NCR Circular Warns Against Bad Practices
Don’t Make Promises You Can’t Keep
The NCR recently released a circular to the debt counselling community warning against misleading advertising, tricking consumers into debt review and over promising.
They feel some Debt Counsellors are using misleading or even false information when speaking to or advertising to potential clients. The NCR also often receive complaints from consumers who say they did not understand the process when signing up.
Let’s look at some of the issues highlighted.
Placing Consumer Under Debt Review Without Their Knowledge
The NCR circular says that some people are placed under debt review without their knowledge.
It is unclear how this happens. This should never happen!
This is fraud and those engaging in such activities should be prosecuted and should face heavy fines or jail time.
Placing Consumer Under Debt Review Without Their Consent
When a consumer talks to someone and enquires about how debt review works or is offered some sort of way to reduce their debt repayments (normally over the phone it seems) they may later find that even though they were just looking for information their information is sent to the NCR as having officially applied for debt review.
They may never have consented to officially starting the process. They may never be asked to sign anything or they may be asked to sign a document but not understand what they are being asked to sign.
This is perhaps more common and may relate to how some weak debt counselling practices run a very sloppy ship.
These sorts of “fly by night” practices are a major cause of concern for hard working Debt Counsellors. This is because signing people up onto the NCR system, cuts that person off from access to credit and the person then complains about debt review. This sours other people to debt review.
Note: It has to be said that some consumers do actually initially want to start debt review but receive such weak service in the first few days and weeks of the process that they basically think the debt review is not happening. Because of being under informed and a lack of support they are then thrown into chaos when they discover the process is actually underway. Such weak service also brings the whole industry into disrepute. Such consumers may later complain to the NCR and may then say they did not consent to the process when they actually did but just got rubbish service or forgot.
Sue Them!
If you have been tricked into debt review or put in debt review without you knowing about it and wish to open a case of fraud against the person who called you, please contact the NCR for advice on how you can begin such legal action.
The NCR can be contacted on 0860 NCR NCR.
Chasing Sales Leads To Bad Behaviour
When sales people are paid on commission instead of paid for sticking closely to the script you can quickly have issues.
Chasing commission some people will say things that may not be accurate in an effort to close a deal.
For many industries clever call centre tactics and chasing the sale at all costs is the norm. With debt review however, the consumer is entering a legally binding process with serious financial ramifications. No wonder the National Credit Act and Consumer Protection Act requires that consumers are fully informed and that a Debt Counsellor explains what is required.
Other sales people (who hopefully are Debt Counsellors and familiar with the NCA) who do stick to the script may find that they are asked to say things that are not true.
For example, some people receive calls from salespeople who say that the NCR asked them to contact the consumer. The NCR does not do this. This is false and is a giant red flag!
Please beware of any one who says this.
For example, some people are told the SA Government ack them to call from a national database and try help the consumer reduce their debt repayments. That’s called “a lie”.
The Old Switcharoo – LOL, Tricked You!!
Some Debt Counselling practices may directly or through a lead generating agent make false offers of consolidation loans.
Debt Counsellors cannot operate as a credit provider and so this is false advertising.
(note: this may legally differ from referring to a single consolidated monthly debt repayment but even this phrasing can confuse consumers)
Calling the process something else like reduced interest repayment plans or reduced instalment plans may interest people who would not normally want “debt review” or “debt counselling”.
Once the person later realises that all the benefits they are receiving or have been offered are actually debt review they get mad and complain to the NCR and stop payment via the process. This causes them many difficulties.
Only dodgy Debt Counsellors use a misleading Switcharoo. It does not help consumers.
Over Promising Leads To Disappointment & Dissatisfaction
We all know it is better to under promise and over deliver than the other way around.
When people are told they will definitely receive a certain percentage off their debt repayments and later don’t they will be disappointed. This undermines their confidence and trust in both Debt Counsellor and the process. It also lowers their determination to follow through.
Some Debt Counsellors have promised specific percentage reductions in payments.
For example, they may say:
Debt Repayments Reduced by 50%
(note: this may differ legally from the statement Debt Repayments Reduced by up to 50%)
This may create the impression that that percentage reduction is guaranteed. But since the courts control what is ultimately ordered this cannot be guaranteed. Thus, it is false advertising.
Software That Does Not Make Applying Clear
Some consumers make use of helpful software via their phone which helps make a formal debt review application.
This is the information that consumers submit in a Form 16 Debt Review Application Form.
Some software may however not clearly show the consumer (on their phone) that the information is being captured for a Form 16 or it may only later populate such a form with the information.
Such software may need to be adjusted to be clearer or the consumer formally asked for consent if the information can be put into such an official application form.
Many practices using such software also record all calls so it should be clear if the consumer gives consent to formally start the process or not.
Chasing Consumers To Sign Forms
The NCR have also encouraged Debt Counsellors not to repeatedly contact consumers telephonically to try to persuade them to sign documents they have not read, understood or appreciated.
It seems that some people who agree telephonically to start the process are later asked to sign an application form. Others are asked to sign a court affidavit confirming something they don’t agree to or understand.
It has been said that some people are asked to sign a confirmatory affidavit confirming they have read the Debt Counsellor’s founding affidavit but they have actually have not seen that founding affidavit.
The NCR recommends not chasing people telephonically to sign these forms and to rather let things play out naturally.
For those who do not wish to sign application forms, as long as their info has not prematurely been captured incorrectly on the NCR’s Debt Help system, there should be no problem.
For those with court papers urgently needed it is a little more complicated. This is because if a consumer does not agree to a debt review court application in a confirmatory affidavit, their court matter will be dismissed.
This does not end the debt review however. While still under debt review or flagged as such at the credit bureaus they may simply not enjoy full legal protection. If the person decides not to pay off their debts and work with a Debt Counsellor, they will still face challenges getting new credit until their debts are fully settled.
Ensure Consumers Are Fully Informed
All Debt Counsellors know that if a consumer is not willing to change their lifestyle and focus on paying off debt, they will simply fail at debt review.
It is a giant waste of time for them to even begin if they are undercommented.
All industries and all businesses have some clients who have buyers’ remorse and drop out of whatever process they run. That’s normal. Even marriage which is a legal process that has been around for thousands of years and is heavily regulated and legislated has about a 50% failure rate in South Africa.
One way to increase the likelihood of success for clients is to ensure they are fully informed.
What each client needs to know may differ but they need to know that:
- They have to pay off their debt (not make more)
- They have to pay each month or the credit providers will start new legal action against them
- If the consumer misses a payment the credit providers can revert to old contract amounts and the consumer will owe more than when they began debt review
- While in debt review the consumer will not be able to make more debt, they will have to pay off their debts. Their former credit options are shut off during this time.
- Only once all the smaller (not bonds) debts are paid up they can ask for a clearance certificate and re-enter the credit market
- If, while under debt review, the consumers decide not to work with a Debt Counsellor then they still have to settle all their debts and later ask a Debt Counsellor to issue them a clearance certificate saying their debt is paid up.
- They and not the Debt Counsellor or PDA are responsible for the debt. The debt remains the consumers.
- The debt review process is a legal one and is done via court or Tribunal. Legal costs may apply and they should have these disclosed to them in advance.
- Debt Counsellors are professionals who charge professional fees. Though small these must be paid each month throughout the process. No pay, no help.
- If the consumer choses to use a Payment Distribution Agent (which 99% of Debt Counsellors suggest) there are is a small monthly fee. Normally, this works out to around 0.8% (less than 1%) of the consumers total debt across the many years they receive help.
- The consumer should try to notify the Debt Counsellor and thus their credit providers as far in advance of any problem that will interrupt payments or reduce payments. The idea is to organise some sort of special arrangement for a month or so to keep the person in debt review but the credit providers are not obliged to agree and they can back out and start new legal action if this happens.
- Consumers who receive legal letters or summonses during debt review for a debt that is already being paid for through debt review can defend the matter when it goes to court using NCA Section 86(11). The debt may then be put back into the debt review. They can ask the courts to make the credit providers pay the legal bills in that case.
- Consumers should also be told that Debt Counsellors are not in charge of the process. They help with it and it is ultimately the courts that restructure the debts. This means that once the Debt Counsellor and credit providers have mostly agreed to a plan it is actually the courts who restructure debt and this may vary slightly from what the Debt Counsellor suggests (it seldom does but…it can happen).
There are other things that consumers need to know about how payments are done, when they are done, how credit provider balances and PDA balances may not align 100% etc etc). This is why it takes a long time to explain debt review and is not just a sales process. Debt Counsellors who explain these things in detail to consumers find they are better prepared for the process.
This is why consumers need to sign detailed contracts as required by the Consumer Protection Act (and not just application forms) with Debt Counsellors.
And once the process is begun the Debt Counsellor may need to provide daily support to the consumer especially during the first 3 months of the process when they are going through the tough transition to a cash lifestyle and tight budget.
Debt Counsellors should always strive to best equip their clients for success. Providing lots and lots of advice, support and information can really help.
Bit of a Concern in the Circular
One aspect of the NCR circular which makes some in the industry nervous is the statement that consumers must be the one ‘approaching’ a Debt Counsellor for assistance. This is sort of stated twice in the document.
While this does make sense and seems to be aimed at some of the fraudulent or misleading practices mentioned above, it might also be read that Debt Counsellors can never be the one to initiate any contact with consumers about debt review.
Taken to extremes this could mean, no roadshows, no workshops, no financial advice sessions for companies, no handing out fliers, no conversations with friends in financial trouble, perhaps even no adverts on social media or the internet inviting consumers to make contact.
Since the circular implies the consumer would have to be the one ‘approaching’ the Debt Counsellor, a Debt Counsellor may technically then never be the one initiating a call or visit… even if asked to do so by the consumer or a court. Many Debt Counsellors, for example, offer to call consumers who do not have airtime. They offer such on their websites. The idea being to help the consumer without big costs to them.
While it is a small concern and does not seem to be the intent (it seems aimed at people making calls in bulk perhaps) this may require further clarification.
Where is the line and how do Debt Counsellors avoid crossing it?
And the basis for such needs some clarification as well.
Also, the circular says that a Debt Counsellor needs to do a proper assessment of the consumers financial position (a review of their income and debt) before placing a consumer under debt review.
While this does seem to be aimed at getting Debt Counsellors to do a thorough job right from the start, it calls for a Debt Counsellor to essentially do a debt review before placing the consumer in debt review.
So, this is a bit of a concern.
How much of a review is needed exactly?
(Note: At present, the current wording of the NCA does not make provision for a Debt Counsellor to refuse to process a Form 16 formal debt review application if signed and all information is provided).
Debt Counsellors Very Happy About The Circular
The vast majority of Debt Counsellors are very happy about the NCR Circular (which can be downloaded below) and are glad to see the NCR taking action to curtail misleading advertising and rouge salespeople who are overpromising and weak debt counselling practices from underdelivering.
While there are some areas that may need further clarification, the circular seems to be focused on helping protect consumers from being tricked into the process and then not following through. Complaints about the process from such people could scare off the very large number of other people who need serious help.
For those debt counselling practices who have weak controls over sales staff or have allowed their marketing people to place such misleading information online it is a warning that a crackdown is coming and they will soon face enforcement.
A final chance to amend their ways to avoid getting into serious trouble.