Those Who Never Pay
There are many consumers who start the debt review process but never actually follow through. For some debt counsellors, this is as many as one in five consumers who sign up. These consumers are shown on credit bureaus as having applied but never make any debt review payments. Why?
When a consumer applies for debt review, it begins a legal process as set out in the law. It also means that Debt Counsellors and credit providers start doing a lot of extra work on behalf of the consumer. Because the National Credit Act requires that Debt Counsellors and Credit Providers hurry to help sort out the consumer’s situation, a lot of work is done for the consumer in a very short period of time. This is why when the consumer later doesn’t cooperate and pay according to the Debt Counsellors proposal (including professional fees) which they are presented with, this places great strain on already busy Debt Counsellors and credit providers. It is a huge drain on finances and staff resources.
Frustrated Consumers Contacting the NCR
Many consumers who talk to someone on the phone about debt review later realize they have been captured on the NCR database and credit bureaus as having applied for debt review. This is one of the areas where the NCR receives the most enquiries and complaints in regard to debt review (this and the NCR debt help system not actually removing consumers from debt review on the credit bureaus). These consumers are then cut off from credit or see the listing as negatively affecting their work or housing prospects and are desperate to get the listing removed at the credit bureaus. When they can’t remember which Debt Counsellor or firm they were dealing with, they contact the NCR.
The NCR & Credit Bureaus
The NCR (and National Credit Act) make it obligatory to inform the various credit bureaus when a consumer applies for a debt review. A debt review is not ‘debt restructuring’ but is the part of the process where the Debt Counsellor figures out if the consumer is over indebted or not (has more debt than they can repay at the end of the month and still cover their living costs).
The results of the debt review can be (1) the person has too much debt, needs help and should not receive further credit (which credit providers will be able to figure out anyway) or (2) that the person is not over indebted but can afford to repay their debt if they adjust a few things with their lifestyle and credit usage.
For the casually curious consumer who wants to get a better picture of their debt status and financial options, this makes applying for an evaluation dangerous. The Debt Counsellor may capture them on the NCR database and the NCR, in turn, will notify the credit bureaus, and this may mean the consumer’s access to credit is impeded. These consumers may simply be enquiring about debt review, but do have other options available or other plans underway to deal with their debts.
Committing on the Phone…By mistake?
Debt review promoters who contact a consumer (or who are contacted by a consumer) may draw the persons credit bureau report without the consumer’s permission and could go so far as to capture the individual on the NCR Database even though the person is not 100% sure they want to proceed. When salespeople are motivated by commissions based on sign ups, this is guaranteed to happen in any industry. Debt Counsellors need to ensure that only those who truly want to sort out their debt through debt review should be captured on the system.
As sales staff have tried to make it easy for people to commit to the process by removing extra steps (the more steps the less likely we all are to commit to something) this also has had the effect of not allowing many consumers time to fully contemplate if it is what they are willing to commit to.
I didn’t realise…
It could be that the person does not fully realize what they are agreeing to. They may give verbal agreement that they would like to pay less towards their debt each month, and that they are interested but it is impossible to clearly explain all the ins and outs of debt review and debt restructuring during a very short phone call.
Consumers may speak to a marketing salesperson, a junior consultant or even a Debt Counsellor and initially feel that debt review is indeed right for them. They may however not consult with other members of their household, who would also need to get on board and support the debt review process. If these other people in the house later tell the person not to go ahead, they may simply cut off contact with the Debt Counsellor thinking this will halt the process.
‘most have the mindset that more credit is always the answer to their existing hefty debt issues’
Those who decide not to go ahead because it will remove their access to credit
Over-indebted consumers won’t qualify for credit, if they eventually ever do try to take on more debt, but most have the mindset that more credit is always the answer to their existing hefty debt issues. When they realize that debt review means no more credit (until your debts are settled) they panic and simply do not pay, thinking this will make the debt review status at the credit bureau go away and restore their access to credit.
A Big Commitment
There are also those who fail to realize how serious debt review is. For the majority of applicants, Debt review is a 3 to 5 year commitment to working on their spending habits and sorting out their finances. It involves big lifestyle changes.
Initially, some consumers find the idea of debt review (with its reduced debt repayments and savings on fees and charges) exciting, but within a few days they simply change their minds and they no longer want to pay off their debts through debt review. This is a type of “buyer’s remorse”, a fear of commitment and resistance to change.
Give Them Time
When asking consumers to commit to a lengthy process which will change the way they plan, shop, think, spend, budget, eat, socialize, adjusts their lifestyle, reduces the number of luxuries they have enjoyed and forces them to focus on getting rid of debt, it is definitely wise to allow the consumer time to make an educated and unhurried commitment.
True, giving consumers more time to potentially back out of starting a debt review may mean that many consumers will not sign up. It could cut sign-ups by 20% or more. It will however also cut down on all the extra pointless work which is obstructing things at credit providers, Debt Counsellors, PDAs and attorneys.
Rather than see a potential drop off by 20% of uncommitted or uninformed consumers, imagine debt review companies and credit providers who have freed up an additional 20% of their time and energy to address and care for their current clients.