New rules in bid to curb abuse of debtors

In a bid to curb the exploitation of consumers, the National Credit Regulator (NCR) has agreed to guidelines proposed by the Debt Counsellors Association of South Africa (DCASA) and other debt counsellors.

The guidelines are an interim measure to set maximum fees that debt counsellors may charge to limit exploitation of over-indebted consumers, pending the finalisation of fee regulations by the Department of Trade and Industry.

Peter Setou, education and strategic manager at NCR, said the act was silent on fees payable to the debt counsellors apart from the administration fee of R50.

This opened doors for exploitation. Some debt counsellors charged ridiculous amounts and made debtors' lives miserable by demanding additional fees.

Setou said the guidelines covered consumers earning more than R2500 (individual gross income). Consumers earning less than R2500 would be subsidised by the NCR.

He encouraged debt counsellors to charge consumers accordingly. He also reminded debt counsellors to disclose their fees before counselling debtors. Setou said the NCR would not hesitate to take action against any debt counsellor who charged consumers more than what the guidelines stated.

A debt counsellor may receive the following amounts in respect of consumers with an individual gross income of more than R2500 a month or a household income of more than R3500 a month:

l An application fee, recoverable directly from the consumer on receiving an application for debt review, limited to R50 as prescribed by the Act.

l A rejection fee of R300 in respect of consumers whose applications have been rejected in terms of section 86(7) (a).

l A restructuring fee of the lesser of the first instalment of the debt rearrangement plan or R3000 (excluding VAT), in respect of a consumer whose applications have been accepted in terms of sections 86(7) (b) or 86 (7) (c). (Should a joint application be required the fee can be increased to R4000.

l Should a debt counsellor fail to submit proposals to credit providers or refer the matter to a tribunal or a magistrate's court within 60 business days from the date of the debt review application, the debt counsellor has to refund 100percent of the fee.

l A monthly after-care fee of five percent (excluding VAT) of the monthly instalment of the debt rearrangement plan up to a maximum of R300 (excluding VAT), for a period of 24 months, thereafter reducing to three percent (excluding VAT) of the monthly instalment, to a maximum of R300 (excluding VAT), for the remaining period of the debt rearrangement plan.

l Should the consumer withdraw from the process after the debt counsellor has completed the restructuring negotiations, a fee equal to 75 percent of the restructuring fee is payable by the consumer.

l If there are legal fees they may be recovered from the consumer provided the amount is disclosed upfront and agreed to in writing by the consumer.

l The fee structure will be reviewed in January 2009.