Is Your Credit Report Saying You Are Under Debt Review But You Aren’t?
When a consumer applies for debt review then their Debt Counsellor lets the National Credit Regulator (NCR) know that the consumer is interested in debt review. The NCR then notifies all credit bureaus of this application.
Now the outcome of the application is not shown and the credit bureaus do not really care what happens after the debt review only that the person has applied. They then display a listing to this effect which they will only remove if the consumer can prove that their debts are all paid up.
While the credit bureau has a listing that the consumer has applied for debt review (not whether they have been accepted or not or whether they are paying off their debt or not) most credit providers are too nervous of reckless credit allegations to offer a consumer more credit. This is true regardless of whether the consumer’s application for debt review was accepted or not.
Some Debt Counsellors do not supply consumers with the “signing” pages of an application form for debt review (called a Form 16) to avoid the situation where the consumer applies but will not benefit but they (the Debt Counsellor) are legally obliged to let the NCR know that the consumer asked (applied). Often consumers may apply just to see if the process might work for them (not realising that the NCR must be notified and that they, in turn, will notify the credit bureaus and that the credit bureaus will list the consumer as having applied and this will cut off access to credit due to the listing.
The Credit Bureaus Say I am Under Debt Review But I am Not!
Some Debt Counsellors work with sales agents (either their own firm or another firm which brings them leads) who make contact with consumers and promote debt review. Now, debt review is an amazing product and if someone calls you and discusses it you will quickly see the benefits of only paying what you can afford on your debt each month. As a result, many consumers are quick to agree to have a credit report drawn and even see what they could repay through debt review. What they may not realise clearly at the time is that they may actually be applying for a debt review.
From the Debt Counsellors side, they are being asked to review the consumer’s debt. The consumers may electronically or verbally request that this is done. The Debt Counsellor then (as per the requirements of the National Credit Act) has to notify the credit bureaus of this request. They are happy to find a new client who is looking for their services and they are eager to help.
‘they think they are simply being given a very complicated quote and are not actually starting a legal process’
From the consumer’s side what may be the case is they think they are simply being given a very complicated quote and are not actually starting a legal process. Other consumers are used to starting contracts these days but being able to back out of them within a few days (due to new provisions of the Consumer Protection Act). Debt review, however, combines two aspects (1) the services of a Debt Counsellor – which they should give you a contract for and (2) a legal process as is set out in the National Credit Act which is begun by applying (normally by signing a Form 16 form).
Many consumers who ask for help only realise a few hours or days later that if they are to go through debt review they will have to switch to a cash lifestyle, not get more debt (which they are addicted to) and change their lifestyle as far as monthly spending. They then feel that they do not have the will power or desire to actually change their lifestyle. They suddenly feel that the stress of dealing with collections agents and the threat of legal action from credit providers is preferable to getting help. This may seem strange but most people fear change. Many consumers also have the delusion that more debt is a better solution even if they won’t actually be able to run out and somehow get more debt.
When a consumer who has (1) unwittingly begun the debt review process or (2) willingly begun it but later decides not to go through with the plan of the Debt Counsellor does not make payments in line with the plan that the Debt Counsellor sends them they think they have stopped the process. This is only partially true. If they do not pay the Debt Counsellor their fees then the Debt Counsellor will indeed stop helping them (after sending them a few notices that they are going to cut their services and the ramifications thereof).
‘If they do not pay the Debt Counsellor their fees then the Debt Counsellor will indeed stop helping them’
What the consumer may not really take notice of is that they have begun a legal process that is set out in the NCA. The National Credit Act only allows for consumers to get out of debt review* in 2 situations (1) paying off all debt and getting a clearance certificate from a Debt Counsellor, (2) paying off all the debt except a bond and getting a clearance certificate for all the other debts from a Debt Counsellor.
Due to having cut off contact with the Debt Counsellor and not making payments etc the consumers may soon forget that they ever applied for a review of their debt. They may not realise that they started a process where the Debt Counsellor legally had to notify the NCR and the NCR then told all the credit bureaus they are looking into debt review. They may not also realise that credit bureaus only have a single type of listing for consumers asking for debt review. The credit bureaus will not capture the court order, they will not capture if the consumers has been accepted or not, they will not capture the monthly debt review payments. Credit bureaus also do not improve consumers credit scores as they pay off their debts. They also accept notification about a consumers application for debt review blindly with no proof but refuse to remove the listing without a mountain of documents from all credit providers (not the Debt Counsellor) as is actually required by the NCA.
If you are listed – What can you do?
If you are listed as being under debt review you can ask the NCR who listed you (if you are unsure). This may help you remember. You may well have applied for help or a review of your debt and simply forgotten or not realised how the process works. If someone has put you under debt review without your having applied you can lay a case against them and get lawyers to sue them. Speak to an attorney about how you can open a civil case against the firm (and Debt Counsellor in particular).
You can also query the listing with the various credit bureaus using their complaints forms on their websites. They have had many such complaints over time and each has their own way fo dealing with the issues. Remember there are around 13 credit bureaus but 4 bigger ones (so start there). If you apply for more credit with a credit provider and they turn you down then ask which credit bureau they use. That will be your starting point.
You can also try get an attorney to help you get the debt review status removed which does work in some areas but not in others. Ask a local attorney about your local courts and what they think about the subject.
‘it is not just Debt Counsellors who are being obstructive or want to force consumers to use their services’
The options are unfortunately not simple and it is not just Debt Counsellors who are being obstructive or want to force consumers to use their services. The options are either you have to prove you have no more debts by paying off all your debts (which would be great) or prove that you are a victim of fraud when someone signed you up without you ever speaking to them.
Amendments to the National Credit Act
Politicians have recently amended the National Credit Act but totally ignored this issue which was raised by all in the industry. Instead, they focused elsewhere meaning that there is still no proper legislated way to deal with the situation. Some within the industry have tried to help consumers in this situation by making arrangements that are not mentioned in the NCA but others within the industry do not want this to be done since the NCA doesn’t specifically allow for it. Most Debt Counsellors and credit providers do not want to see consumers who are not willing to pay, “stuck” in the process but at the moment even getting the credit bureaus to adjust their records is hard. New guidelines on the topic may soon be issued by the NCR but will probably not offer consumers much relief (even for those who abide by such recommendations).
* if a consumer applies for debt review and does not actually need it, the Debt Counsellor will advise them on how to rather adjust their budget and pay all their credit providers each month.