The Trouble With Transfers
Woopsie
When the National Credit Act was written, the legislators seemingly forgot that there might one day arise a need for a consumer to move from the services of one Debt Counsellor to another.
They just sort of ignored the possibility when putting the Act together.
Woopsie
In the real world, there are many reasons why a consumer may want to move from one Debt Counsellor’s services to another.
Some are very legitimate and necessary, and others are less so.
Let’s dive into the topic and the recent guideline by the National Credit Regulator on the subject.
Consumers' Rights
These days, if you have a mobile phone on one network, you may decide to port over to another.
If you are married to one person you might decide that you would rather be married to another.
The rights to change service providers are included in new legislation like the Consumer Protection Act (CPA).
It has become very normal to switch between banks, businesses and yes, even life partners.
With this mindset, it would be strange to find an area where a consumer is not able to switch providers.
Even in the debt review process, some people decide they would like to change Debt Counsellors.
This is commonly called a transfer.
Transfers
There are many reasons why someone may decide to transfer from one Debt Counsellor to another.
Maybe they are getting bad service.
Maybe they are being ignored when they ask for help.
Maybe the Debt Counsellor is no longer in business, or sadly, in some cases, the Debt Counsellor may be deceased.
In such cases, a consumer might need help from another Debt Counsellor.
They may pick up the phone or go online and ask for help.
The new Debt Counsellor may ask the consumer to sign some forms and a Power of Attorney and then initiate a transfer request from the old Debt Counsellor to themselves.
Troubling Transfers
We have mentioned that there are some bad sorts of transfers.
What are those?
Some unscrupulous Debt Counsellors may engage in what is known in the industry as “poaching”.
This is when they call up someone who is already happily in debt review and try to convince them to switch to their services.
At the time, the consumer is happy and safe and does not need to move, but they are talked into asking for a transfer, traditionally with one of two main lures:
- Lower monthly debt repayments
- Getting out of debt review before your debts are paid up
Without going into too much detail, lets briefly look at why both of these are bad news.
Lower monthly repayments may sound good at first but it creates serious problems.
Firstly, it means the consumer would have to pay off their debt for longer. That means more time for something to go wrong. Secondly, these offers come after credit providers have already agreed to a restructuring plan. There may even be a court order in place. A switch to a different Debt Counsellor and new low ball offer after the fact can end up with the credit providers being unhappy and trying to either fight the offer at court or even duck out of the debt review and send things back to the normal legal collections method. Often, such callers would claim that the NCR had asked them to reach out, misrepresenting what was going on from the start. All very bad.
Offers of getting out of debt review before debt is paid up are either lies (a scam) or are done via dodgy court practices that the NCR are looking into. Consumers cannot leave debt review before their unsecured debts are settled. Now, normally these ‘get out of debt review’ services are offered for huge upfront fees that either go missing (if it is a scam) or consumers end up with unfulfilled promises unable to hold the swindlers to account.
Good Debt Counsellors know all the dangers of both offers but sadly most consumers do not. They fall for such misleading offers.
Even though they may not exactly like it, good Debt Counsellors will understand if you want to switch because of a relationship breakdown. But good Debt Counsellors are hesitant to just hand off clients to people who will lie or take advantage of them. Many of these dodgy practices are well known in the industry and are hopefully under investigation by the NCR after so many consumers, associations, credit providers and Debt Counsellors have reported them.
It is an unfortunate side of debt review we wish did not exist.
Trying To Reduce The Damage
Many of the larger Debt Counselling practices get hundreds and hundreds of attempts by such Debt Counsellors, in wave after wave every single month to try move clients out of their protection, into harm’s way. Some report more than 900 such requests a month.
This led to most of them starting to ask for things like assurances that the consumer really does know the risk and has initiated such a request or they may ask for proof that the person sending the request was actually a real Debt Counsellor (or indeed a real person, in a world of Ai scams).
The worry is that fake signatures and fraudulent requests are being made.
These days, such things are so easy to fake.
Clogging Up the NCR’s Email Inboxes
Due to these internal policies and these Debt Counsellors’ concerns about people getting taken advantage of or scammed, this led to a constant back and forth between some Debt Counsellors asking for transfer information (and things to be sorted out on the NCR’s system) and consumer documentation.
When things did not move smoothly or swiftly, the NCR would often receive complaints or, worse yet, start getting CC’d into countless accusatory emails back and forth. You can imagine what a pain that must be.
During a recent workshop on the topic, one of the NCR team revealed that he had seen some very unprofessional correspondence between registered Debt Counsellors with the consumer being privy to all the unprofessional back and forth, bad language and conduct.
This led to a push at the NCR to address the issue. The solution was an adjusted and updated guideline about how the NCR feels consumer transfers between Debt Counsellors should be handled.
It has been met with a mixed response.
Download the Guideline Here
Debt Counsellors: Click Here to Earn CPD Points
The highlights include:
- A Power of Attorney from the consumer is all the documentation required.
- There is no need to do extra checks with the consumer or worry about who sent it or why. No need to worry about what happens next.
- The transfer must happen within 7 days.
- The old Debt Counsellor should refund money for work not done.
- The old attorneys should refund money for work not done.
- No new fees should be charged from the consumer (we will see the reasoning why later in the article).
Some Happy, Others Worried
The Good:
For those who are genuinely helping consumers who have had a breakdown in trust and relationship or a total lack of service from their old Debt Counsellor, this is a very helpful guideline.
It aims to prevent delays, gets people money back if work was not done and helps give the consumer peace of mind with a swift transition.
The Bad:
For those who engage in poaching or switching consumers to get them to pay for ‘get out of debt review services’, the guideline appears to be a gift.
No longer is any proof other than a signed Power of Attorney required. The old Debt Counsellor does not have to be convinced by the new Debt Counsellor or consumer that they actually want to go ahead. The POA is now held by the NCR to be all encompassing.
The Ugly:
The guideline says no more fees can be charged, but in many cases, where work was never actually done, a lot more work may still be required to actually get the consumer’s case sorted and their assets safe. So, some Debt Counsellors may decide not to help people who need to move to a more attentive service provider.
The NCR’s Views Clarified During Workshops
The NCR held a series of online workshops with Debt Counsellors to briefly go through the points in the guideline.
During the workshop, the many complaints and clogged up NCR inboxes were mentioned, helping Debt Counsellors understand why the NCR need to address the matter.
The need for professional correspondence and behaviour between registered parties was mentioned. The NCR hope for more professionalism across the industry.
Let’s look at some other points covered.
Consumer Rights
Part of the workshop focused on the NCR’s view on the consumers’ absolute right to choose who will help them.
Parts of the NCA were referenced, such as Section 86, where it talks about a consumer approaching a Debt Counsellor for an official evaluation of their finances (a debt review) and the resulting findings in terms of appearing to be overindebted or not (which a court will later decide). This step can finally result in the consumer being declared over indebted and gaining all the protections of the debt restructuring process via the courts or NCT.
Section 86:
- A consumer can apply to a registered debt counsellor at any time to have themselves declared over-indebted.
The NCR hold that this sentence also refers to a change in heart and wanting to move to someone else. They do not want to see Debt Counsellors saying: “no, you are not allowed to transfer the act does not allow it”.
Questions to Ponder:
The National Credit Act does not actually specifically talk about ‘transferring’ services from one Debt Counsellor to another. It seems that the drafters of the Act never considered the possibility.
Interestingly, the NCA often talks about ‘a’ Debt Counsellor but does not specifically link it as being the same person. For example, it says a Debt Counsellor could do an assessment and make a recommendation that a court find the person over indebted and later it talks about a Debt Counsellor issuing a clearance certificate. It does not expressly say this is the same person. The regulations, however, often talk about “the debt counsellor’, this may indicate it is the same individual. The regulations, however, also talk about ‘A debt counsellor’ when discussing clearance certificates. So maybe that can be a different person?
Even though NCA Section 86 (1) expressly talks about a consumer making a decision to apply to a Debt Counsellor (a person registered with the NCR as a Debt Counsellor) the wording does actually seem to indicate that it refers to a moment in time, namely, the actual point of application.
The right to choose a service provider is more firmly established in other South African Acts, such as the Consumer Protection Act, which deals with such matters in Sections 13 and 14. Normally, however, specific legislation about something like debt counselling would be regulated by the relevant act and regulations.
Another consideration is where a court order has already been granted for a debt review. In such court orders, it will likely name the specific Debt Counsellor by name (since the Debt Counsellor is the applicant in the matter). The court order is binding on all parties. Ignoring it is…bad.
Would it be necessary to now include a transfer clause in court papers for the Debt Counsellor, should the consumer decide they want someone else to help?
Don’t Charge More Fees
The NCR were quick to point out that when a consumer is unhappy with the work or lack of work done by a Debt Counsellor, they can move to another, and the new Debt Counsellor will receive all the records and documents and work done by the old problematic Debt Counsellor.
They seem to be of the impression that since that old Debt Counsellor will have done the job 100%. They will be 100% professional. And since they will have 100% done their job, no further work should be required by the new Debt Counsellor, so they must not charge anything to help the consumer (other than ongoing aftercare fees). This seems unrealistic.
Where legal fees have been paid, but legal work has not happened (or not a lot of legal work has happened) the NCR are super confident that the old attorneys will refund the consumer.
The implication is that new attorneys will use whatever money is refunded and be happy to carry on the work from that point for that amount (and at the amount the first attorney charges).
Questions to Ponder:
If the consumer is moving expressly because work was not done, then when they move, will there not still be a lot of work needed?
Will the new Debt Counsellor be prepared to do all that professional work for no compensation? Should they be expected to do so for no compensation?
In an affidavit asking for a court order, can a new Debt Counsellor swear to having done the work performed in part by another Debt Counsellor? Do they need to single out what they specifically did? Will the courts like that?
Will the previous attorneys really be willing to refund the consumer if they have been offering massively discounted rates to consumers under debt review that are vastly lower than their regular charges (in some cases, even just for consultations)?
Will new attorneys be willing to match the previous attorney’s rates and be able to simply carry on from that point or will they need to start their internal processes over again from scratch, resulting in potentially higher fees?
We may soon see a new guideline about legal fees coming from the NCR, but will attorneys find them to be binding or also ignore them, such as is currently done with the current NCR fee guideline timing for legal fees?
During the workshops, the NCR really wanted to stress that once the Power of Attorney is received and as long as outstanding (non prescribed) fees are paid, then the transfer must happen within 7 days. The Debt Counsellors should not try stall or be uncooperative. That will simply lead to more complaints, and the whole previous situation will exist again. They urged people to use the proper complaints process (Form 29s) rather than adding them to email chains.
There was also some mention made to how the NCR are also working on an auto-transfer process on their system once the process is initiated.
The workshops sadly did not allow for a lot of time for questions, but they were very revealing and helped Debt Counsellors perceive what the NCR are thinking.
The Associations’ Views
The Debt Counsellors Association of South Africa (DCASA) have made an official suggestion to the NCR that consumers be given additional information when making a transfer to educate them about risks and clarify what a transfer really accomplishes.
They would like to see the consumer sign this, providing their members some legal grounds in case the consumer later comes back to try sue them for letting them get scammed and helping consumers avoid getting bamboozled or ending up paying fees.
This lines up closely with the long held views put forward by the National Debt Counsellors Association (NDCA).
On the topic of the proposed document DCASA has said: ‘DCASA believes that consumer education must be at the heart of the transfer process.
Many consumers do not always understand the difference between a transfer, a withdrawal, a clearance certificate, or so-called “debt review removal”. This distinction is important because the legal consequences are very different.
Where a consumer has already been declared over-indebted, or where a debt restructuring court order has been granted, the consumer generally remains under debt review until the requirements for lawful clearance have been met. Section 71 of the National Credit Act remains central to this process. A Form 19 clearance certificate can only be issued once the consumer qualifies in terms of the Act and the applicable requirements have been satisfied.
This is why DCASA has submitted a proposed consumer transfer acknowledgement document to the NCR. The purpose of this document is not to restrict a consumer’s right to transfer. The purpose is to ensure that the consumer gives informed instruction and understands that a transfer is not the same as removal, cancellation or clearance.’
The NCR Like to Try Enforce Guidelines
After any new guideline and attached workshops, it is not uncommon to see the NCR want to take some sort of enforcement action against those who are slow or refuse to adopt their way of thinking on a topic.
After all, they genuinely feel it is the best way for these things to be handled.
In the past, this has led to some awkward fights at the NCT over such guidelines and in other places the courts have ended up weighing in on the NCR’s guidelines.
It is to be restated that the NCR feel this is the best practice and that their non binding opinions (which the Act allows for) are actually binding because of the T&Cs of a Debt Counsellor’s registration.
Not all the courts have agreed.
Still, those who oppose the new guideline may soon find themselves under pressure for the NCR to comply.
A Professional Industry Where Professionals Act Professional
The new guideline does seem to be quite optimistic. Perhaps designed for a future that has not come to pass just yet.
It assumes that all Debt Counsellors, even those with whom consumers grow frustrated with for not doing their job, are in fact doing all the work needed to easily just send over files from one professional to another. In such cases why would any extra fees be needed.
It assumes attorneys will quickly refund consumers and other attorneys will work for whatever is left or maybe free.
It seems to sidestep addressing the unscrupulous fraudsters or scammers who might be targeting consumers in debt review, which is an area of concern.
But perhaps there are other efforts in place to address such concerns that are simply not needed in this new guideline. These parallel efforts may sort out those issues. Other new guidelines may convince attorneys to adjust how their fees are handled.
We simply do not know, what we don’t know.
We hope that such efforts to professionalise the industry come into place as swiftly as possible to prevent too many thousands of consumers from being hurt by the new way of doing things.
What could be considered good news is that if people do transfer into the clutches of unscrupulous Debt Counsellors, they later will be able to just as easy transfer back.
If anyone will take them.
