement and postponing, during a specified period, the dates on which payments are due under the agreement; or
Ã¢â¬Â¢	Recalculating the consumer's obligations because of contraventions of amounts permitted in the Act

The debt counsellor may also make recommendations to the Magistrates' Court regarding possible reckless credit agreements. It will be left to the court to a) declare the agreement reckless and b) propose a manner in which to deal with the reckless agreement.

Any debt restructuring process ordered by the court will exclude all reckless credit agreements. However, where the credit providers and the consumer can come to a voluntary debt restructuring agreement, reckless credit will likely be included in the restructuring.

The Restructuring of Debt

The debt counselling according to the NCR, can be done in two ways. That is the informal 'non-statutory' route and the formal 'statutory' route which includes the provisions of the Act.

Ã¢â¬Â¢	The first option is an informal 'non-statutory' debt restructuring. This depends on the solution ÃÂ¬acceptable to both the Consumer and the affected Creditors. The main characteristic of this phase is that the debt counselling are treated informally, ÃÂ¬and does not lead to debt freezing and other implications as prescribed by the NCA.

Ã¢â¬Â¢	According to the NCR Process Framework, the informal may have two options. That is:
-	The initial DIY route which involves a self-help pack provided to the consumer. This pack includes all the forms and the necessary instructions. The client in this case, is required to negotiate restructuring with the creditors without the help of the debt counsellor
- 	The second option is applicable when the client lacks the skills and the confidence to deal with creditors directly. He/she can then approach the debt counsellor to commence with the informal 'non-statutory' route.

Ã¢â¬Â¢	In the event that the parties cannot agree to a solution through the informal route, then the debt counsellor will then apply the formal/statutory route.

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enyaw (07-Jul-08)

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## Dave A

A thought occurs reading this.

The debt counsellor is going to go through all this for R50.00? (The application fee). Surely not. What fees is a debt councillor actually entitled to, and who pays?

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## Eugene

Dave, currently, the National Credit Act provides for a R50 application fee for debt counselling, but the department of trade and industry is considering changes to debt counselling fees. (http://www.persfin.co.za/index.php?f...icleId=3851232).

In an article of Bussiness report (http://www.busrep.co.za/index.php?fArticleId=3820099)  Mpho Thekiso, manager for the NCR's debt relief programme, said debt counselling fees would range from R500 to R1200, depending on the time it would take to review a consumer's debt.

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## Eugene

Might be a good idea to post the whole article:

_(May 9, 2007  By Tonny Mafu; Business Report)_

"*Indebted to get help - at a steep price* 

Johannesburg - Counselling for heavily indebted people, which will be available with the introduction of the National Credit Act next month, will not come cheap. 

Consumers would have to pay up to R1200 for the service or take as much additional debt with the counsellors to pay for the service, the National Credit Regulator (NCR) said yesterday.

Under the new credit law consumers will be able to get help to restructure their debt repayments. However, this process will require the services of debt counsellors, who will provide budget advice support and mediate with credit providers on behalf of the consumer. According to the NCR, debt counsellors would have to be remunerated on a cost recovery basis.

Mpho Thekiso, manager for the NCR's debt relief programme, said debt counselling fees would range from R500 to R1200, depending on the time it would take to review a consumer's debt. 

She said research done by the regulator since 2003 had shown that it could take up to 13 hours to help review and reschedule the debt for a consumer with between seven and 12 credit agreements.

Thekiso said the regulator had proposed to the department of trade and industry that consumers be allowed to settle the counselling fees in instalments.

But Thami Bolani, chairman of the National Consumer Forum, said the fees would be expensive for low-income earners and so might discourage them from seeking help through debt counselling...."

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## Dave A

Perhaps justifiable if it reduces legal costs - but I can see this being a fly in the ointment at times.

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## Eugene

Very true Dave. The already over-burdened debtor now has to fork out up to R1500 to have his debt re-scheduled. According to the NCR Debt Cousnellor notes the debtor should be afforded the opportunity to pay of the R1500 to the debt counsellor. Now, say for instance a debt counsellor has 101 debtors paying their fees of and the debt counsellor decides to add only 1% interest per year - that makes him a *credit provider* and he has to register as such. *BUT*, according to the Act, any credit provider is disqualified from being a debt counsellor...

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## Eugene

My biggest concern with the debtre-scheduling process is the way that the assessment is done by the debt counselloras the the function of a debt counsellor is a limited statutory function. Whilst debt counsellors are expected to assist the public in their financial matters, they cannot act outside the parameters of that statutory functionas prescribed by the NCA. A debt counsellor MAY NOT provide financial advice unless registered with the Financial Services Board as a financial advisor in terms of the Financial Advisory and Intermediary Services Act, 2002 (FAIS). 

Financial advice in terms of FAIS is defined as _"... any recommendation, guidance or proposal of a financial nature furnished, by any means or medium, to any client or group of clients" concerning:
Ã¢â¬Â¢	the purchase of financial products,
Ã¢â¬Â¢	investments of any kind,
Ã¢â¬Â¢	any loan linked to an investment or financial product,
Ã¢â¬Â¢	The termination, replacement, or variation of financial products._

Therefore one might sit with the scenario where the debtor is highly over-burdened with, say 4 life policies or endownment policies or a medical plan (or any policy construed as a financial product) that makes up about 60% of his salary. The debt cousnellor MAY NOT give advise to have some of the policies amended or the like as he will be contravening FAIS. 

Remember, the debt cousnellor is not barred from being an administrator (in terms of section 74 of the Magistrates Court Act) and I foresee that the easiest way for any debt counsellor would be is to place such a debtor under administration and that all adminitrations in future will be governed by debt counsellors. Sad, very sad... Problem is that administrations done by private individuals (non-attorneys) are presently not goverened by any Act and they still have _carte blanche_ to a great extend. In an instance where a debt counsellor is also an adminsitrator he would legally be entitle to up to R1500 for the debt-review AND all fees of the administration!

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## Dave A

> Therefore one might sit with the scenario where the debtor is highly over-burdened with, say 4 life policies or endownment policies or a medical plan (or any policy construed as a financial product) that makes up about 60% of his salary. The debt cousnellor MAY NOT give advise to have some of the policies amended or the like as he will be contravening FAIS.


Initially I was thinking this might be a stretch getting to this point without the financial advisor who sold the product being in trouble. But there are two scenarios where it could occur:
As a result of escalation clauses - they really can add up over the years.As a result of a downward change in income.
Perhaps the solution for the debt counsellor would be to recommend a revue of the debtor' financial products by a financial advisor as per FAIS. And thinking about it, the outcome of that revue would be pretty interesting!

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## Eugene

Agreed, but then the price of a simple debt re-structuring with the use of a financial advisor will not be afforable to the already over commited debtor. Catch 22!

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## Mark

I have just called someone for help and they told me that I had to bring R300 to the appointment (R250 consultation + R50 application) and a further R3000 fee would be added to my debt!

Sounds harsh, but it might still be worth it; I'm shopping around first.

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## Dave A

Mark, if you have to go through this process, it would be interesting to hear your feedback on how it went. Not all the gory details, but what it ended up costing and how effective the help was.

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## Mark

Well I found a company at www.debtbusters.co.za who seemed very efficient; prices are similar though:

a.	Per Person - Once off fee of R114 inclusive of VAT, for the application fee (R57) the credit report (R57). Therefore for a single application the cost will be and R114 and for a joint application it will be R228.
b.	A fee of R300 + VAT if the application is rejected due to not being over-indebted, or if the client cancels before the debt re-arrangement plan is completed by Debtbusters.
c.	A restructure fee of one hundred percent (100%) of my first monthly debt re-arrangement payment up to a maximum of R3000 +VAT for a single application and R4000+VAT for a joint application. Should you withdraw from the process after the debt re-arrangement plan is completed by Debtbusters, then a fee equal to 75% of the restructure fee is payable.
d.	A monthly fee of 5% + VAT of the payment to the payment distribution agency (up to a maximum of R300+VAT).
e.	If the proposed restructure agreement is agreed to by all the clientâs credit providers then a consent order is required. The cost of the consent order is R300 plus VAT and is payable by the client to Debt Matters (Pty) Ltd.

If the credit providers do not agree with the restructure proposal and an application to a Magistrateâs Court is required, further legal fees applicable to the debt review would be for my account. Also, they're in Cape Town so jurisdiction would be transferred to the Cape Town Magistrates' Court. I'm not sure if I would be required to attend court or if they would represent me, but that could be a problem as I am in Johannesburg.

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## enyaw

Thanks for your excellent article Eugene, I'm in the process of registering with the NCR having recently passed the exam.I appreciate the clarity and precision of your report.
Are you practising in this field? Check my profile, I joined an hour ago - being 10h00 -07/0708.
Regards,
Wayne

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## enyaw

Eugene, have you considered that the average attorney/lawyer - charges an hourly rate of anything between R 500 - R 1200 per hour?And such an individual is not LICENSED to issue financial advice in terms of the FAIS Act...the event of being identified as such i.e, issuing advice on financial matters relating to,and falling under the ambit of the FAIS Act, holds a provision for a R 10 000 000 fine and/or a 10 year jail sentence?If the FSB is able to determine that a client acted under such advice? Further, a debt counsellor,whom is non-FAIS compliant is restricted to giving advice under the same provisions...Now, let us apply our minds to the jeopardy of inadvisadly giving advice on such matters towards ameliorating the costs of referring a client whom is over-indebted to such a person - FAIS compliant and licenced, do you not think that the debt counsellor would attempt to apply his/her mind without incurring further costs to the client and as a result, incur the potential wrath of the FSB?
Let us now reconsider the costs in the light of this eventuality...
I am FAIS compliant, and a debt counsellor...how do I now summate my fee?

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## Dave A

Eugene has been pretty quiet lately.

The issue of fees and FAIS compliance were concerns with the introduction of the NCA. It seemed unlikely that pursuing the role of a debt counsellor would be particularly attractive for attorneys. But perhaps that was always the intention.

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## Rebel

Caveat - should you make use of the services of a debt counselor and the order is granted you are barred from any new credit until the last cent is paid - if new credit is granted to you then the credit provider faces a charge of recless credit and could be fined up to a R 1 mil or 10% of their yearly turnover - if you have a bond and it has been restructured from say 20 to 30 years you must considder that for the next 30 years you will not be able to even get a cellphone contract.

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Dave A (18-Nov-08)

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## Mike

Hi All, This is my first post. (3 cheers)

My girlfriend and I are under debt review/counselling.
My debts have been reshuffled leaving me very little spending money.
I currently pay +20K to a payment distribution agent who then takes 5% of that for themselves and then pays what is left to my creditors.
Every month around the 12th I run out of money for fuel, food and living expenses which is lousy because most days go by with me wondering if my car will make it to work/back home and is running on reserve most of the time.  Being an older diesel engine the consequences of running out of diesel can be dire - I digress.

Is there a way to shortcut this 5% fee, pay my accounts according to the schedule provided + 2.5% and use the remaining 2.5% for fuel and groceries?  I am also supposed to save +/- 1000 every month for the last 3 months however: every month I end up using my "savings" for car services, doctors fees and diesel.

The other issue I have with this process is that the payment agent isn't paying every month - it's every second month thus earning interest on 40k for two months - that is interest I could use?!?  The agent also hasn't paid ALL my accounts, I phoned each of my creditors and only 1 has been paid since September, roughly 10% of the over 41k paid to the agent to date (which is 2 months instalment).

Can someone point me in the right direction?
Could I leave this debt review process?
Can I pay these creditors myself?
Is there a guidelines or process document to follow somewhere?

The debt counsellors I have been to:
 - don't answer ANY of my emails
 - brush me off and state this is "how it works" or "don't contact or pay your creditors directly as this will cause your debt review to fail"
 - tell me to phone the other party: the counsellor tells me to phone the payment agent or the payment agent tells me to phone the counsellor and neither actually answers the question
 - have failed to give me an electronic version of the schedule so that I can double check their formulae - where can I get a blank version of this doc?

The lawyer, who also happens to be the owner of the Debt Counselling firm, was Very helpful and answered calls personally before we joined the debt review program but subsequently is always unavailable and I get to chat to his PA or receptionist.

Any help would be hugely appreciated as we are getting quite frustrated and overwhelmed by the whole ordeal. Not to mention broker off instead of better off.

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## Mike

I forgot to mention that I have a maid and gardener.
The counsellor didn't allocate any expense for these "employees" thereby implying I should get rid of them.
Although I do earn a large amount of money every month and I am overindebted: I feel it is unfair to release these two individuals as they have been loyal even though I've reduced the number of days they work each month to the minimum... why should they suffer because the counsellor could make a small provision for them (1K out of the 20+K a month)?

I guess the credit act neglects this aspect of our economy.  :Confused:

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## Dave A

Have I read this right - only about R4k of the R40k you have paid in so far has been paid out to creditors?

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## Morticia

Carte Blanche ran an expose on a few of these "helpful" lawyers and agencies some time ago - worth following up to see if you are also being ripped off like these unfortunate folks.  :No: 

http://www.mnet.co.za/Mnet/Shows/car...ry.asp?Id=3579

http://www.mnet.co.za/Mnet/Shows/car...ry.asp?Id=3561

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## Dave A

I've got a client who had his debt rescheduled some time ago - haven't been paid a cent to date. Which is why Mike's story has got me wondering.

As long as the administrator keeps the errant debtor and the creditors apart, how the heck would anyone know if the administrator is sitting on/abusing the money.

Maybe these administrators should be forced to have audited trust funds.

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## Morticia

It is my understanding that the administrators have to submit a distribution account at the Magistrate's court every 3 months which should be available to relevant parties.  Perhaps try & get a peek at these?

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## Mike

Yup only 4k should have been 8k to that particular creditor. I think the only reason it got paid is because N..bank was bugging me for proof of payment to the distribution agent.  I told the N..bank guy to phone the lawyer direct and sort it out with him.

Still where is the other 4K?!?

Is it possible to pay my creditors myself according to the schedule provided and cancel the 20.5 stop order?

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## Dave A

Isn't an administration order an order of court? That means you can't unilaterally take charge - you'd have to get the cout's OK (I can see pigs flying) - which means back to lawyers and probably even more expenses.

Maybe the best you can do is insist on a regular report (surely you're entitled to this) and spot check with your creditors.

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## Mike

Hi Dave,

I asked for a distribution report. I got a lie.
Under section B of the report:
1. PDA Cost R0.00
2. Debt Councelor cost (spelt wrong) R2,3xx.xx
3. Money not Distributed   R0.00
4. Other payments  R0.00

Out of the 8 credit providers I can only find one that has been paid...
And paid only half of what is expected.

The main issues I have other than them not paying creditors is the lies and that they haven't allocated enough for me to live on. Come the 12 th of every month I'm broke - no more money 4 diesel, groceries, or a even chappie.  Bearing in mind I have a 3 year old 
Then they have the cheek to call themselves Consumer Protectors - hmmm.

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## Dave A

I can't blame you for being ticked off, Mike. I'm just not sure what is the best way to deal with it.

I had to go through the experience of paying off a "managed account" in the '97/'98 interest rate spike. Slightly different from living under an administration order, but I know the feeling. There you don't get statements to reduce costs - but the upside was no service fee either. All I had was a name and telephone number of a guy at the bank to ask what the balance left to pay off was.

In my case I just focused on paying it off as fast as I could. But that's not going to work in your case if the administrator is sitting on the money.

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## Rebel

> Agreed, but then the price of a simple debt re-structuring with the use of a financial advisor will not be afforable to the already over commited debtor. Catch 22!


The NCR tried to help over burdend debtors with the Debt Counselor process. It will cost the debtor R 50 for the application - R 3000 if it is a single restructure and R 4000 if it is for husband and wife. Then the monthly fees to do after care by the debt counselor would be R 300. The PDA fees would be picked up by the credit provider.

The debt counselor can only be an administrator should he/she be appointed by the court in the event of an application by the debtor and the administrator can put up the security asked by court.

No the administrators don't fall under the debt counselors - read section 129 and 130 carfully - once court action is started then that debt cannot be included in debt re-structuring.

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## QUINN

> Hi Dave,
> 
> I asked for a distribution report. I got a lie.
> Under section B of the report:
> 1. PDA Cost R0.00
> 2. Debt Councelor cost (spelt wrong) R2,3xx.xx
> 3. Money not Distributed   R0.00
> 4. Other payments  R0.00
> 
> ...



The credit crunch we are experiencing in SA has lead to many people trying their hand at becoming debt counsellors. Although the NCA clearly states the requirements to become a debt counsellor we at Debt Rescue feel that this is not nearly enough. Our principal  Mr. Neil Roets is a qualified attorney and is assisted by another attorney, Christelle Erasmus from our head office in Kempton Park. Why would you risk your financial future by speaking to just any person. For the same fee you can have access to their experience.

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## QUINN

An initiative to help make debt review work for consumers in debt distress
(Johannesburg, May 27, 2009)
The National Debt Mediation Association (NDMA),
launched today in Johannesburg, has been formed to assist over-indebted
consumers with a new debt remedy that has been approved and accepted by the countryâs major credit providers.

The NDMA is a non-profit organisation established initially by the six voluntary trade associations representing in excess of 98% of credit granted in South Africa. These are the Credit Providers Association (CPA), Banking Association (BA), Furniture Traders Association (FTA), Micro Finance SA (MFSA), National Clothing Retailers Federation (NCRF) and Motor Financing Association (MFA). Although initially
established by the credit industry, the NDMA has since evolved to include Debt and Payment Distribution Agents as affiliated members committed to facilitating a process for all role players and the consumer.
Although statistics show that 41.6% of the 61 million credit accounts (representing
17.56 million credit active South Africans) are deemed delinquent (Credit Bureau Monitor December 2008), only around 68 500 debt counselling cases have been registered with the NCR at the end of April 2009. Less than 3% of these cases have to date been brought to conclusion and sanctioned by a court order.
âThe current over-indebtedness situation is of great concern to credit providers and as a result the credit industry agreed to collaborate to change and improve this situation on a voluntary basis,â says NDMA CEO Tjaart van der Walt. âClearly there are significant blockages in the current system, which include:
â¢
Operating deficiencies amongst Credit Providers and Debt Counsellors.
â¢
Differing interpretations of the legal requirements and capacity constraints in
the courts.
â¢
Circular negotiations between Debt Counsellors and multiple credit providers
on each case (on average around 8 to 12 credit providers are affected in each case, all of whom have to agree to one proposal if a consent order is to be
obtained).
With estimates that the number of debt counselling cases will increase to around 150 000 by the end of 2009, this initiative was established by the credit industry to facilitate and oversee the implementation of the credit industryâs commitments under a credit industry code to combat over-indebtedness.
The credit industry code of conduct was approved by the NCR in mid-2008, but has since been reviewed to accommodate operational changes to the NDMA and the amendments are currently under consideration by the NCR
Says van der Walt, âThe NDMA envisages that the NDMA process will improve debt review to the benefit of consumers through four key areas of focus and collaborative action:
1. The establishment of a national debt help line for consumers as well as a
website where they can access basic initial advice and referral to affiliated
debt counsellors for assistance with over-indebtedness;
2. Standardization of documentation, processes and debt restructuring rules to maximize the resolution of consumer over-indebtedness as far as possible
through effective, efficient and consensual debt re-arrangement agreements;
3. Collaborative removal of blockages and obstacles in the process between the three key players required to make the process work under the Act for over-indebted consumers, namely Credit Providers, Debt Counsellors and

Payment Distribution Agents;
4. Effective and cost efficient dispute and complaints resolution processes
between affiliated members (Credit Providers, Debt Counsellors and Payment
Distribution Agents) as well as resolution of debt review related consumer
complaints against affiliated members.â
âWe have made significant progress with the implementation of these four key
thrusts of the NDMA to date:
â¢
The national debt help line and website are up and running (help line
number: 086 111 6362 and website address: www.NDMA.org.za)
â¢
Negotiations with all members are far advanced to finalize agreement
on standardized documentation, debt restructuring rules and debt re-
arrangement proposal formats.

Affiliation of members to the NDMA
Credit providers, representing in excess of 97% of credit extension in the market, have been affiliated, including all significant retail banks, most major furniture and clothing retail groups, most major non-bank vehicle finance providers and a range of larger micro finance providers. (The list of affiliated credit providers is attached);
In excess of 120 active NCR-registered debt counsellors across the country are affiliated, with this base growing daily;
National Credit Act accredited Payment Distribution Agents are affiliated or in
the final stages of affiliation bring them into the collaborative space;
Collaborative NDMA-facilitated processes between these categories of members are in implementation and progress is already being made to identify and start to address blockages and process deficiencies at all levels.

Implementation of appropriate dispute resolution arrangements is far advanced for:
â¢
Adjudication of disputes between affiliated Debt Counsellors, Credit
Providers and Payment Distribution Agents; and
â¢
Resolution of consumer complaints against NDMA-affiliated service
providers through an Ombud function.
âAs these four key thrusts of the NDMA initiative gain increasing traction in the market it is expected that the debt review process will become more consensual, more effective in terms of case solve rates (consumer rehabilitation rate) as well as more cost and time efficient for consumers, Debt Counsellors, Credit Providers and the courtsâ.
âThe current economic crisis has resulted in great consumer vulnerability and a debt spiral for many. As consumers enter debt and see what it will take to get them back on the right credit path, they will receive advice and guidance on budgeting and how to live within their means. This doesnât always mean being totally without credit, but rather using credit wisely for the betterment of their families and taking their place in society as active and responsible credit users,â concludes van Walt.

Background supporting industry comments

Motor Finance Industry
The Motor Finance Industry is experiencing difficult times due to the current
economic situation as consumers find it increasingly difficult to afford a vehicle. This is largely due to price increases on imported vehicles, upgrades in safety features, high fuel prices, unemployment and the increased cost of comprehensive vehicle insurance as well as increased household expenditure.
The Motor Finance Association (MFA) sees the NDMA as supporting the industry to simplify the decisions by pre-negotiated rules and norms to try and minimize the cost of increased bad debt and debt collection. The comprehensive representation of the NDMA with all its stakeholders simplifies the implementation of these norms and gives us the opportunity to create efficiencies that would not have been impossible otherwise.

The National Clothing Retailers Federation (NCRF), a founder member of the
NDMA, supports this initiative that seeks to address the problems currently being experienced with Debt Counselling matters. The fact that the members of the NCRF have agreed to consent to proposals submitted in terms of specific pre-agreed rules confirms this commitment. This will result in speedy resolution of debt counselling matters. We believe this approach is a positive initiative which helps the consumers get out of debt traps, whilst at the same time ensuring that the credit providers get their fair share in line with our well-founded legal principle which state that âagreements must be honouredâ. The initial projections are that more than 56% of all cases put through the NDMA initiative will solve within 60 months, allowing the consumer to be economically active again. This is indeed a step forward, especially in these very difficult times. 

The Debt Counsellors Association of South Africa will support any initiative that will benefit the consumer provided that the consumer enjoys the same protection as set out in the National Credit Act. The NDMA is a great start in the right direction and Debt Counsellors look forward to Credit Providers implementing and abiding to the rules. 

It is the view of DCASA that only Debt Counsellors registered by the National Credit Regulator can assist consumers with debt review applications and submit proposals to Credit Providers that are based on the NDMA rules. Our members are also
actively involved in various working groups. The Debt Counsellors Association of South Africa congratulates the NDMA on efforts so far.
As one of the founding members of the NDMA, the FTA (Furniture Traders
Association - an association representing the majority of the furniture and
appliances retailers in the country), is proud to be associated with and to subscribe to the objectives of the NDMA. As responsible Credit Providers we are extremely positive and believe that the NDMA, with representation from Debt Counsellors,
Payment Distribution Agents (PDAs) and other consumer bodies, will be able to assist distressed credit consumers in keeping with the spirit and objectives of the National Credit Act.

Banking Association
The NDMA seeks to bring together credit providers, borrowers and debt-counsellors to act jointly to restructure as many over-indebted individuals as possible. This requires co-operation between credit providers, agreement from debt-counsellors to restructure debt on the basis of such co-operation and sacrifice from borrowers to change their lifestyles to live within their means. The launch of the NDMA is thus opportune, and welcome. The Banking Association, and the banking sector, is fully committed to working with the NDMA to help it meet its objectives. It is also gratifying that the National Credit Regulator is supporting this initiative. We have no doubt this collaborative effort will go a long way towards regularising the relationship between borrowers and lenders and promoting a culture of responsible credit.

MicroFinance SA
In practice and in reality things happen in peoples lives and they find themselves in difficult predicaments, and they then need to find a way to get themselves out of it, hopefully with the minimum damage and to once again become economically active as soon as possible. We support the NDMA as an effort from the industry, together with debt counselors, and within a legal framework, to work together at resolving the current situation of distressed consumers. For this to work, industry players,
registered with the NCR, need to hold hands and work at growing this model so it is known in the market and known by consumers, so they can approach the NDMA with an open mind, knowing that they will be treated fairly and that matters will be
resolved speedily.

Credit Providers Association
The CPA is an association of credit providers interested in sharing payment profile data on a reciprocal basis with a view to improving the credit decision making process and consequently assisting in combating over indebtedness through responsible credit granting. It is this commitment to responsible credit granting by our 4 members that leads the association to support the principles encapsulated in an initiative such as the NDMA.

The NDMA is, in our opinion, a genuine effort to address the existing levels of over indebtedness in SA through an inclusive process of debt restructuring, which seeks to ensure an equitable yet realistic solution to what is a National problem.
For further information, please contact:
Alison Spratley
Stone Soup PR
Tel: +27 (011) 447 7242
Mobile: +27 (0) 82 467 1213
Email: alison@stonesoup.co.za
NDMA official website: www.ndma.org.za
NDMA official call centre: 086 111 NDMA (6362)

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Dave A (22-Jun-09)

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## QUINN

The current economic climate has resulted in a proliferation of "cash strapped" consumers. Accordingly the purchase of a vehicle is very rarely a cash transaction. The obvious alternative is an instalment sale agreement, whereby the vehicle is paid off over a period of time.

As a credit agreement, an instalment sale agreement is subject to regulation by the National Credit Act 34 of 2005 (NCA). The terms of the agreement are generally standard, providing for repayment of the capital plus interest, provided that upon the consumer's default, the credit provider is entitled to cancel the agreement and repossess and sell the vehicle in order to defray the outstanding balance owed by the consumer.

With credit agreements such as instalment sale agreements now being regulated by the NCA, the consumer is protected from abusive credit providers by a number legislative provisions providing for a plethora of consumer rights.

But what happens when these protective provisions have the effect of unilaterally altering the terms of a credit agreement to the consumer's detriment?

This was the very issue before the court in the matter of ABSA Bank Limited vs Pieter de Villiers and the Magistrate for the District of Simonstown (Case No 15692/07). The matter involved an application by a credit provider to repossess a vehicle purchased on instalment sale.

The court was charged with determining whether the provisions of the NCA entitled the credit provider (applicant) upon default by the consumer to apply for a final order authorising attachment of the vehicle, without requiring the credit provider to first issue summons for cancellation of the agreement.

In terms of the common law principles of law of contract, restitution, which in the context of the aforementioned matter constituted repossession of the vehicle, is the normal result flowing from the cancellation of a contract, and accordingly a credit provider seeking to repossess a vehicle upon default would be required to claim and successfully obtain cancellation of the agreement prior to attachment of the vehicle.

The applicant argued that the provisions of the NCA which deal with "Debt procedures in a court", "Repossession of goods" and "Surrender of goods", automatically entitle a credit provider to obtain a final order of attachment of the goods upon default of the consumer, whereafter the credit provider is obliged to realise the goods in accordance with the provisions of the NCA, and that the aforementioned provisions accordingly had the effect of introducing a procedure at variance with the common law.

In terms of the established principles of statutory interpretation, an intention on the part of the legislature to change the common law must be clearly expressed in the relevant legislation. Apart from the fact that such an intention had not been clearly stated, the court found that the applicant's interpretation of the provisions of the NCA upon which it had relied were foreign to the principles of our common law and inconsistent with the declared aim of the legislature, namely "to provide for a consistent and harmonised system of debt enforcement in which the consumer's rights are protected".

In coming to the aforementioned conclusion the court examined the effect that such an interpretation would have on the consumer. In a nutshell, the effect would be that credit providers would no longer be required to prove that the consumer had breached his obligations before repossessing the asset.

In addition, the credit provider would be placed in final and permanent possession of the asset while the consumer would remain liable to pay the monthly instalments until such time as the vehicle had been realised, which realistically may take some time.

The applicant has made application for leave to appeal the decision to the SCA. The effect of the decision on appeal may be far reaching. By upholding the appeal, credit providers offering credit on instalment sale will be able to reap the benefit of saving the time and legal costs associated with issuing summons for cancellation of the credit agreements, while the consumer will be left in the untenable position of being dispossessed of the asset purchased, while remaining liable to make monthly payments until the asset is sold, something which is completely left in the hands of the credit provider.

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## QUINN

Consumers and ss 129 and 86(10) of the National Credit Act

Sybrandt Stadler

In terms of the National Credit Act 34 of 2005 (the NCA) a party wanting to enforce a credit agreement must comply with additional procedures before he can approach the court to institute the action or be entitled to a judgment. The additional procedures referred to are contained in ss 129(1) and 86(10). Although ss 129(1) and 86(10) have the same outcome in mind, the sections and the notices in respect thereof are used in different circumstances relating to the position of the consumer.

Section 129(1) reads as follows:

âIf the consumer is in default under a credit agreement, the credit provider â

(a)

may draw the default to the notice of the consumer in writing and propose that the consumer refer the credit agreement to a debt counsellor, alternative dispute resolution agent, consumer court or ombud with jurisdiction, with the intent that the parties resolve any dispute under the agreement or develop and agree on a plan to bring the payments under the agreement up to date; and 
(b)

subject to section 130(2), may not commence any legal proceedings to enforce the agreement before â
(i)
first providing notice to the consumer, as contemplated in paragraph (a), or in section 86(10), as the case may be; and
(ii)
meeting any further requirements set out in section 130â (my italics).
From a reading of the first part of s 129(1) it seems as if the credit provider wanting to enforce the credit agreement, may, if he wishes, refer the consumer to the content of s 129 before he can proceed to take the steps contemplated. This, however, is not the case if reference is made to the content of subs 129(1)(b). The s 129 notice is therefore peremptory and is a jurisdictional fact that the credit provider must prove to continue with the enforcement of the relevant agreement. 

The s 129(1) notice, however, should be used only before the consumer applied for debt review in terms of s 86 of the NCA. This becomes evident when notice is taken of s 129(2):

âSubsection (1) [of section 129] does not apply to a credit agreement that is subject to a debt restructuring order, or to proceedings in a court that could result in such an order.â

The purpose of the s 129(1) notice is not only to indicate to the consumer that his payments in respect of a credit agreement are in arrears, but also to inform the consumer of rights afforded to him as set out by the NCA. The consumer should be informed of his additional rights because of the fact that s 3 of the Act has protection of consumers as one of the most important goals which have to be reached.

An argument on behalf of credit providers is that, as soon as the s 129(1) notice has been sent the agreement should be excluded from any possible debt review applications made by the consumer. This is an incorrect deduction, since the s 129(1) notice indicates to the consumer that he may apply to a debt counselor and have that agreementâs payment terms re-arranged. If he â after receiving the s 129(1) notice â does so apply, that agreement should therefore be included in the debt review application. 

In further understanding s 129 reference must be made to section 130(1):

âSubject to subsection (2), a credit provider may approach the court for an order to enforce a credit agreement only if, at that time, the consumer is in default and has been in default under that agreement for at least 20 business days and â

(a)

at least 10 business days have elapsed since the credit provider delivered a notice to the consumer as contemplated in section 86(9), or section 129(1), as the case may be;
(b)

in the case of a notice contemplated in section 129(1), the consumer has â
(i)
not responded to that notice; or
(ii)
responded to the notice by rejecting the credit providerâs proposals; and
(c)

in the case of an instalment agreement, secured loan, or lease, the consumer has not surrendered the relevant property to the credit provider as contemplated in section 127.â
Can it be argued that, after the s 129(1) notice has been sent or after the ten days have expired, the relevant agreement is now excluded from the debt-review application? The answer must be in the negative. The credit provider may, after ten days, proceed to enforce the agreement but if he does not do so the consumer may still apply to a debt counselor, even if it is done outside the ten days stated in the s 129(1) notice. 

In a yet unreported judgment in First Rand Bank Limited v SD Olivier (SEC) (unreported case no 2369/07; 8-5-2008) Erasmus J stated that this approach would be more acceptable.* He states in para 18 of the judgment:

âThe NCA, in section 129(1) read with Part C of Chapter 4, would encourage a consumer to approach a debt counselor before the credit provider approaches the court in terms of sections 129 and 130. The reasons for promoting that approach are obvious. It is clearly desirable that parties through the intercession of a debt counselor attempt to develop and agree on a plan to bring the payments under that agreement up to date. And it is further desirable that this be done before the court is burdened with debt.â

This approach is further supported by the NCA in ss 130(3) and 88(3) wherein it is stated that a court may not determine a matter if it is before a debt counselor; and a credit provider may also not enforce any right under a credit agreement if that credit provider received a notice contemplated in s 86(4)(b)(i) or a form 17.1. 

It would seem therefore that, after a s 129(1) notice has been sent, the credit provider must issue and serve a summons before the consumer applies for debt review (see Van Loggerenberg, Dicker & Malan âAspects of Debt Review under the National Credit Actâ 2008 Jan/Feb DR 40). The fact that the consumer did not apply within ten days after the s 129(1) notice has been received does not mean that he is barred from doing so in terms of s 86(2). The reason for that is that no âsteps contemplatedâ have as yet been taken. 

If the consumer has already applied for debt review, the credit provider wishing to continue must issue a notice in terms of s 86(10) if the 60 days has lapsed and no further action in terms of the debt review has been taken. The NCA indicates quite clearly that the credit provider may continue only after either a s 129(1) or s 86(10) notice has been sent in terms of the Act. No automatic termination of the debt review process, therefore, is contemplated by the NCA and if the s 86(10) notice is not issued the debt review is still of force and effect. The credit provider must allege this in the summons and this is a fact that needs to be proved should the matter proceed to trial. If this cannot be proved, the credit provider did not comply with s 130(3) and the action instituted is therefore a nullity.

*  Note that this decision was criticised in Standard Bank of SA Ltd v SK Panayiotts (W) (unreported case no 146/08, 6-2-2009)(Masipa J) â Editor.

Sybrandt Stadler BA LLB (NWU) is an attorney in Krugersdorp.

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