A code of conduct between credit providers and debt counsellors, released this week, is expected to improve the debt-counselling process significantly and possibly puts South Africa at the forefront globally in dealing with over-indebtedness.
Debt counsellors will input the clients' information into a programme including the debt information and what the clients can afford. The programme creates a recommended repayment programme that allows consumers to pay off the debts within a set framework and treats all creditors fairly, especially in terms of "sacrifice of yield" where creditors waive interest or charge a lower rate on the outstanding loan.
If a suitable repayment plan cannot be found because of affordability then the person will not be able to undergo debt counselling and will have to be declared insolvent.
The banks have agreed that this repayment plan, based on the agreed rules, will be accepted and they will not take the matter to court. But the consumer has to adhere to this payment plan or all protection will fall away, including the lower interest agreement.
The banks have borne the cost of the development of the programme and the repayment rules were agreed to by the National Credit Regulator and the Debt Counselling Association of South Africa.
As part of these agreements, it is expected that those under debt counselling will have 86 months to repay car debt, 30 years for home loans and about 60 months for short-term debt. If a debt repayment plan falls within these timeframes, then credit providers will not be able to contest the debt review.
full story from M&G here