NRC sets up debt counselling fund for poor

September 17, 2007 By Tonny Mafu Johannesburg

Debt Counselling for low-income households 

Relief is in sight for South Africa's heavily indebted poor households. The National Credit Regulator (NCR) said last week that it had set up a fund to finance the debt counselling of low-income households with monthly earnings of less than R2 500.

This comes after three months of uncertainty around the fees to be paid by individuals seeking assistance from debt counsellors. In May, the regulator said heavily indebted consumers were expected to pay between R500 and R1 500. The National Consumer Forum said these fees could discourage low-income earners from seeking help.

However, Gabriel Davel, the chief executive at the NCR, said the regulator had already set aside about R1 million. The money would be put into a fund to finance debt counselling services. While the regulator can get approval of a further R5 million from the government, it said it had approached donor agencies to shore up the fund.

Under this new arrangement, debt counsellors will be paid R500 from the fund for each case involving a low-income earner. Davel said high-income individuals would have to pay.

The debt counsellors' fees would be recovered from the repayments on the reviewed debt. The regulator has opted for a fee structure in which 5 percent of the monthly repayments would go to a debt counsellor. The regulations governing the fee regime were released for public comment by the department of trade and industry last week.

Davel said the fee regime was meant to ensure that a debt counsellor kept track of his client. If the indebted individual stopped the monthly repayments, a debt counsellor would not receive his fee. Some debt counsellors said the costs they incurred in each case differed.

Anthony Richards, the interim chairperson for the Debt Counsellors' Association of SA, said counsellors had to build up information about clients from different credit bureaus. In cases in which an individual has multiple credit contracts, the costs of processing documents are higher.

Mpumalanga-based debt counsellor Johannes Zwane said it would make the business of debt counselling more viable if the regulations provided for a higher fee for individuals with multiple credit contracts.