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Talking Smack

While the debt review departments at the various banks love debt review, and work hard to help consumers in debt review, other departments within the same banks often take shots at debt review.

Recently, there have been a number of directed shots by different credit providers seemingly aimed at undermining confidence in the debt review process. 

Let’s look at a few recent examples.

In a MoneyWeb Article

FirstRand (Group CFO Markos Davias) said:   

… they have also observed higher incidences of debt counselling – especially among the middle- to higher-income segments. Davias says the increase in FirstRand’s retail debt counselling portfolio means potentially higher default rates from customers and a lower ‘loss given default’ experience over the medium term, which in turn could hurt its credit loss ratio.

“Debt counselling inflows have been more pertinent in the second half of the year and were up 17%,” he adds. Another worry is that those who enter debt review are often not aware of the costs associated with the process.

Another Moneyweb article stated: Major banks have warned that many heavily indebted South Africans opt for debt counselling when their financial circumstances do not necessarily warrant it.

In that article, Nedbank are quoted saying:

“We are seeing that as a result of a lack of financial education, customers are entering into premature debt counselling arrangements which are ill-advised,” says Nozizwe Tshabuse, managing executive for retail and business banking and client debt management at Nedbank.

In an interview with Moneyweb, she pointed out that people often do not fully grasp the consequences of debt counselling.

“Customers should understand what they’re letting themselves in for. Their credit scores are adversely affected because the process of debt review is registered with all the credit bureaus,” says Tshabuse.

“Once people have agreed to debt counselling, they can’t get any kind of funding until the debt review period is concluded. It’s particularly problematic for young people who may want to buy a home. It might also affect all future funding negatively,” she warns.

Nedbank’s official website has a section on debt counselling and it says:

Debt counselling

More and more people in South Africa are choosing debt counselling over other debt management options. Unfortunately, many are entering debt counselling prematurely without exploring other options available to them. We are here to help by offering solutions tailored to their needs, without the significant consequences that debt counselling involves.

 

Why are people choosing debt counselling prematurely?

There are many reasons for this, including being enticed with incorrect or limited information, like promises of lower interest rates. Consumers assume that debt counselling is a quick fix or a way to avoid paying their full instalments. However, the reality is that debt counselling is a serious and long-term commitment, and it should be a last resort.

[Editor’s note: Debt review is serious and should only be entered into after knowing exactly what it involves.]

 

It even has a whole section called:  How can you avoid debt counselling?

 

So, while the information is not blatantly wrong (like one bank’s website that says you won’t get credit for 10 years) it does have a bit of a dark “tone” to it.

Recently, people who used the FNB banking app received this message when opening up the app:

There are concerns by those working in the debt review industry that some who market debt review do so aggressively. So, there is some truth to the message but it is dangerous to paint everyone with the same brush. As if ALL Debt Counsellors make unrealistic promises.

 

Nedbank also sent out emails to clients that looked like this:

It is quite a push back against consumers consulting a Debt Counsellor for advice.

For Laughs

It would be amusing to imagine a similar advert or content aimed at credit providers, containing misleading wording or half-truths.

Talk To Your Credit Providers First

While it remains true that consumers should obviously talk to their credit providers if they are struggling to repay their debts, these types of adverts seem to be pushing a negative agenda.

While this did happen back in 2007, when the banks were initially scared of debt review, most have now realised that the process helps them recover funds reliably. At present, the banks recover over R1.5 Billion each month through the debt review process, what an amazing process.

If you are experiencing debt stress, then yes, talk to your credit providers first. If they don’t help, then speak to a Debt Counsellor for a holistic view of your options.

Unexpected People Are Entering The Process

This muddying of the waters over people supposedly entering debt review before their account with a particular bank is in arrears, fails to address the most basic truth:

Consumers have multiple accounts with different credit providers.

This is why a Debt Counsellor is often needed to suggest a repayment plan that’s fair to everyone involved. Collections agents for one bank will seldom encourage fair payments to all credit providers. Their commission is based on collecting for their bank alone.

It seems that incorrect, or inefficient modelling within these organisations (to try predict which consumers not to lend to) might be a big factor. After all, most credit providers would like to only lend to those who will pay the most, the fastest. It is a great way to make the most money back on what you lend out.

Debt review seems to be throwing them a curveball as they somehow struggle to understand that half their clients across all products actually are seriously over-extended. It must be scary for lenders right now, with so many people experiencing debt stress.

Shining a Light On Debt Review

Hopefully all this talk about debt review, debt review, debt review will prompt more people to wonder what it is all about, and to go online and do research.

This, in turn, may well drive more people to talk to Debt Counsellors for practical advice about their debt.

While those currently entering debt review remains a relatively small number each month, perhaps this sudden focus on the process might help the industry rather than hurt it.

Time will tell.

 

As always, all Debt Counsellors know that the debt review departments at the various banks love debt review and we feel sorry that you are caught in the midst of this negativity. We see you and appreciate your ongoing support for debt review.