(Opinion) Clearance Certificates

Clearance Certificates

In terms of the National Credit Act, a Debt Counsellor is required to issue a clearance certificate to release a consumer from the constraints of debt review.

A couple of years ago, the Act was amended which saw a number of changes as to how and when clearance certificates are issued.  The most significant change was the authority to issue a clearance certificate even though a mortgage bond still remained.  Bearing in mind that the clearance certificate effectively nullifies the court restructure order, the one amendment in particular made sense as previously, the NCA required a Debt Counsellor to issue the certificate to the consumer who could then file a certified copy of the certificate with any credit bureau.  The amendment made it the responsibility of the Debt Counsellor to issue the certificate to all registered credit bureaux.

‘The most significant change was the authority to issue a clearance certificate even though a mortgage bond still remained’

This makes perfect sense so far.  Inexplicably though, the amendment required the Debt Counsellor to issue a certified copy of the clearance certificate.  I can think of no other scenario when an original document is refused in favour of a certified copy of the original, especially when the method of delivery of that certified document is to scan and email it to the credit bureaux.  That’s like refusing a cash payment in favour of a photocopy of the cash.  It makes no sense and adds zero value to the process.  If anything, it increases the potential for fraud.  It makes far greater sense to require an authenticated clearance certificate.  Debt Counsellors are required to update the consumer’s status on an NCR system called DHS.  The credit bureaux have access to this system, and can, therefore, authenticate the clearance certificate against DHS.

‘the credit bureaux…totally disregard the NCA’s requirement when it comes to them acting on receipt of the certified certificate’

Ironically, the credit bureaux, whilst insisting on compliance with the NCA regarding the certification of the clearance certificate, then totally disregard the NCA’s requirement when it comes to them acting on receipt of the certified certificate.  The NCA requires that, on receipt of a clearance certificate, the credit bureaux must expunge from its records (1) that the consumer was under debt review; (2) any default information; and (3) any record that a particular account was subject to debt review.

Credit Bureaux, however, refuse to comply with that requirement and instead insist that Debt Counsellors provide them with ‘paid up’ letters from the credit providers.  Now, the NCA doesn’t actually require a debt counsellor to obtain ‘paid up letters’ in order to issue a clearance certificate.  It requires the Debt Counsellor to ensure that the consumer has “satisfied all the obligations under every credit agreement that was subject to that debt rearrangement order or agreement, in accordance with that order or agreement”.  Obviously, the easiest way to do this is to obtain a ‘paid up’ letter from the credit provider but the NCA does not apply this limitation.  Bearing in mind that most consumers use a PDA when under debt review, it often happens that Debt Counsellors have to reconstruct a statement to check whether an account has been settled in accordance with the requirements of the Act because credit providers so often fail to issue ‘paid up’ letters.

Section 71A

With the amendment to the NCA, a new section was added that is relevant to this argument, namely section 71A.  This section requires credit providers to advise credit bureaux within 7 days that an account has been settled where that account was subject to adverse information. Why then are credit bureaux insisting on receiving ‘paid up’ letters from Debt Counsellors when the NCA requires the credit providers do this?

‘Why then are credit bureaux insisting on receiving ‘paid up’ letters from Debt Counsellors when the NCA requires the credit providers do this?’

Questions

And, while I’m on this subject, why do credit bureaux expunge all adverse information such as listings of “delinquent”, slow paying”, etc but do not remove the account history that shows an account was in arrears?

In terms of the NCA, credit bureaux, on receipt of a clearance certificate, must expunge “any information relating to any default…”.  I’m speaking specifically about the 24 month-on-month history of each account listed with the credit bureau that reflects how many months an account is in arrears.  If the account is subject to a debt restructuring order, and that payments are up to date in accordance with that order, should the credit report reflect that the account is not up to date?  Is it right that the credit providers insist on showing the account has been in arrears every month even though an agreement has been reached or an order granted and the consumer’s payments are up to date?  And why do the credit bureaux insist on keeping that information even though the NCA requires it to be removed?

 

Author ~ Debt Counsellor Alan Manshon of The Money Clinic

With over 30 years of industry experience, Alan is a nationally known Debt Counsellor and financial coach. Through his studies at the University of Stellenbosch Business School and career as a manager at Standard Bank for 16 years, Alan has gained extensive knowledge of the National Credit Act, finance and debt management.

Find out more about The Money Clinic HERE

Leave a Reply

Your email address will not be published. Required fields are marked *