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Show About Debt Review Disappointment

A recent feature about two former DebtBusters clients highlights how consumers seemingly don’t read documents they sign; forget conversations they have with Debt Counsellors and stop paying towards their debt review thereby derailing the process.

The Tale Of Two Debt Review Clients

Two of the clients interviewed during the feature stopped paying or missed payments and now feel that the debt review process failed them. Both seemed surprised that the Debt Counsellors and Attorneys were paid before some of their credit providers.

Note: During a debt review, fees toward the Debt Counsellor are made up front and then fees to attorneys are drawn next. This is in line with guidelines from Debt Counselling associations and the National Credit Regulator (NCR). At present, no official set of binding fees has ever been published by Government.

Some people wonder why during a debt review professional fees are paid to the Debt Counsellor and Attorney up front? The feature on Checkpoint highlights one of the main reasons: Consumers often just abandon debt review or drop out of the process (for unavoidable reasons). This means that if fees were not structured this way Debt Counsellors would do most of the work and not get paid at all.

‘all Debt Counsellors know that some of their clients will drop out of the program before they complete paying off their debt’

As is, at the moment, this is often the case, all Debt Counsellors know that some of their clients will drop out of the program before they complete paying off their debt. It is a sad reality of debt review at present.

Many consumers who enter the process experience buyers remorse or lack of commitment to getting out of debt and decide to continue in their negative debt spiral and simply do not pay despite all the work done by Debt Counsellors, credit providers and attorneys to put their matter before court.

Unfortunately, the lawmakers back before 2007 seemed to have never thought about this as a possibility. As a result, of this massive gap in the National Credit Act, hundreds of thousands of former debt review clients are stuck with a ‘debt review flag’ showing at credit bureaus (who are happy to put the debt review notice in place but don’t like to remove it easily).

Such a flag scares off credit providers who are afraid of accusations of reckless lending and so will not offer credit or consolidation loans to these consumers.

This results in already financially troubled consumers who have failed at rehabilitation being driven into the open arms of illegal loan sharks and unregistered lenders.

So, What Happened With These Two Clients?

The Checkpoint feature showed how two consumers, who signed up for debt review during the Pandemic, dropped out of debt review.

At first, both consumers felt the process was right for them and the services they were offered sounded great. They had great experiences with those they spoke to.

Both consumers had debts they could not manage but DebtBusters were able to make proposals to their credit providers and arrange for massive monthly payment discounts, longer repayment terms and slashed interest rates (e.g. down from 17% to 0.02%).

One client had her unsecured debt repayments reduced by around 50% each month. The other by about 33% Nice!

The consumers then received statements from their PDAs (and via the Debt Counsellors data portal) showing that money from their first (and second) payment was being allocated towards fees for the Debt Counsellor and other service providers.

The Consumers’ Experiences

The first client featured paid the first month then skipped a couple of months and then later decided to pay one more time.

After that payment she dropped out the process totally (it wasn’t covered in the Checkpoint interview but apparently the consumer unfortunately lost her job around this time and was unable to make any debt repayments).

In the show, the client revealed that she was surprised that DebtBusters offer “debt review”. She said that if she had known she was signing up for debt review she would never have signed up (on the Form 16 Debt Review Application form). Interestingly the feature shows the DebtBusters website being googled and showing the selected link: ‘DebtBusters: Debt Counselling and Consolidation’.

The client said that DebtBusters did not bring any relief to her. Unfortunately, the Checkpoint feature did not make it clear that the consumer had decided not to pay some months right at the start of the process which derailed the process. The consumer also seems to have forgotten the 50% payment reductions?

Benay Sager of DebtBusters says that consumers must remember that they have an obligation to pay their debts and debt review does not offer a payment holiday. Payments during debt review need to be made monthly and at the agreed amount. This is the arrangement and the figures set before the courts or National Consumer Tribunal (NCT).

Client number two also enjoyed the start of the debt review process and paid for 4 months before things went off the rails (due to her having to go on maternity leave and not being able to cover the agreed repayments).

The client and her husband had monthly debts obligations of over R6000 but was able to receive a reduced repayment plan via the NCT down to just under R4000.

The client said that they filled in all the forms (including the POA and fee structure) at the start of the process.

Then, unfortunately, the client was not able to stick to the planned repayment due to unavoidable changes to income. Sadly, the car finance company was not willing to make a plan with DebtBusters and they asked her to negotiate directly with the credit provider to see if they would assist her.

The client and credit provider were not able to see eye to eye either and the credit provider then began to threaten to take the car. At that point the consumer turned to an illegal, unregistered loan shark who charged her crazy interest rates and took advantage of her desperation. The car seems to have been saved but at the cost of being unable to carry on with the debt review (and all those nasty, illegal loan shark interest payments).

The client later went through what she had paid to the Debt Counsellor (and an insurance provider) and was surprised that professional fees were prioritised in the first few months of her debt review.

Checkpoint took the fees to the NCR and discussed them. They also asked DebtBusters about the fees.

‘The fees discussed…are all familiar to those who know the NCR’s guideline’

The fees discussed (application fee, initiation fee, restructuring fee, attorneys fee) are all familiar to those who know the NCR’s guideline about what they think Debt Counsellors should charge for their services.

A separate fee for insurance paid via the PDA was also mentioned but as those matters are FAIS matters between client and insurance provider DebtBusters could not comment. A small R10 fee (per person) was also paid by the couple to have access to an information and credit report portal.

It should be noted that the consumer was able to simply cancel their insurance or the access to the portal if they had wanted to.

What seems to have really surprised the consumers was how in one month the amount that was paid to the vehicle credit provider was the agreed R88 (and then from the very next month onwards went up to R2200 – which was not made clear in the Checkpoint feature unfortunately).

The Sad Outcome For These Consumers

Due to missed payments and reduced or no payment both consumer’s debt reviews fell apart.

This is very unfortunate and now they once again have credit providers hounding them for their debts. As we all know, this is very stressful.

One consumer fell into the welcoming arms of a loan shark and later someone who promised they can get the debt review status removed from their names at the credit bureau (it is unclear how that could be done other than paying off all the debt as is required by the NCA).

Benay Sager of DebtBusters reminds consumers to beware of people who call them up and offer to get you out of debt review. He says that consumers must beware of gimmicks. If it sounds too good to be true, be careful. He stresses that consumers should communicate with the Debt Counsellors often and let them know if they see any problems coming that will interrupt their payments. He says that DebtBusters have a number of channels for clients to do so (to either complain or ask for additional help).

He also explains that it is vital that people stay in the process for more than a month or two if they want to see the benefits of debt review.

A Credit Provider’s Viewpoint

If consumers don’t pay what they have agreed is it fair of credit providers to get upset?

Well, due to credit providers agreeing to reduced or even no payments during the very start of the process (when professional fees are paid to the attorneys and Debt Counsellor) they are very sensitive if the consumer subsequently misses payments or short pays on what has been agreed. Rightly so, they are making an effort and would like to see their clients coming to the party as it were.

Credit providers agree to make big concessions to help consumers like waiving monthly service fees or reducing interest charges. So to have these arrangements ignored convinces them that the consumer is not serious about paying off their debt and they then often prefer to revert to traditional collections methods (eg via the courts). The National Credit Act offers them this option in such cases.

It is their legal right.

What Do We Learn?

Whether you feel the consumers were hard done by and that the Debt Counsellor didn’t help them enough or you feel the consumers were at fault for not paying when they should have, there are lessons we can learn from the Checkpoint feature:

Both consumers discussed debt review with a Debt Counsellor, signed a debt review application and signed for every single fee involved. Still, both consumers were seemingly later surprised that the professional Debt Counselling and legal services of an attorney cost money.

Both consumers did not keep up payments and now obviously feel that they made a mistake in going into debt review. Now, it seems that they are not focusing on how the credit providers treated them or how collections agents treated them, they are not raging against the illegal actions of unregistered credit providers but have focused on how they ended up paying for professional services from attorneys or the Debt Counsellors. They share this view with others and that negativity about the process spreads to others who might benefit from the process, as they initially did.

The feature also highlighted another issue in the industry. It was shown how once a court order or NCT order is made some credit providers do not want to allow consumers more breathing room when their circumstances suddenly change for the worse. In some parts of the world such arrangements are the industry standard and are calculated in from the very beginning as an option. Typically, fighting such temporary changes just drives people out of debt review and costs credit providers more time and money through other collections methods. Not to mention the stress for the consumers.

Another lesson is how media coverage about how debt review falls apart when people don’t pay can get quite focused on the (standard industry) fees and can run out of time before discussing other aspects of the process which may give more clarity. This can leave some viewers with a slanted impression.

For example, by not explaining how all credit providers are aware of the professional fees and agree to detailed repayment plans setting out how much they will get each month during the process (including the months when those fees go off). There was also no mention in this feature about how credit provider monthly service fees on all the consumers’ accounts were dropped during the process.

Perhaps what we learn the most from this Checkpoint feature is why the professional fee structure is front loaded in the debt review process. Less committed consumers do often miss payments or skip payments and can drop out of debt review to their own detriment. So, no wonder those fees, for all that work, are best paid right upfront.

Tell Them, Explain It, Tell them Again

It is clear that even when a consumer searches a website about debt review, signs forms asking for debt review and goes through the fees associated with debt review they can be surprised they are in debt review and have to pay fees.

The team at DebtBusters probably feel just as surprised that the one consumer didn’t realise it was debt review as the consumer was to find out they had signed forms and paid twice (during those first 4 months) for debt review.

As Debt Counsellors it is important to make sure that clients are informed and then informed again and perhaps again.

Communication is key in this busy world where people can make life changing decisions without reading and fully understanding forms and emails. Even when people initial and sign everything it is possible that they are not fully comprehending what they are agreeing to or exactly how that will look when they get a statement each month.

Even though it may sound unlikely, consumers do sign up for credit and are surprised to learn that credit providers charge interest and monthly fees. Even after reading the full disclosure of how the fees and charges will work. Some are horrified they will end up paying back more than they borrowed. These same consumers may be surprised that the attorneys for a debt review matter or the Debt Counsellor themselves would like to be paid for the work they do.

Can We Improve? Maybe...

Wouldn’t it be great if debt review was simple and easy?

Wouldn’t it be great if Government could adjust the fee structure for debt review to be simple (it is a horrendously complicated document – the current guideline). Can we have 1 standard cost or maybe 2 standard fee tiers please? The fees are complex, unnecessarily so.

Wouldn’t it be great if the NCA and Regulations had a standard form to be used at court instead of long and involved affidavits and papers?

The Question is: Why not make things simpler?

Why not all strive to make things simple and clear for consumers?

Let’s make it easier for people who have entered debt review but later dropped out to have the credit bureaus remove the debt review status (perhaps by amending a few words in the Act). Don’t drive them into “get out of debt review” scams.

Let’s enable the NCT to hear all sorts of debt review matters so consumers can save money on fees. Don’t make the process cost more than it has to.

Credit Providers please cut consumers more slack. We know you need to get repaid (that’s the whole point of debt review) but its tough out there right now. People are bleeding financially. Offer payment holidays, reduced payments when times are tough. Trust the Debt Counsellor to do the living expense calculations. Instruct your attorneys to get the court orders in place and cooperate with consumers’ attorneys. Give consumers a few more months to pay that car. Don’t drive them into the arms of unscrupulous loan sharks.

Let’s all strive to communicate with clients often and keep educating them along their journey. And let’s remember that people forget and people misunderstand and it never hurts to tell us twice.

Let’s foster an industry that works smoothly for consumers. It will simplify things for those who work in debt review.

Let’s make sure that consumers can all benefit from the process and not have to drop out and throw their lives into even more chaos.

After all, there are at least another million people out there right now who should be in debt review but keep hearing negative stories about the process and are holding back.

Let’s change that.

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For more information about Checkpoint or to watch their show head over to: https://www.enca.com/checkpoint