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A single, rational process for over-indebted consumers that allows all their debt to be dealt with is desperately needed, says National Debt Mediation Association (NDMA) CEO, Magauta Mphahlele.
Based on more than 4000 complaints and 4800 enquiries dealt with in the past two years, the NDMA has observed that consumers have to bear the brunt of various blockages in the various remedies of debt rehabilitation contained in various pieces of legislation.

“The blockages in the system means that Over-indebted consumers have to shoulder the consequences in the form of time delays, abusive market practices and exorbitant legal costs before their debt problems are resolved”, she adds.

An analysis of the more than 8000 complaints and enquiries dealt with shows that many of the remedies available do not provide a total and sustainable solution for consumers. For example since January 2010 the NDMA has dealt with more than 755 complaints regarding termination from debt review. The right of the credit provider to terminate debt review even when a matter is enrolled in court means that a consumer after having paid the legal fees to have their debt review matter heard might have to incur further legal costs to defend the matter outside of debt review where the credit provider is seeking a judgment and the right of execution either to repossess a car or auction a property.

An article appearing in De Rebus, a publication for the legal fraternity confirms that debt counselling applications are time consuming, costly and complicated. It states that the applications differ from court to court and are approximately 70 pages long, take up to two years to grant and cost an average of R8 000 made up of debt counselling and legal fees. The debt counselling fees are manageable as they are linked to the consumer’s repayment affordability. It is the legal fees that are crippling consumers. The NDMA has seen a case where the consumer could afford to pay R2131, his debt counselling fee was R2317 but the legal fees were R7901.This means that the credit provider had to wait several months before receiving payment and many credit providers choose to terminate the process instead of waiting for payment.
The fact that those credit agreements where section 129 notices have been properly issued are excluded from debt review makes it worse for many consumers who then have to apply different remedies depending on whether the credit agreement is in or out. While some credit providers voluntarily agree to include section 129 debts in debt review, this is not standard practice across the board. The Debt Counsellor Association newsletter reports that one credit provider issues between 10 000 and 15 000 section 129s per month. It further reports that of the 330 000 debt review applications received since 2007, it is estimated that credit providers have issued between 100 000 and 110 000 section 86(10) terminations. Mphahlele says “While credit providers have the right to issue section 129s and terminate defaulting consumers, through the process of mediation, we have found that if the circumstances of the consumer are taken into consideration a win win agreement can be reached as a majority of consumers are willing to pay off their debts”
“Over-indebted consumers face a dilemma,” adds Mphahlele. “They may apply for debt counselling for some of their debts – such as their home loan - but then to stave off legal action from other creditors they are forced to make other arrangements outside of debt review which means they have to try and meet the competing demands of different creditors. The result is that they then agree to unsustainable arrangements which in future makes them to battle to maintain the various arrangements as these fail to consider the total debt portfolio of the consumer as well as their unique circumstances at that time.

Mphahlele explains that most consumers have different types of debt. Some debts, such as mortgage bonds, vehicle loans, personal loans and credit facilities fall with the NCA. While there are many other types of debt that do not fall within the NCA, the biggest problem for South African consumers are instances where debts are written off and sold off to third parties for collection. Many of these debt fall into the category of judgment debt where additional collection commissions, interest and other collection fees apply leading to Garnishee orders that are far beyond what the consumer originally owed. The NDMA recently saw a case where a consumer ended up with a garnishee order of more than R13 000 for an outstanding capital amount of R3000.

Besides debt counselling consumers can consider going under administration or being sequestrated. Over the years while some have said Administration is simple and benefits the consumer, the NDMA has received many complaints from consumers under administration which indicate that the process continues to be abused where there is the overcharging of fees as well as non-distribution to creditors. Sequestration only works where consumers have sufficient assets to satisfy the requirement that the process must be to the benefit of creditors and as such is outside the reach of many consumers.
The Law Reform Commission has suggested that Section 74 administration orders could be amended by increasing the notice period; ensuring that administrators are registered and regulated; introducing measures aimed at ensuring that proper charges are levied; ensuring that old administration orders lapse after the expiry of a specified period; and that debts not yet due should not be paid until such debts become due and payable (future debts). The current maximum amount of R50 000 for administration orders, should also be regularly and automatically adjusted. However many consumer bodies are advocating for the scrapping of section 74 and for the beefing up of the NCA provisions relating to debt review.
“Over-indebted consumers need a single streamlined process that deals with their debt problems holistically, balances the rights of creditors to receive their money with that of consumers to be treated fairly and allows consumers to be rehabilitated within a reasonable period of time “The simple intervention of creating a single, practical process for dealing with all their debt would help many of South Africa’s millions of over-indebted consumers get back on their feet financially much more quickly and affordably.”