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NATIONAL CREDIT ACT
The National Credit Act
The National Credit Act 34 of 2005 intends to:
• promote a fair and non-discriminatory marketplace for access to consumer credit and for that purpose to provide for the general regulation of consumer credit and improved standards of consumer information;
• promote black economic empowerment and ownership within the consumer credit industry;
• prohibit certain unfair credit and credit-marketing practices;
• promote responsible credit granting and use and for that purpose to prohibit reckless credit granting;
• provide for debt re-organisation in cases of over-indebtedness;
• regulate credit information;
• provide for registration of credit bureaus, credit providers and debt counselling services;
• establish national norms and standards relating to consumer credit;
• promote a consistent enforcement framework relating to consumer credit;
• establish the National Credit Regulator and the National Consumer Tribunal;
• repeal the Usury Act, 1968, and the Credit Agreements Act, 1980; and
• provide for related incidental matters.
Debt Counselling / Debt Review is a statutory relief process provided for by the National Credit Act 34 of 2005 and the National Credit Amendment Act 19 of 2014. Debt Review provides relief in the form of negotiating repayment arrangement terms on credit agreements in respect of a consumer’s debt obligations.
Debt Counselling in the National Credit Act (according to the National Credit Regulator – NCR)
What is debt counselling?
• Debt Counselling which is also referred to as debt review, is a debt relief measure provided for in the NCA, to assist over-indebted consumers struggling to pay their debts on a monthly basis.
• To determine the level of over-indebtedness and how consumers can be assisted, an assessment of the consumers’ financial position is conducted by comparing the income of the consumer against the basic expenses and debt obligations of the consumer.
• If the consumer is found to be over-indebted, negotiations with credit providers for reduced payments and the restructuring the debts will commence.
• Lastly, the restructuring of debts must be confirmed by the Magistrate Court or the National Consumer Tribunal(NCT) through a court order or consent order.
Who conducts debt counselling?
• Debt counselling is conducted by a Debt Counsellor (DC) registered with the NCR. Upon registration, the DC is provided with a registration certificate which he/she should display at his/her place of practice. This certificate can be requested for inspection by the consumer if not displayed at the place of practice.
• The DC has an obligation to explain the debt counselling process and consequences of being under debt counselling to the consumer before the consumers can sign the application for debt counselling. All applicable fees must be disclosed to the consumer in writing.
The debt counselling process
• A consumer voluntarily applies for debt counselling to a DC by completing an application (Form 16) and by submitting relevant documentation.
• Consumers married in community of property(COP) must make a joint debt counselling application and cannot apply for debt counselling without consent from their spouse.
• A DC will inform credit providers and credit bureaus of the debt counselling application by issuing a Form 17.1 within five (5) business days of accepting the application from a consumer.
• A credit provider will send the Certificate of Balance(COB) to the DC showing the latest financial information specific the credit agreement, such as outstanding balance, monthly instalment, interest rate and others within five (5) business days of receiving the notification for debt counselling application (Form 17.1).
• A credit bureau will place a debt counselling flag on the consumer’s credit profile. This flag is not a negative listing or “Blacklisting” as mostly referred to, it is just an indicator that the consumer is under debt counselling.
• A consumer who is under debt counselling cannot apply for further credit.
• The debt counselling process (i.e. the application, the negotiation process and the referral process to the Magistrates Court or the NCT) has to be completed within a period of 60 business days from date of application. Within this period, the consumer is protected against legal action such as repossession of assets, default judgment and others by the credit providers.
• A DC will upon receipt of a COB conduct an assessment to determine if the consumer is over-indebted or not.
• After the assessment, the DC will either reject the application (if consumer is not found to be over-indebted) or accept the application (if consumer is found to be over-indebted) and communicate the outcome with the consumer, credit providers and credit bureaus by means of a Form 17.2.
• If the application is accepted, the DC will draft a restructuring proposal and send it to the creditor providers for consideration;
• If all credit providers accept the restructuring proposal, the DC will refer the matter to the NCT for a consent order;
• If one or more credit provider decline the restructuring proposal, the DC will refer the matter to the Magistrate Court for adjudication;
• If the Magistrate Court grants the restructuring court order, the DC will send the court order to the consumer and all applicable credit providers.
• Upon receipt of the consent order from the NCT or the court order from the Magistrate Court, the credit provider will restructure the credit agreements in line with the terms of the restructuring court/consent order.
• Debt counselling does not offer any payment holiday and a consumer has a responsibility to make payments as advised by the DC from the initiation of the debt counselling process.
• A consumer who is under debt counselling can make payments directly to his/her credit provider(s) or make use of a Payment Distribution Agent(PDA) registered with the NCR to make payments.
• A PDA is an entity registered by the NCR to collect and distribute debt counselling payments to credit providers on behalf of the consumer under debt counselling.
• If a consumer defaults on payment whilst under debt counselling, the credit provider may terminate the debt counselling application and enforce legal steps against the consumer.
Clearance certificate process
A consumer under debt counselling, can only be cleared or exit debt counselling if the following has occurred:
• If all debts that have been subject to the debt counselling restructuring order have been paid up in full; or
• If all short term debts have been paid up in full and the only remaining debt is a home loan account which is up to date in terms of the debt counselling restructuring order.
After verifying all the paid up letters, a DC will issue a clearance certificate and inform the credit bureaus to remove the debt counselling flag and expunge all information relating to consumer’s debts which were under debt counselling.
Applicable debt counselling fees
The debt counselling service is not offered for free and there are fees applicable, however consumers do not have to borrow money to make payment for debt counselling fees