What is reckless credit granting?
Reckless credit granting often is a reason why a consumer is over-indebted. A person or a body that grants credit should determine whether the consumer will be able to afford repaying before credit is granted to such consumer. This is done by conducting an affordability assessment. The test for affordability is an objective one. In other words, the person conducting the assessment should on a balance of probability be convinced that the consumer will not be able to make repayments. Reckless credit granting includes the failure by a person or body to conduct an assessment as aforesaid, or concluding an agreement with a consumer who does not understand the cost risk and responsibilities of the credit agreement, or concluding an agreement with a person that will put such person in a state of over-indebtedness.
Reckless credit granting does not apply to a school loan, a student loan, an emergency loan, a public interest credit agreement, a pawn transaction, an incidental credit agreement or a temporary increase in a credit limit under a credit facility.
A debt counsellor has an important role to play when a person’s levels of debt are considered in studying his/her application for debt counselling. This means that a debt counsellor also has to determine whether reckless credit was granted to the consumer, and then the necessary action in terms of legislation has to be taken to protect the consumer if it appears that credit was indeed granted in a reckless manner.
When can I get a certificate to leave debt counselling?
A consumer may get such a certificate only after he/she has paid all debts listed in the debt counselling order or he/she has complied with all short-term credit agreements listed in the order and has only a mortgage loan that is not in arrears according to the agreed terms of the debt counselling.
May a consumer withdraw from the debt counselling process once a court order has been granted?
No. Once an order has been granted, a consumer may stop being under debt counselling only by means of an application for setting aside the order on the grounds of the consumer no longer being over-indebted.
May a consumer withdraw from the process prior to a court order being granted?
Yes, provided that the necessary forms are completed and the necessary steps are taken in terms of legislation.
May a debt counsellor’s services be suspended if a consumer does not co-operate following a court order?
Yes, the debt counsellor has to notify the consumer in writing of the intention to suspend the services. The consumer has 10 days to put the matter right, failing which a notice of suspension is issued by way of the necessary form.
May a consumer be transferred from one debt counsellor to another debt counsellor?
Yes, such a transfer may take place at any stage, provided that the debt counsellor fees have been paid and the necessary forms have been completed in terms of the legislation.
May a consumer who is not over-indebted but nevertheless is experiencing financial problems or will be experiencing problems in the foreseeable future be recommended for debt counselling?
Yes, under these circumstances a debt counsellor may recommend a consumer for debt counselling. This often happens in the following circumstances:
- A decrease in monthly income as a result of a decrease in commission or a decrease in overtime remuneration
- Retrenchment with the prospect of getting a new job
- A financial crisis requiring a major capital outlay that was not planned for.
Are there any other forms of relief when I am over-indebted?
Yes, other routes are:
- Sequestration: An application for sequestration can be either voluntary or compulsory (if a creditor applies for an order of court). This is a drastic step and should be considered only if levels of debt are such that debt counselling is not an option.
- Administration: In terms of the Magistrate‘s Court Act, a person may apply to be placed under administration. An administrator is appointed by the court to administer a person‘s creditors. The current maximum level of debt that may be placed under administration is R50 000. This process often is longer and more cumbersome than the process of debt counselling, which has a horizon of five years and was designed by the legislator specifically as an alternative to administration.
Step 1: Investigation
In practice, it often happens that a consumer consults a debt counsellor when it is clear that he/she can no longer meet his/her monthly obligations. Other circumstances are where a person fails to make monthly payments and then receives a letter from a credit provider in terms of section 129 of the Act notifying him/her that there has been a lack of payment and raising the possibility of debt counselling.
During physical or telephone consultation a consumer is informed about the following:
The purpose of debt counselling:
It is explained that debt counselling is a process to assist an over-indebted consumer or a consumer who is going to be in a state of over-indebtedness soon, to be able to meet obligations under credit agreements in a timely manner. The debt counsellor will thoroughly investigate all factors in an effort to assist the consumer. The success of the process depends to a large extent on the consumer’s willingness to stick to the restructuring plan. It is also important to know that debt counselling is not a payment holiday but that repayment will have to take place but on more favourable terms and conditions.
How does the process work and what is the role of the debt counsellor?
The process may be summarised as follows:
- The consumer applies for debt counselling by completing a Form 16 or by furnishing the debt counsellor with the relevant information.
- The debt counsellor notifies the credit providers and the credit bureaux of the application by updating the National Credit Regulator’s “debt help” system and issuing the necessary form.
- The debt counsellor then verifies the information supplied by the consumer as well as the information received from the credit providers in the form of certificates of balance.
- The debt counsellor investigates the consumer’s levels of debt and determines whether or not he/she is over-indebted. If the consumer is not over-indebted or will not become over-indebted soon, the debt counsellor should reject the application and again update the National Credit Regulator’s “debt help” system accordingly.
- Depending on the income, the debt counsellor should then ascertain whether or not the consumer is amenable to debt counselling. The credit providers and credit bureaux are notified of this decision.
- Should the consumer qualify for debt counselling, the debt counsellor will send the necessary form to the consumer’s credit providers and the credit bureaux and draw up a debt restructuring proposal.
- Following consideration of the debt restructuring proposal by the credit providers, the matter is referred to the Magistrate’s Court or to the Credit Tribunal for an order classifying the consumer as over-indebted. A debt counsellor who has accepted an application also has to inquire into the reckless granting of credit. If a transaction is declared to be reckless credit granting, it could result in the consumer’s obligations in terms of the agreement in question being set aside or suspended. The process of obtaining a declaration of reckless credit granting from the court or the National Credit Tribunal is preceded by a thorough investigation by the debt counsellor.
The following information and documentation have to be submitted in support of the application:
- Application form – Form 16
- Copy of ID document
- Salary advices and bank statements
- Marriage certificate
- Statements reflecting debt
- Credit report
- All correspondence from credit providers, including section 129 notices
- Correspondence and proof of previous legal action, if applicable
- Copies of credit agreements and application forms, if possible
The consequences of being placed under debt counselling
- Credit providers may not enforce a credit agreement against a consumer by taking legal action within the first 60 business days following the consumer’s application for debt counselling.
- The consumer may not incur any further debt while under debt counselling and all credit bureaux will be notified that the consumer has applied for debt counselling.
- The consumer is liable for paying the fees of the debt counsellor, attorney or payment distribution agent.
- The consumer has to comply with all orders for restructured payment made by the Magistrate’s Court or the Tribunal because the ultimate aim is to repay all short-term debt to credit providers and to show that in future there will be an ability to repay a mortgage bond.
The rights of the consumer and of the credit provider during the process of debt counselling
- These parties both have rights during the process. Consumers enjoy the protection of the Act as long as monthly payments, as agreed upon and/or ordered by the court, are continued.
- The credit provider has the right to enforce a credit agreement if a payment is missed by the consumer.
Insurance premiums have to be paid in full.
Credit providers are required to include all expected insurance premiums in the certificate of balance. This includes credit insurance included in the credit agreement. In many instances, credit loan insurance is a prerequisite for the credit agreement. Credit providers are required to include credit loan payments in the certificate of balance because this amount has to be included in the repayment plan. With the consent of the credit provider it is possible to replace the policy. Short-term insurance on a vehicle and/or house may also be a requirement for the loan, and this insurance will also be included as part of the consumer’s budget.
Step 2: Application
If the consumer wants to proceed with the application when everything has been explained to him/her, the consumer formally applies for debt counselling by completing Form 16 or by furnishing the debt counsellor with all relevant information.
Step 3: Notice and request for certificate of balance
In terms of the applicable regulations and the Act, the debt counsellor has to deliver a duly completed Form 17.1 to all credit providers listed in the application as well as every registered credit bureau within five days after the date of receipt of an application for debt counselling. The reason for this is to notify the credit providers and credit bureaux that a debt counselling application has been submitted by the consumer. The form usually is forwarded electronically to a dedicated email address.
The Act requires the debt counsellor to scrutinise the financial information furnished by the consumer. This is done by requesting a certificate of balance from every credit provider listed in the application. This enables the debt counsellor to determine whether the consumer is over-indebted and also assist in drafting a repayment plan. If the certificate of balance of a creditor is not received within five business days following the date of the request from the debt counsellor, the debt counsellor may assume that the information supplied by the consumer is correct.
Step 4: Determination of over-indebtedness and first proposal
The debt counsellor now has to determine, in the prescribed manner and within the prescribed time, whether the consumer is over-indebted This determination has to be finalised within 30 business days from receipt of the application for debt counselling.
This investigation may have one of three outcomes:
- The consumer is not over-indebted.
- The consumer is not over-indebted but there is a good chance that the consumer will experience problems to meet his/her credit obligations in the foreseeable future.
- The consumer is over-indebted.
In the last-mentioned case (or in the case of outcome 2, should this be recommended by the debt counsellor), the level of over-indebtedness also has to be determined. The application for debt counselling may also be rejected by the forum concerned if debt counselling is not a viable option for the consumer. This would be the case where the consumer is over-indebted to such an extent that he/she will not be able to repay debt within a reasonable period or the consumer has no way of earning an income. In these circumstances, the best option is likely to be one of the alternative remedies, such as sequestration or administration.
A debt rearrangement proposal or a debt restructuring proposal has to be submitted to credit providers within 10 business days following receipt of the certificate of balance.
Step 5: Credit provider accepts or rejects the proposal
Within 10 days of receipt of the proposal, the credit provider has to accept or reject the debt restructuring proposal in writing.
Step 6: Drawing up a final proposal
If a credit provider or the consumer rejects the plan, the debt counsellor has to consider any objections, proposals and counterproposals made by the parties, and counterproposals could be considered and implemented. If the restructuring proposal is accepted, a final repayment plan is drafted and delivered to the credit providers. If this proposal is accepted, it is made an order of the Magistrate’s Court or certified by the Tribunal. If no agreement is reached and the debt counsellor is of the opinion that the proposal is in the interest of all parties, the Magistrate’s Court may be approached to accept the proposal. Usually, this will be a disputed application which in itself may result in extra expenses.
Step 7: Acceptance of the proposal
If the debt restructuring proposal is accepted, the credit providers have to cancel all debit orders and salary deductions with regard to debt repayment. Credit providers also have to update their systems to indicate that the final proposal has been accepted. This is to ensure that the closing balances of debt counsellors and credit providers correspond at the end of the debt restructuring process.
Step 8: Placement
On receipt of the credit providers’ reactions to the debt restructuring proposal the debt counsellor has to do the following:
- File the consumer’s court application in the Magistrate’s Court with jurisdiction. Obtain a court date before expiry of the statutory 60 business days following the day on which the consumer applied for debt counselling.
- Notify all credit providers of the debt restructuring proposal and the court date within 10 days of receipt thereof.
- Apply for an order if agreement is reached with credit providers. If no such agreement is reached or if some credit providers did not agree, the case has to be set down to be heard in court as a disputed case.
Step 9: Court process
The Magistrate’s Court has to hear the case. The Court has to make an appropriate order, taking into account the content of the proposal made by the debt counsellor and the information concerning the consumer’s financial means, prospects and obligations.
Step 10: Aftercare
Once the debt counselling order has been made, the debt counsellor has to continue rendering an aftercare service to the consumer. The debt counsellor is entitled to monthly aftercare service fees, as explained in the section dealing with fees.
Step 11: Certificate that debt has been repaid
The issuing of a certificate that debt has been repaid indicates successful completion of the debt counselling process. In terms of the Act, such certificate has to be issued by the debt counsellor and not by a court.
When a debt counsellor receives a request for a certificate, the circumstances of the debt restructuring have to be investigated and if he/she is satisfied that the obligations in terms of the debt restructuring or the court order have been met, a certificate has to be issued.
A consumer under debt counselling may obtain a certificate in the following circumstances:
- When all debt listed in the debt counselling court order or the debt repayment agreement has been paid or all short-term credit agreements listed in the debt counselling court order or the debt repayment agreement have been complied with, and the consumer has only a mortgage bond for further repayment and the bond is not in arrears according to the debt counselling court order or debt counselling repayment agreement.