Do you have a contract with your PDA?

If you are a debt Counsellor or a consumer who is under debt review you might be making use of a Payment Distribution Agent (PDA).

It is widely known that while PDA’s are not mentioned in the National Credit Act the National Credit Regulator (NCR) want Debt Counsellors to use a PDA.

The question arises: 

If you are making use of a PDA , do you have a contract with them? As a service provider under the Consumer Protection Act there should be a service level agreement or contract in place between both parties (or all 3 parties in the case of a PDA and DC and consumer).

It is true that a DC gives instructions to a PDA on how to distribute funds for a consumer (according to their court order) but it is the consumer who has money at the PDA and should insist on the provision of a contract stipulating what a PDA will do for them.

At present no PDA offers a contract to consumers. Seemingly they do not wish to define what services they offer. This leaves them open to litigation under the CPA. Fortunately all PDAs carry insurance. Consumers should not be shy to sue these bodies should they fail to offer good service, as a lack of contract will play very much in to their favor.

So take that first step. Simply call us directly at 086 111 3749 or contact our supportive debt counsellors via our contact page. Dont have the time? Request a Free Call Back and one of our counsellors will contact you! Zero Debt is a certified Debt Counselling company.

The costs of ignoring Section 129 letters add up

The National Debt Mediation Association (NDMA) says it is concerned that consumers are not aware of the costs of legal action should they delay seeking assistance when they start experiencing difficulties with meeting their monthly debt obligations.

When a Creditor is about to take legal action against a consumer they will send what is called a Section 129 Letter

An analysis of complaints received by the NDMA shows that consumers are still not approaching their credit providers the moment they start experiencing payment difficulties with the consequence that by the time they seek help their case is already in the legal process or a court order is in place. This makes the case difficult and expensive to resolve.

The Section 129 letter urges consumers to head to a debt counsellor to get help as soon as possible.

For the year ending December 2011 in more than 50% of cases that the NDMA received requests for help or complaints dealt with when a credit provider was in the process of executing a court order against a consumer.

Depending on who manages the collection process legal costs incurred can include collection commission interest on outstanding costs, sheriff expenses and correspondence expenses.

“By not acting quickly enough it can cost thousands of rand which the consumer could have used towards settling outstanding debts” says CEO of the NDMA Magauta Mphahlele.

In one case a consumer who owed R5443 in capital and interest ended up with a salary attachment order of R12409. This included R6976 in legal fees that went to the collecting attorneys.

This included 10% collection commission at R1 104

Costs of R3166

R2795 interest on outstanding costs

and R598 for VAT.

It is unclear if this exceeds the Section 103(5) induplum limit or not

Consumers can avoid such costs if they seek assistance early. She explains that this trend draws attention to the possibility that the average South African consumer is either ignorant of their rights and responsibilities or does not trust what action the credit provider will take once they approach them for assistance. “… Consumers are urged to take advantage of the avenues available to seek advice and assistance” adds Mphahlele. She says that many consumers take action a day or two before their houses or vehicles are auctioned or repossessed which is often too late.

With credit agreements that are regulated by the National Credit Act (NCA) the legal process commences with a section 129 notice that credit providers are obliged to issue to a consumer once they are in default for at least 20 business days. If 10 business days elapse without the consumer responding to the credit provider the credit provider is at liberty to take legal action.

“While the section 129 notice might seem like an intimidating document for many consumers it is not necessarily the end of the world if the consumer takes action in respect of the options provided in the letter” says Mphahlele. Once a consumer has received a section 129 letter they have the option to refer that specific credit agreement to a debt counsellor an alternative dispute resolution agent consumer court or Ombud with jurisdiction. The intention is that the credit provider and the consumer resolve any dispute related to the agreement or to bring the payments up to date. This will allow the account to be included into a debt review.

She urges consumers to inform their credit providers as soon as they experience or anticipate that they will experience payment difficulties. Where a section 129 letter has been issued consumers are urged to respond to the letter by contacting the credit provider and informing them how they intend to remedy the default or take any other relevant actions. If they are under debt counsellingdebt counselling they should consult their debt counsellor. If after approaching the credit provider a consumer is unhappy with the response Mphahlele urges them to contact the NDMA for assistance.

So take that first step. Simply call us directly at 086 111 3749 or contact our supportive debt counsellors via our contact page. Dont have the time? Request a Free Call Back and one of our counsellors will contact you! Zero Debt is a certified Debt Counselling company.

Debt Free With Zero Debt

The National Credit Act Protects You!

 

Debt Management Benefits

 

 

  • Reduced interest rates down to 0%, accepted by creditors
  • Monthly repayments reduced
  • No additional loans
  • 95% of our clients are debt free within 36 – 60 months
  • Free debt assessment

3 Important Debt Review Questions

People in debt review often encounter procedural problems and mistakes that make matters worse. Credit providers (CPs) may give the impression everything is the debtor’s fault. Closer examination reveals that CPs make their share of mistakes and have a habit of blaming others.

 

Here are some frequently asked questions and some possible explanations:

Why does my CP harass me when I have made arrangements to pay?

This is often the result of miscommunication between a bank’s debt review department and its product divisions (credit card division, bond division, personal loan division etc). The departments often don’t talk to each other.  A product division sees only that the client is late with a monthly payment and is unaware the customer is under debt review and the account has been restructured.

The bank’s system may not have been updated and product division staff may not have read their emails. After all, their primary job is to push their products.

Note, however, if you are under debt review, the CP is not allowed to contact you about your debts more than three times a week, and only then during office hours, Monday to Friday.

Why did the PDA not pay the creditors?  

The payment distribution agency (PDA) has the mandate to make repayments on behalf of an individual under debt review, but incorrect information can cause problems.

For instance, the bank may have updated or changed the client’s account from a normal account to a ‘legal account’ indicating the client is under debt review. The bank generates a new account number, but might not tell the PDA.. The PDA continues to use the previous account number. As a result, no payment is reflected on the account that is owed the money. The payment goes into the wrong account.

 

Why do I still get a summons when a court order has been issued?

A court order confirming a debt review and debt restructure should lift the threat of a summons, but a bank might still take out one. This causes some to accuse the bank or CP of acting in bad faith. An alternative explanation involves the time-lag between the last update of the CP’s system and the issuing of the court order.

A CP may be slow to input the new information. In contrast, a debt counsellor (DC) will usually start the debt restructuring process as quickly as possible.

On receipt of a summons, a customer will often contact the CP, who may then blame the DC for non-performance or might even imply the DC has simply taken the client’s money.

When this happens, the debtor must continue to make repayments while informing the DC.

If a court order is in place, a summons cannot be legally enforced unless the order has been rescinded. Overturning a court order is almost impossible if agreed repayments continue to be made.

The debtor can escalate the matter to the Head of Complaints at the National Credit Regulator. To confirm repayments are being made, request a PDA report from your DC or produce monthly documentation from the PDA.

Keep your eye on your money

When consumers enter debt review it is sometimes partially due to them having experienced difficulty managing their monthly budget.

It is a challenge to balance what comes in with what goes out. Few consumers run a regular budget before entering debt review. Then after entering debt review and finally having an industry expert who can help you with your debt many consumers just want to know how much to pay and forget abpout the stress of counting beans every month. While this is a logical and totally normal reaction it can also present a danger.

It is a big mistake to think that your creditors are actually doing their part of the debt review process and allocating your regular monthly payments via the PDA to your accounts with them.

One way to see if they are doing this is to look at your regular monthly statement from the creditor and compare it with the statement/projection given by the PDA.

If you do not get a statement from your PDA then you should complain at once. Ensure you get one monthly. Check that the account numbers look right. Compare it to last months statement.

Next, compare it to the various statements from your creditors. If you don’t get a statement from a creditor then complain at once. Insist on a statement. Otherwise you might find that several months go by and the bank or store have not been allocating funds to the right account. Worse they might then stop cooperating with the review process saying that you are not making payments.

Remember that though it is nice to get a professional to help you with your debt, it is still YOUR debt and not that of the Debt Counsellor. Part of the debt review process is to become better at handling your finances. Do not be shy to pester your creditors or your PDA till you have surficient info each month to track the progress of your debt review. Compare payments made to the plan your Debt Counsellor has handed to the courts and got a court order for. If you spot any problems with YOUR debt then tell your Debt Counsellor at once and they can help you investigate.

Signed contract with your debt counsellor?

When beginning the debt review process many consumers will be asked to fill in a standard form called a Form 16. This form helps set out the consumers income vs expenses as well as debt obligations to the best of their knowledge at the time.

Often times consumers and Debt Counsellors mistake this form for a contract between the two parties since most Debt Counsellors have included sections to this form which set out the costs and possibly a limited power of attorney.

A Form 16 is not a service level contract however.

Under the Consumer Protection Act a contract to provide a service should set out clearly the services that will (and will not be offered)

If you are a Debt Counsellor you should prepare such a document for each consumer and have them go through each section and clearly indicate that they understand. Keep the Jargon to an absolute minimum and clearly state what services you will offer. Make clear to the consumer that their debt remains their debt and the obligation to pay their debt and normal monthly running costs lies firmly with them.

Also state that Debt Counsellors do not have authority to restructure debt – only courts do.

A clearly worded contract can help avoid any confusion on the part of a consumer.

So take that first step. Simply call us directly at 087 702 1738 or contact our supportive debt counsellors via our contact page. Dont have the time? Request a Free Call Back and one of our counsellors will contact you! Zero Debt is a certified Debt Counselling company.

The DCI call out banks regarding bullying tactics

Protections under the National Credit Act (NCA) do not appear to prevent banking ‘bullies’ resorting to intimidation tactics when pursuing debtors, claims the DCI founder Debt Counsellor Deborah Solomon.  She says she has uncovered a pattern of banking industry behaviour that indicates “scant respect” for debtor rights enshrined in the NCA.

She says: “I am compiling a list of case studies involving banking institutions and the tactics used to terrorise some debtors.”

“The studies display many common features, including scare tactics rather than respect for legal process, pressure on harassed consumers to exit debt review and unwarranted attempts by banks to get debt review orders rescinded so they can terminate debt repayment schedules and make a grab for a debtor’s home, car and other property. There is also a total disregard for the in duplum rule which the banks seem as a matter of course refuse to implement.

“These banks disregard notifications that they are riding roughshod over court orders protecting the consumer. They seem to think they can act with impunity – a major concern as it suggests they believe they won’t be reined in by the National Credit Regulator (NCR).”

Solomon quotes one case in which;

 

  • Client A went into debt review in early 2010;
  • A court order was granted in March 2011 to support a payment plan and debt restructure – supposedly a signal to a creditor bank to leave the debtor in  peace as long as agreed repayments are made;
  • Between March 2011 and September 2012, 25 attempts were made by the creditor bank to have the debt schedule terminated, even though the payment plan was supported by a valid court order;
  • Client A not only made all monthly repayments, but paid more than the minimum;
  • Six complaints were made to the NDMA without response;
  • The NCR complaints division finally managed to resolve this matter.

Solomon notes: “It is not possible to overturn a valid court order supporting a debt repayment plan if the debtor honours the obligation to repay. Yet these banks continually try to have orders rescinded.”

“Every notice that lawyers are trying to rescind the order increases debtor distress and incurs wasted costs. Meanwhile the bank puts pressure on the debtor to exit debt review as this means the debtor will no longer receive the advice of a registered debt counsellor.

“Once out of review, debt review protections fall away and the debtor becomes even more vulnerable.”

She says consumers often believe major institutions must be acting properly and therefore fail to fight back.

“Consumers must not simply assume banks always act ethically but take steps to investigate consumer rights and the duties imposed on credit providers,” she says..

“Debt Counselling is a huge success that has saved thousands of homes and cars. Imagine how many more consumers could be saved if the big four banks stopped acting in bad faith”

Confused consumer owes more now than four years ago

This weekend Bloomberg reported on the experience of one South African Consumer’s experience with African Bank. Ntseane is a mine worker in the north of the country. Over the past few years Ntseane has turned to African Bank for loans on several occasions including when his grandmother died (for the funeral) as well as, to buy a sofa and make extensions at his home. In total he borrowed around R 18 000. an amount which now due to interest and payment issues has climbed to over R30 000 four years later. He earns around R12 000 a month and is now making payments of R1700 monthly toward his debt with African Bank.

Like many South Africans he says that he does not understand how interest works and what a percentage of 14 percent means. He also says that he did not really understand what he was agreeing to back when first taking out his first loan. After being stabbed in a robbery in his home back  in 2010, Ntseane couldn’t work for almost a whole year (10 months). At that time he was relieved to hear that African Bank would agree to “put off loan repayments” and wouldn’t” charge him any interest”. He was in for a surprise however. As is often the case in a large organization it seems one hand did not know what the other was doing and when he returned to work he discovered he now had three garnishee orders against his pay slip.

This is unfortunately how the game is played. Whether through incompetence or malice it seems the offer made to Ntseane was either misunderstood by the consumer or was incorrectly made. It is, after all, highly unusual for any of the banks to offer a loan “interest free” for any period of time during the life of the debt. They may do so for a month or two upfront to sweeten the deal or draw consumers in but once the contract is signed this seldom happens. Banks might let you pay less or even skip payments knowing that to do so means that the interest portion will increase earning them more money over time.

Often this is because most of the large banks are unable to make their computers do things like change interest rates or adjust capitol amounts. This is something that frustrates Debt Counsellors and consumers particularly when a court has ordered a creditor to change figures for a debt review. It seems these multi-trillion Rand companies can’t afford to get computer programmers to change their systems to allow for changes of this nature. Once payments don’t match up to what the computer is waiting for automated systems often initiate collection and legal processes causing even further chaos. Some creditors have grown smart and begun to use outside companies with their own software such as Consumer Friend which then track the debt independently and help balance the books.

If you discuss something like the arrangement that Ntseane says he made with African Bank then it is best to get confirmation in writing rather than just an agreement with a call center person over the phone. Often banks say they are recording the conversation but struggle to find records of them later (especially if it will indicate something detrimental to them…). Beware of any such offers made over the phone.

Sadly a combination of under-informed consumer and greedy lender is not new… it is just how the game is played. When borrowing funds expect to pay back much more than you borrow. This is the cost of borrowing funds. If you want to avoid this then don’t borrow funds orrather only pay for things when you have saved up the funds. However in an age when there is a focus on instant gratification this is not a popular attitude.

Though the month of January is only half way through, debt counselling firms are reporting increased numbers of applications for help with debt review in January 2013 compared to January 2012.

This is no wonder as country wide indebtedness levels have grown. Consumers have struggled to curb spending and have rather turned to loaning money to maintain their lifestyle choices. As the “average” South African takes on more debt they bring themselves closer to financial disaster. Investec economist Annabel Bishop reports that the “average” SA household now has 31,8% more unsecured debt than a year ago.

Neil Roets, CEO of the debt counselling firm Debt Rescue says that this January there had been more than double the number of deeply indebted individuals applying  for relief through the debt review process compared to last year.

The upside of increased applications (besides more work for Debt Counsellors) is that more consumers in debt review gives more power to Debt Counsellors as well as debt review consumers. Hopefully these increased applications will eventually reflect in better attitudes by creditors.

Tips for borrowing funds

Before taking on debt, the Credit Ombud, Manie van Schalkwyk urges consumers to make sure they understand the true costs of borrowing and payment conditions.

“You can end up paying many more times what you borrowed in interest alone,” says Van Schalkwyk.  “Interest rates differ for long term debt such as home loans and short term debt such as credit and store cards.”

While your home loan may cost between 8-12% in interest on outstanding amounts, credit cards will cost you up to 22% interest every month.  When it comes to taking short term loans, – credit providers are allowed to charge you up to 60% interest!

“Borrow as little as possible,” advises Van Schalkwyk.  “Borrowing to fund your children’s education or a home loan can be a good thing, but taking on debt to pay off other debt or fund luxuries such as designer clothing can condemn you to a lifetime of always being in the red.”

Van Schalkwyk also warns that consumers should investigate debt consolidation offers from banks thoroughly.  A consolidation loan offers to combine all your debt into one loan agreement.   “It may be easier to manage your repayments, but make sure you are not paying a very high interest rate on both your long and short term debt.”

He adds that consumers should also be aware of garnishee orders, which allow credit providers to deduct repayments from your salary, after you have defaulted on the original debt repayment arrangement.

“Make sure you understand exactly what you are signing, what costs are involved and how much will be deducted from your salary each month” says Van Schalkwyk.  “In some cases we find employees taking home next to nothing after deductions of garnishee orders.”

He warns that it can be a lengthy and costly legal battle to change garnishee orders, so don’t be afraid to ask all the questions up front and at the time of signing a consent to judgment document.

Under the National Credit Act (NCA), it’s your right as a consumer to be given a pre-agreement statement and quotation when seeking credit.  These will outline the terms and conditions of the proposed agreement and all costs involved such as cost of credit, interest, service fees, initiation fees, credit insurance, deposit required, number of instalments, date of first instalment and last instalment.

“You must know what is expected of you prior to signing the credit agreement,” explains Van Schalkwyk.  “Be aware of exactly how much it will cost you and for how long. If you don’t understand something, take your time and ask for assistance.” It is also a good idea to take the agreement away and read it at home, or even to compare it to another offer from a different credit provider.

He says consumers should never sign a blank credit agreement as you won’t have control over other information added after you sign.  The loan agreement should also contain all other charges that will be added.  “Only borrow from a reputable credit provider otherwise you will have no recourse if things go wrong later on.”

Another key factor in the borrowing process is ensuring that the credit provider has all the necessary information for the affordability assessment.  These are undertaken to ensure that you do not borrow more than you can afford and become over-indebted.

“If you become over-indebted and cannot repay your debt, credit providers can attach your assets, such as your home or car, or deduct the money directly from your salary” says Van Schalkwyk.  “Not only could you end up in lengthy and expensive court battles, it may even affect your job prospects, so it’s better not to borrow recklessly in the first place.”

He explains that if you do find yourself running behind on your repayments, contact your credit provider as soon as possible and before the account is handed over for collection and legal action.  They may be willing to negotiate a payment holiday or reduce your instalments.

“The quicker you seek out help, the quicker you will be able to get out of debt,” says Van Schalkwyk. If you find yourself in this situation talk to a professional Debt Counsellor quickly.

Tips for borrowing wisely:

Budget.  What’s the difference between how much income your family earns and what your total expenses are each month? Will you be able to pay for your debt once you’ve covered all your expenses?  What if interest rates go up, how much more will you be paying? You should also plan for unexpected costs; such as if you are in an accident or one of your family members is retrenched.

Borrow as little as possible. As a rule of thumb you shouldn’t borrow more than 35% of your income or you could run into trouble on your repayments.  Put aside at least 15% of your income every month in a safe investment for your retirement.

Honesty is the best policy.  Disclose all the information required to your credit provider, particularly for the affordability assessment. If you’re dishonest, you could lose the protection offered by the NCA against reckless lending.

Pay on time, every time.  Paying late will adversely affect your credit rating and possibly your ability to take out credit in the future.  If you think you cannot meet your monthly instalments, call your credit provider immediately and try to re-arrange payments. Do not wait until you skip payments.

Home loan comes first.  Pay your home loan first .

Check your credit report regularly. This way you’ll be able to identify any errors and correct them.  Under the NCA a credit bureau must provide you with one free copy of your credit report each year from each of the eleven registered bureaus. Additional copies cost between R20 and R30 excluding VAT.