“The day after January’s pay day will be the most shocking day for many South Africans. This will be the day that money comes in and goes straight out, and for many we expect they will find themselves left short with no money for living through February. I am extremely concerned that consumers with high levels of debt are headed towards serious cash flow shortages in 2016.”
28 November 2012
July 12, 2007
By Tonny Mafu
Johannesburg – People hoping to get out of the debt trap with the help of counsellors appointed by the National Credit Regulator (NCR) should prepare themselves for a long wait.
The regulator has managed to register only 70 debt counsellors, well below its target of 300.
South Africa has at least 300 000 heavily indebted people, according to official statistics.
About 80 000 default judgments are recorded each month. Independent studies suggest that the ratio of debt to disposable income could be higher than 100 percent, compared with the official 76 percent.
Under the National Credit Act, which came into effect last month, individuals battling to make repayments on their debt will be able to get guidance on how to restructure their payments.
This requires the services of a debt counsellor, who will provide budget advice and mediate with lenders on behalf of the consumer.
Pansy Tlakula, the chairman of the NCR, said a shortage of debt counsellors would undermine one of the main objectives of the new credit law: assistance for consumers who were failing to service their debt payments.
The regulator faces serious hurdles in enforcing the new law and handling the onslaught of complaints from consumers.
While the consumer awareness element has been well tackled, other issues are key to the success of the legislation and building public confidence in the new law.
Tlakula said the heart of the debt counselling issue was the levying of fees.
The NCR chose to pay counsellors on a cost recovery basis, in which the fee levy could serve as remuneration for career debt counsellors. Tlakula added that the preliminary assessments showed that the poor response in the registration of debt counsellors might be a result of the fees, which could have been regarded as unattractive.
In May the regulator said debt counselling fees were expected to range between R500 and R1 200, depending on the time taken to review an indebted consumer’s affairs.
Research done by the regulator showed that it could take up to 13 hours to help review and reschedule debt for a consumer with between seven and 12 credit agreements.
To qualify as a debt counsellor, one should have matric, complete a counselling course approved by the NCR, and have two years of working experience in in the field of consumer protection, consumer advisory services, legal services, accounting or financial services, or education or training services.
Debt counsellors must have no criminal record.
But Bridget Godbeer of law firm Deneys Reitz said the registration requirements for debt counsellors fell short of the minimum standard that would have been expected.
The company said overindebted consumers might be uncomfortable with entrusting their debt rearrangement and financial wellbeing to “a relatively inexperienced minor with a matric certificate and two years’ work experience in one of the general fields”.
National Consumer Forum chairman Thami Bolani has shot down the levying of debt counselling fees.
Bolani said the fees would be expensive for low-income earners and might discourage them from getting help. He suggested a subsidy.
Tlakula said the regulator was at a “sensitive stage” in negotiations with the department of trade and industry on debt counselling fees.