DEBT REARRANGEMENT PROCESS

[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.

[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.

[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.

[Mike]

Side Note

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.

[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?

[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.

http://www.mnet.co.za/Mnet/Shows/carteblanche/story.asp?Id=3579

http://www.mnet.co.za/Mnet/Shows/carteblanche/story.asp?Id=3561

[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.

[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?

[Mike]

That's right...

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?

[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.

[Mike]

Liars

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.

[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.

[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.

[QUINN]

Not all Debt Counsellors are equal

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.

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.

[QUINN]

National Debt Mediation Association Launches

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 country’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.
“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,” says NDMA CEO Tjaart van der Walt. “Clearly there are significant blockages in the current system, which include:
•
Operating deficiencies amongst Credit Providers and Debt Counsellors.
•
Differing interpretations of the legal requirements and capacity constraints in
the courts.
•
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 industry’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, “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.”
“We have made significant progress with the implementation of these four key
thrusts of the NDMA to date:
•
The national debt help line and website are up and running (help line
number: 086 111 6362 and website address: www.NDMA.org.za)
•
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:
•
Adjudication of disputes between affiliated Debt Counsellors, Credit
Providers and Payment Distribution Agents; and
•
Resolution of consumer complaints against NDMA-affiliated service
providers through an Ombud function.
“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 courts”.
“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 doesn’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,” 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 “agreements must be honoured”. 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)