Is Debt Review Expensive?
We all know that you get what you pay for. Buy a cheap ‘n nasty no-name brand product from the guy on the station platform for a pittance, and you will not be surprised if it stops working after a short while. At the same time, many products these days, are outrageously overpriced. Way too expensive for what you actually get. The same can be said for certain services.
So the question is: What about Debt Review? Do you get what you pay for and is it expensive?
Is Cheap Always Better?
While some products are overpriced, a product or service that is a bargain can also be suspicious. If the cost is too low, will the company offering the service actually provide the full service they are selling?
Would you trust an open heart surgeon who offers to do the surgery, on the cheap, in the back room of a local hotel for only R5000? Obviously not! We understand that to get quality service, you often have to pay a reasonable price.
Debt Counselling is a Professional Service
Debt Review is a legal process done via court. It takes many hours for the trained individual to assess your debt situation, consider the law to ensure the consumer’s rights are protected and make a proposal to the courts on how the debt could be restructured.
No Set Fees
Plumbers, doctors, accountants and lawyers all charge professional fees. In some industries, these fees are regulated by law or by association standards. In South Africa at present, there are no legal limits in the National Credit Act or regulations on what a Debt Counsellor can or can’t charge. Over the years, however, the industry has set its own standard fee structure, which most Debt Counsellors charge. This normal fee structure is endorsed by the NCR.
Debt Counsellors are trained professionals who pass a set exam and are vetted by the National Credit Regulator to practice debt review. They are entitled to charge a professional fee. Without it, they would not be able to run their business and assist consumers.
What Are The Fees?
At present, the DTI and NCR are investigating new fee structures and maybe one day they will be included in the law, but let’s deal with the fees as they are ‘commonly’ charged at present. The fees consist of two parts; (1) the first 2 months – where the largest portion of fees are paid and then (2) a small monthly amount until the debt is paid.
The First Two Months
The Restructuring Fee
When a consumer enters the process, the Debt Counsellor performs a debt review and figures out what the consumer needs each month to pay their household needs and what they have left to pay towards their debts. This available amount for debt is then turned into a proposal to all credit providers and the court. Until the court makes a ruling on the suggestion and says the consumer is over indebted a temporary repayment arrangement is put in place and the consumer begins to pay according to this plan each month.
In the very first month, when the consumer starts repaying their debt through debt review, some of the funds are allocated to the Debt Counsellor.
If a consumer pays very little toward their debt, according to what they can afford, then perhaps all the funds will be allocated to the Debt Counsellor.
If the consumer pays a lot, then a larger amount will be allocated to the Debt Counsellor.
There are caps or limits that Debt Counsellors charge. At present, the norm is that if the consumer ends up paying any amount less than R6000 a month toward their debt then that full payment amount (whatever it is) will be allocated to pay the Debt Counsellors fee.
If under the restructured plan, the consumer pays more than R6000 a month toward their debt, then only the capped R6000 will be charged, no matter what the consumer pays. Some consumers pay up to R50 000 a month toward their debts because that is what they can afford to repay each month.
So, as an example: If the consumer can afford to pay R2500 toward their debt each month under debt review, then when they make their first payment of R2500 the full amount is set aside for the Debt Counsellor that month.
The Legal Fee
Debt review matters go to court or tribunal and most Debt Counsellors and consumers make use of attorneys to handle the legal side of things. Once again the National Credit Act remains silent on fees for this part of the process, but the legal fraternity does have guidelines and limits in place for legal work. Before starting this side of things, the Debt Counsellor will inform the consumer of the legal costs. Most of the time, this can be done (estimated) at the very first consultation. There is no indication of what exactly the legal fees are for but most of the time it relates to setting the debt review application before court and all those associated costs. Legal fees may also cover a monthly retainer or cover legal representation throughout the entire process for various services. Consumers can get more info on that from their attorney or DC.
After Care Fees
From month 2 until month 25, an after care fee of 5% (of the restructured debt repayments) can be charged. There is a limit on these fees in that the amount can never be more than R400 a month, even if 5% would normally be more than that.
These fees ensure that a consumer continues to get service from their Debt Counsellor. This may include among other things, counselling, advice, assistance obtaining information from credit providers, tracking the consumer’s payments, helping resolve differences between the PDA and credit providers, an annual review of the consumer’s situation, amending the court order and many other things. If a consumer does not pay their Debt Counsellor, then like any other service you do not pay for, the DC would not continue provide any services (unless they felt like it for some reason).
Is This Expensive?
An Advocate of the High Court can charge their clients R6000 per hour for the time spent in court. Most cases take many hours to resolve and countless phone calls, emails, consultations and more, all of which are billed.
A consultant to the Department of Public Works can charge around R1620 per hour. Consultants to the Department of Public Service and Administration can charge between R900 and R1363 per hour. According to the South African Council for Property Valuer Profession if an arbitrator or mediator is needed to assist in a dispute they can charge (a minimum of) R12000 for a day. Their professional fee guideline shows that a professional Property Valuer with several years’ experience can charge R1600 per hour (or part thereof).
According to the South African Council for the Architectural Profession, an architect with less than 10 years experience can charge R1779 per hour and if they have more than 10 years experience they can charge R2963 per hour.
‘Debt Counsellors were earning on average R87.20 per hour’
Back in 2014, a Debt Counsellors association (DCASA) conducted research across the industry and found that a Debt Review consists of over 50 hours total work per matter and that at the time Debt Counsellors were earning on average R87.20 per hour. They also reported that at the time, around 1 out of every 5 clients never paid for the work done for them.
NCR Issued, Non Binding Opinion on Fees
The National Credit Regulator has an opinion on what Debt Counsellors should charge consumers for debt counselling. They have issued it as a circular to the industry, and they like it when Debt Counsellors listen to their opinion. They call it the ‘NCR Fee Guideline’. The original guideline matched what the Debt Counsellors Association of South Africa suggested for its members. The NCR have only changed their non-binding opinion once in 10 years, when they suggested that Debt Counsellors could charge a bit more than before.
The second NCR Fee guideline was issued with what seems to be a mistake in regard to the figure chargeable for a Joint Application (it talks about increasing a payment for one person – at the R6000 cap, up to R6000 – the exact same figure – for two people). It was probably originally meant to be R8000 but it says R6000 and as a result, DCs tend to stick to that. It may just be a grammatical mistake and not a mathematical one so DCs err on the side of caution.
The NCR’s opinion on fees is not currently binding since they are not part of the law, but the NCR are working with the DTI to have a new fee structure published as a regulation in the Government Gazette in the future to help regulate the industry. Regardless of what the maximum rates end up being, it is important to remember that individual Debt Counsellors can always charge less, in an effort to be competitive.
Pay The Fees and Save A Bundle on…Fees?
Due to the fact that most credit providers assist consumers in debt review by dropping fees and charges on accounts, as well as interest charges, consumers often save a huge amount over time. This saving soon outstrips the fees paid to the Debt Counsellor and allows consumers to get out of debt sooner. For example; creditors could charge a consumer (around) R60 a month in account fees. Many consumers have between 8 and 12 different accounts when they begin debt review. For simplicities sake, let’s use the figure of 10 accounts, R60 x 10 accounts is R600 a month in fees that credit providers will probably stop charging a consumer who enters debt review. In a year, that’s R7200 in saving on just these small fees.
It can immediately be seen that based on these small fees, the cost of the debt review is expeditiously recovered. Consumers who have dropped interest rates on unsecured credit can save thousands of Rand quickly. These concessions are negotiated with credit providers by the DC and help consumers get out of debt ASAP.
Debt Review Is Not Expensive
Undoubtedly then, paying a professional DC for their services is well worth it and convenient. Since the fees are part of the restructured repayment plan (not over and above a consumer’s monthly debt repayments) this means the funds are available immediately after starting the debt review process. No need to save up for months before starting the process while things get worse and worse. The fees are built in from the start.
‘Debt review is an incredibly cheap way to get professional specialized assistance’
The majority of debt review fees are quickly paid in the first 2 months and consumers then only pay a small amount each month to ensure they get ongoing professional advice on handling their debt situation. Debt review is an incredibly cheap way to get professional specialized assistance and as a bonus, receive great concessions from credit providers to help you get out of debt, as soon as possible.