A Curious Case of Good Faith
A recent NCT case is making Debt Counsellors confused about when they are allowed to stop assisting a problem consumer who refuses to cooperate with the process.
In the matter, a consumer noticed that some of their debts, which were included in debt review, had slowly been increasing because their interest rates had not been lowered by the credit provider but they were paying reduced monthly debt repayments.
The same consumer missed payments planned in their debt review and did not send attorneys needed documents.
The Debt Counsellor involved says they tried to help the consumer and the consumer said the Debt Counsellor never told them everything and wants the Debt Counsellor to suddenly pay all their debts for them.
The Consumer tried to complained to the National Credit Regulator who essentially ruled in favour of the Debt Counsellor but told the consumer they could approach the National Consumer Tribunal if they wanted. This the consumer did. The outcome is interesting.
The National Consumer Tribunal (NCT) ruled in favor of the consumer in that it said the Debt Counsellor had not done all the duties as required by the Act and regulations (a point the NCT raised, not the consumer).
The NCT said the consumer had acted in good faith and that, though they refused to fine the Debt Counsellor or order them to pay off the consumer’s debts for them, the consumer could take their ruling to another court and pursue civil damages and see what happens.
The Debt Counsellor is unhappy with the ruling and says they are appealing the outcome*.
*Both parties cannot really comment on the matter since the matter is getting appealed.
SOme Key Points To Think About
The Consumer missed at least one payment while under debt review.
The Debt Counsellor originally had agreements in place with the credit providers (based on a figure they calculated the consumer could realistically afford) but the consumer came back and asked for a lower monthly instalment.
The Debt Counsellor tried to make last minute, slightly lower, monthly repayment agreements for the consumer and had some pretty good success.
This however resulted in two credit providers deciding they were not totally happy and they reverted to higher interest rates as agreed with the consumer in the past.
The consumer says they were not informed about the higher interest rate (the Debt Counsellor now says they have a recording) on the affected accounts.
The Debt Counsellor took a long time to organise the court order.
The consumer delayed in sending documentation for the court and it appears they may have received a significant pay increase (and could thus pay more monthly) in the interim. The Debt Counsellor was not informed.
The Debt Counsellor grew frustrated by the consumer’s non-cooperation.
The consumer wants to the Debt Counsellor to now be punished and have to take over their contracts or obligations to the credit providers and pay off the debts (incl. the capital not just the interest accrued).
Is a Debt that Increases Bad?
If debt is bad then more debt is ‘more’ bad. Still, most people have experienced their debts grow due to interest and fees. That is very common.
Smaller restructured payments to an account with normal higher interest is certainly is not wonderful for the consumer as they may end up paying more than originally hoped for. This is why most credit providers play fair during debt review and lower interest rates to something reasonable though they do not have to. Still this is the credit providers choice.
The current wording of the NCA actually does not address changed interest rates during a debt review, only reduced repayments and longer terms. Lowered interest rates are a real bonus for most consumers.
Many times, credit providers do not enjoy it when a debt grows either but they do tend to make more money in interest so will not be too quick to complain too much.
A Debt Counsellor does not work directly for the client (even though they are paid by the consumer). Rather, they perform mandatory, statutory functions, as set out in the National Credit Act, and in many ways actually work for the courts. Debt Counsellors are there to make the court’s life easier in issuing debt restructuring court orders.
Where a debt may increase during a debt review it normally does so until one of two things happens:
- Other debts are paid off and suddenly large payments are then snowballed or rolled over into that one debt. This sorts the debt out chop chop.
- The legally binding in duplum or Section 103(5) limit is reached and the consumer no longer has to pay any more than that figure to the credit provider, no matter how long it takes and what rates were charged.
So, the question is, is it always bad when a debt increases somewhat given the above? How does one weigh the consumers need to be able to afford the monthly necessities vs their obligations to their credit providers. Which should carry more weight when a consumer needs food on the table?
Is the Debt Counsellor only ensuring the consumer’s rights under debt review or do they have to balance the needs and rights of credit providers to recover their funds along with legally acceptable fees?
When Can We Say The Consumer Is Acting In Bad Faith?
It has long been the NCR’s view (and the industry view) that the NCA indicates that if a consumer does not provide the Debt Counsellor with the needed information to do their job then they can withdraw their services. This may well include missing required payments.
It seems right that if a consumer is not cooperating and does not intend to make proper use of the process that it is giant waste of time for a Debt Counsellor and all the consumer’s credit providers. Time they could all use to help others who really want to sort out their debts.
The NCT however found that despite such actions the consumer was acting in good faith. This seems curious and will no doubt be one of the points debated and argued in the appeal.
It will be interesting to see how that plays out and may help Debt Counsellors better understand when they can “fire” a bad, non cooperative client.
Keep Your Clients Informed
Whether there is or is not a recording in this matter it is true that consumers should be informed of their debt review as often and much as possible.
‘consumers should be informed of their debt review as often and much as possible’
Many consumers may prefer to have the Debt Counsellor simply take over and do everything but it is a good idea to always check to make sure your payment is done, that your credit providers are getting their payments and that you are tracking your progress through the process.
While PDA reports cannot be 100% identical to the various statements from credit providers, consumers should keep their finger on the pulse and report any issues that they pick up to their Debt Counsellor.
Good communication can keep everyone informed during a debt review.
Debtfree Magazine will continue to report on this story as it develops.