Over-indebted consumers should watch out for the fees that they will be paying debt counsellors after a fee-guideline agreement was reached between the National Credit Regulator (NCR) and the Debt Counsellors' Association of S A.
The guidelines, an interim measure pending the release of the final fee regulations by the Trade and Industry Department, set maximum fees that debt counsellors may charge.
Debt counsellors who are not members of the association are guided by the same agreement, says Peter Setou, education and strategy senior manager at the NCR.
He says the guidelines cover consumers who earn more than R2500. Those earning less will be subsidised by the NCR.
Setou says debt counsellors are encouraged to use the figures as a guideline and to charge less where appropriate.
But over-stretched consumers should ensure that debt counsellors' fees are disclosed before they accept counselling.
In terms of the guidelines a consumer who earns more than R2500 a month or whose household income is more than R3500 will pay an application fee of R50. The money is recoverable from the debt counsellor if the consumer receives an application for debt review.
For those who had their applications declined for any reason they may pay a rejection fee of R300.
After being accepted for debt review a consumer will pay a restructuring fee or R3000 (excluding VAT) for the debt counsellor to start the review. Should a joint application be required, the fee can be increased to R4000 (excluding VAT).
If a debt counsellor fails to submit proposals to credit providers or refers the matter to a tribunal or magistrate's court within 60 business days from the date of the debt review application, the debt counsellor has to refund the consumer.
A monthly installment fee of 5percent (excluding VAT) of the debt rearrangement plan, up to a maximum of R300 (excluding VAT), for a period of 24 months is payable.
This installment reduces to 3percent (excluding VAT), to a maximum of R300 (excluding VAT), for the remaining period of the debt rearrangement plan.
Should the consumer wish to withdraw from the process after the debt counselor has completed the restructuring negotiations, he or she will pay a fee equal to 75percent of the restructuring fee.
Legal fees, if and when they occur, may be recovered from the consumer provided the amount of such fees are disclosed up front and agreed to in writing by the consumer.
This fee structure will be reviewed in January 2009, says Setou.
He says debt counselling is dealt with differently in different countries. Most dispensations do not have enabling legislation and the success rate has been limited.
In the UK it largely operates as a charity with credit providers funding the service, Setou says. Debt counsellors also distribute payments and take a percentage from the amounts recovered from consumers to be distributed.
In Australia it is largely funded by the state and in the US consumers are responsible for paying for this service.
Setou says the system cannot be compared with administration orders, where consumers are charged between 12percent and 22percent of monthly repayments.
"From our earlier investigations it emerged that consumers, once placed under administration, remain there forever with no chances of getting their lives back." Setou says.
He believes there is a need to educate consumers about the effects and consequences of over-indebtedness.