NCR Guideline for Debt Counselling Fees – Part 2
What if Applicants Don’t Qualify or Need Debt Review?
Sometimes with some budgeting advice and a good debt counselling consultation, a consumer can get advice and not need to enter the formal debt review process. In such a case the Debt Counsellor could, in the past, charge a “Rejection” fee. Actually, this was probably the best possible outcome possible. In some ways, this was a consultation fee covering the time it took for the Debt Counsellor to look over the consumer’s figures and help them adjust their monthly obligations. Realistically such circumstances seldom happened. Some Debt Counsellors later came to view this fee as a charge you take from consumers when they decide to leave debt review (which not actually according to the wording in the previous fee guideline).
Also, this fee is probably designed to cover costs when consumers waste time applying for help when they don’t really need it. Think of it as the entrance fee charged by some places to keep the riffraff out. A punish you for asking for help if you don’t need it fee. The current wording of the National Credit Act does not seem to allow a Debt Counsellor to turn down a signed application by a consumer though it is common practice to do so. If a Debt Counsellor receives a signed application form they are locked into a legal process wether they want it or not. This fee might be there to try offset any such abuses.
Since the NCR has now suggested an Administration Fee (See Part 1) it would be somewhat redundant to double charge and thus they have reduced the former rejection fee and thrown it under the umbrella of the determination fee.
Proposed Debt Counselling Fee Structure
(3.1 Rejection Fee) for the Form 17.2 (b) process, including: (a) notifying the consumer and credit providers; and (b) updating DHS (the NCR’s online data base) – R200 – to be paid upon rejection.
Some people just need budgeting help and this fee could cover that but having to issue a Form 17.1 (as mentioned in part 1) to enable consumers to get such help means they will lose access to credit and probably have problems getting the application status removed from credit bureaus down the line so… not really worth it to pay R300 application and another R200 (rejection) just to get budgeting help.
‘you are now asking the consumer to pay you for telling them you will not help them’
The reality is that you are now asking the consumer to pay you for telling them you will not help them. You never receive this payment and it simply creates a collections (and bookkeeping) nightmare most Debt Counsellors are not equipped or willing to get involved with. The fee is actually defunct and not even worth mentioning.
It is concerning that the firm putting the fee guideline together for the NCR did not pick up on this fee not being of any use.
This fee is to be paid upon rejection. The current NCR Terms & Conditions of Registration for many Debt COunsellors prevents them from accepting payments directly from consumers.
Leave the fee in with the reality being it is not really ever going to be used.
Possibly introduce a consultation fee that would fit with the idea of helping consumers with budgeting but not require that the NCR’s data base be updated if the consumer does not need or qualify for debt review.
The problem with that is that the NCR want stats on who is applying for help for their reporting purposes (whether accepted or not). They always ask Debt Counsellors to manually reproduce what they have recently captured on DHS in a Form 42 quarterly report including how many people applied for help (qualifying or not). They want their system updated and that updates the credit bureaus automatically about the application temporarily cutting off access to credit for a consumer who might actually need some budgeting advice and a new loan to solve their problems. Since DHS is better at getting consumers listed than delisted at the bureaus this is a concern.
Amend the T&Cs for Debt Counsellors to allow for the collection of these fees directly from a consumer and not via a PDA (or should we even bother since this will never actually be charged).
The Average Debt Review Consumers
Though pinning the average debt review consumer is difficult and may vary from company to company, as they market to different people, the average consumer in debt review is said to be of either gender anywhere from 25 to 45 and paying around R2500 (once their debt is eventually restructured). It is said they have around 10 credit accounts when entering the process. Keep these figures in mind as we review those consumers whose applications are successful and enter the process.
Unintentionally Extending the Payment Timeline
All the Fees up to this point seem to be charged up front or right away. So, in theory, this is Month ONE of the process. Now, due to the proposed changes something weird happens to when payments are made and when credit providers first start to get payments.
If the application is made near the end of the month, the next set of fees then seems to only be charged at the end of Month TWO. This is a HUGE change from previously when all the restructuring fees were traditionally charged in Month ONE and then legal fees in Month Two and then Creditor Payments often began from Month THREE (unless the consumer was paying more than the average every month).
The new fee structure seems (in the case of the “average” consumer) to create the Credit Provider dreaded “payment holiday” after paying only R300 in application fees in month one when applying. Let’s see why:
Proposed Debt Counselling Fee Structure
(3.2 Restructuring Fee) for the Form 17.2(a) process including but not limited to, the following related services:
(a) proposal preparation
(b) loading of the plan on the debt counsellor’s PDA profile
(c) negotiations with credit providers;
(d) submission of final proposal;
(e) Supplying debt counselling documents to the attorney to draft the Court application;
(f) update DHS on progress;
(g) transfer of consumers (all fees as per process should be up to date);
(h) Instruction to attorney to draft the Court application/collation and filing of NCT application; and
(i) Withdrawal by consumer (Form 17.w).
The recommended amount is Equal to the distributable amount, capped at R6500 for a single applicant and capped at R7000 for more than one applicant. The fees are payable after submission of the proposal. it is a once off payment and subsequent services aligned to the process will not be charged separately should they apply (i.e transfers, withdrawals, etc) where the consumers has already made the payment.
The description of tasks or services associated with this fee seems to be an attempt to offer consumers some additional protection from Debt Counsellors later adding fees for things like transferring the consumer to another Debt Counsellor or charging them when they leave the process (as will be discussed in the section on after care services). Some firms have made a habit of charging separately for such services. Added clarity and protection for consumers is good.
The increase in cap for a joint application seems to address the issue from the existing fee structure where the fee cap for one individual is the same as for a couple (which seemed an obvious mistake).
The new fee proposal, at first glance, appears to be an increase, since the caps have gone up.
Just some grammar to start with in the description of when it should be paid: The fees are payable after submission of the proposal. it is a once off payment and subsequent services aligned to the process will not be charged separately should they apply (i.e transfers, withdrawals, etc) – this should probably read E.G. which means for example (but not limited to) and not I.E. which means specifically or namely (and limited to).
‘Since only a court “restructures” a consumers debt, calling this fee a ‘restructuring’ fee is inaccurate and misleading’
Semantics – Since only a court “restructures” a consumers debt, calling this fee a ‘restructuring’ fee is inaccurate and misleading. Consumers might be fooled into thinking that a Debt Counsellor has some sort of power to magically restructure debt. The Debt Counsellor has the ability to make a proposal to the NCT or a Court about how THEY might do so but that’s it. A court may decide not to restructure the debt (which would be unusual but is possible).
Raising of the Caps is, at best, an empty gesture meant to try to appease those who have complained that they cannot make enough money from debt review to stay in business. Since the average consumer pays R2500 the Cap is irrelevant in the real world. Seldom will this raised cap actually benefit any debt counselling business and raising the bar by R500 is not going to sustain them over time. Once again we see something of a probable misunderstanding of how debt review companies operate and cover their costs and how to make them sustainable.
At worst, it is an incentive to try help mainly rich people with money problems rather than assist the poor of the country (who make up the majority of people who actually need help).
‘it is an incentive to try help rich people with money problems rather than assist the poor’
Delaying payments: Here we see the timeline issue. The restructuring fee is only charged after the submission of proposals. This can really only be done after (1) capturing the consumer onto Debt Help within a business week of application (5 days) and then (2) after asking all the credit providers for information about all the consumer’s accounts. This can take 10 business days (or two weeks) before a Debt Counsellor can make a proposal without info directly from the credit provider (they can then use a consumer’s recent statement from the credit provider). Then the consumer has to be asked for payment. They will only be able to (or want to) make payment at the end of the month. So if the application is made within one, two or even in some cases 3 weeks of the end of a month then Month One will only see R300 (R50 + R250) paid to the debt Counsellor and then payment of the restructuring payment at the end of month TWO.
We will soon see that a bunch of additional fees may follow including things like legal fees and Reckless Credit investigation fees which would, for the average consumer, only follow in month 3 or 4 or more.
If you let consumers pay R300 for a month and then let them wait without paying until the next month end, Debt Counsellors may never get paid for work done (as does happen) during this second month. This happens anyway, at present, but it would be good to try to minimise this sort of thing, if possible.
It is interesting to note that both the (incorrectly named) restructuring fee and the monthly after care fees (which we will discuss in the next article) say that it covers updating of the NCR’s data base (DHS)
The Fee Guideline mentions supplying documents to the attorney to draft the court application but fails to mention applications to the National Consumer Tribunal (NCT) in point (e) who are also empowered to hear applications in certain circumstances. Point (h) then mentions both. Is this a duplicate or was (e) only meant to mention court only and the other (h) the NCT only? Why not just have the one point?
‘is probably structured this way to try motivate Debt Counsellors to send out proposals quickly, to be able to charge their fees’
The timing of the invoicing is probably structured this way to try motivate Debt Counsellors to send out proposals quickly, to be able to charge their fees. The NCR seem concerned that Debt Counsellors are not sending these out fast enough. (Interestingly, the NCA is pretty silent on actual negotiating and making proposals to the credit providers, while it focusses on making proposals to a Magistrate to consider). This new structure could force the hands of those Debt Counsellors who stick to the NCR’s non-binding opinion and are lazy about sending out proposals.
The upside is it might encourage the credit providers to provide that account information as fast as possible.
If Debt Counsellors follow the NCR’s leading here and focus their business on high end consumers, they can now make an extra R500 in some cases (if you consider this to be a good thing).
Combine point (e) and (h) since they seem to be the same/similar thing.
Try convince credit providers (not very likely) that due to this guideline, an extra month (or many as we will see in part 4) of payment holiday is acceptable. Convince them to adjust things like DCRS to allow for these extra months and not charge extra interest and fees during this time to prejudice the consumer further. Or adjust the timing on this payment.
Incentivise helping poorer clients and not just high end credit users only.