DEBT REARRANGEMENT PROCESS

[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...

[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:
• the purchase of financial products,
• investments of any kind,
• any loan linked to an investment or financial product,
• 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!

[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!

[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!

[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.

[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?

[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]

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.