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Too Many Clients Going For Debt Review?

Recently, Debt Counsellors have noticed a change from one of their previously favourite credit providers to work with.

Capitec has faced some complaints from Debt Counsellors after advertising and social media posts have seemingly come out as increasingly ‘anti’ debt review.

That Advert

One example of advertising taking shots at the debt review process was this advert.

Debt Counsellors complained to Capitec Bank as well as the National Credit Regulator (NCR) about the advert (which now seems to have been switched to a “private” video). They felt the advert contained not only a prejudicial tone but misinformation and inaccuracies.


Inaccurate Website Info

Debt Counsellors have pointed out that the Capitec website (and blog) feature information about debt review that also seems to be out of context or inaccurate. 

Read More: Has Someone At Capitec Declared War on Debt Review?

For example, the website says:

‘Some things to bear in mind:

The aim of debt review is to help you manage and repay your debt. Debt review doesn’t mean that your debt gets written off.

Our experience shows that 75% of people under debt review experience no long-term benefits afterwards despite paying all the debt review fees.

Under debt review:

      •  You could pay R9500 or more in debt review fees
      • You won’t be able to use your existing credit
      • You won’t be able to get any new credit for up to 10 years afterwards
      • You can only end the process by paying up your debt or if a court finds you not-over-indebted

Speak to us first if you need help. We can look at zero-fee personalised options to improve your situation.’

Some troubling comments there focusing on max possible fees as if they will happen to everyone. Some comments seem very strange like the mention of never getting credit again for a decade…why?

Statements Made By Management At AGM

At the recent Capitec Bank AGM, some revealing statements were made about the large number of clients who were now asking for help through debt review.

Capitec Bank CEO Gerrie Fourie was discussing clients going into debt review and made some comments that give a glimpse into the mindset of senior management at present. Though he says it is just what he believes…well, it is interesting. He said:

“I believe there’s a place for debt counsellors, but unfortunately there are many people going into debt counselling who should have first gone to their bank. Twenty percent of people going into debt review terminate within the first 12 months, after paying their R9 000 to the debt counsellor, with no change in their indebtedness, which clearly shows they shouldn’t have been there. Unfortunately, what people don’t understand is that their credit record has been tarnished permanently, so the likelihood of them being granted credit again is very slim,”

Drop Off Is Real

It is certainly a real issue that many consumers drop out of debt review after a lot of work is done by both Debt Counsellors and credit providers, like Capitec Bank.

It is sad and wastes a lot of time and effort.

But the truth is that those clients already had tarnished credit records and in the future, once they settle their debts (one day), the reference to debt review will be removed so, their record is only as tarnished as it already was. 

The problem with that 20% is unfortunately the lack of commitment to actually living without debt and getting out of over indebtedness. That is tough for many people. Naturally, Capitec Bank and other banks will not be eager to offer such consumers credit they can’t afford to repay anyway.

Did You Know: Some Debt Counselling practices are now asking the NCR and DTI to consider a cooling off period for debt review where the record of such an application could be removed from a consumers credit report if they change their mind within a set period of time.

It is a reaction to market realities that may help deal with the problems caused by credit bureau listings of applying for debt review and then giving up during the process.

R9000 really?

Capitec Bank keep making these comments about consumers paying the maximum possible fees for debt review when they have stats about what consumers actually pay on average.

That is problematic since they present the fees as a bad thing instead of a realistic payment relating to the level of work done (the fees are linked to what consumers actually end up repaying each month and are usually much lower than the maximum as people don’t have that much money available to pay debt and still eat).

Also, it seems that the real concern here may be the provisioning for the debts that Capitec Bank has to do when consumers enter debt review.

Too many clients going into debt review? 

Perhaps Capitec Bank need to review their past lending practices and policies and see if they didn’t take on too much risk and it is now coming home to roost.

Better to go back in time and blame their own internal policies and risk appetite than now blame a process that gets them their money back and still helps their clients make ends meet.

After all this is all about the clients. They need help…not to be dissuaded from asking for help and letting their financial situation get worse because of a changed mindset at management level.

The NCR Fee Guideline - A New Angle Of Attack

A little while ago the NCR issued a guideline on how they feel fees should be charged by Debt Counsellors and attorneys.

It should be noted that this is a non binding opinion. Not law, not regulation nor obligatory. It is simply what the NCR feels is best. 

‘It is simply what the NCR feels is best’

Most Debt Counsellors stick very close to this voluntary guideline (mostly so they don’t get any trouble from the NCR). Since the National Credit Act and Regulations are quiet on the topic of what the fees actually look like, the guideline (and others that have been published in the past) is popular.

Attorneys, however, do not really care what the NCR has to say about the way they should charge fees.

Obviously, the NCR has no authority over them and no ability to dictate fees. So, in general the Attorneys ask consumers to pay them as they feel is best. For some that’s a monthly retainer or a small incremental payment over time or most popular, a payment from the consumer’s second debt repayment. This is popular because for a decade this was how it was done and was perpetuated by a Task Team and past Guideline from the NCR.

Note: most banks, including Capitec Bank, have signed that they will stick to the NCR Task Team agreement (as opposed to the current NCR fee structure – which they also follow at present).

Recently, however, some Debt Counsellors are struggling to get acceptance of proposals back from Capitec Bank.

This is because they receive messages saying that the proposal* does not stick to the NCR’s fee guideline regarding legal work.

The NCR fee guideline essentially says that legal fees are only going to be paid in the month when the legal work is done.

While for most people this is month 2 of the process, it is possible that this could be in any month during the entire process as the Act does not say when the legal work has to be done (in fact, despite several amendments over the years the wording about whether legal has to be pursued has never been amended from the word ‘may’ to the must).

Also, for consumers with tiny repayment amounts the legal fees may be higher than can be paid in one month. E.g. R500 debt repayment may not cover the amount asked by the attorneys.

The result is that consumer’s are struggling to get consent from all credit providers (due to this one credit provider).

‘it is costing Capitec Bank clients more money to get help’

This has the impact of forcing matters to go via the more costly magistrates court process. So, it is costing Capitec Bank clients more money to get help.

As you can imagine consumers and Debt Counsellors are not happy about this.

 *(which in theory includes calculations done by DCRS – the BASA agreed calculation engine) 

 * Debt Counsellors still enjoy working with the debt review department at Capitec Bank who strive to make debt review work as much as they can within the guidelines they receive from management.