Debt review, often viewed with scepticism, is a debt relief programme provided for in the National Credit Act 34 of 2005. It was designed to assist overindebted consumers by restructuring their debt into single and affordable monthly payments.
However, the National Credit Regulator (NCR) announced recently that they would launch an investigation into several debt review companies following a series of consumer complaints. This event demonstrated the critical need for consumers to distinguish between the good and the bad when it comes to debt review services.
This is according to Charnel Collins, CEO of National Debt Advisors, who says with an average of 41,645 clearance certificates issued in the 2022/2023 period as per the Department of Trade and Industry, the debt review program successfully assists consumers to become debt free every day in South Africa.
However, following a series of complaints regarding debt review companies acting unethically and taking advantage of people in financial trouble, a full-on investigation is underway.
“Consumer complaints have highlighted several troubling practices within the debt review industry, including the use of pressure sales tactics by some companies, which exploit individuals’ financial vulnerability to push their services aggressively. Poor customer service is another concern, with many clients experiencing delays in response times or even complete disregard for their inquiries,” Collins explains.
She says instances of verbal agreements, where individuals were enrolled in debt review programs without proper written consent, have also been reported. Furthermore, there have been cases of misleading claims, leaving many consumers feeling deceived. And finally, some companies fail to disclose essential legal aspects of debt review during initial discussions with clients.
To safeguard against scammers, Collins adds that it is crucial for consumers to seek out complete transparency from their debt counsellors, especially regarding fees in line with the NCR’s specific guidelines.
“The restructuring fee, for example, is capped at R8,000 for single applicants and R9,000 for those married in community of property. The reckless lending investigation fee, set at a maximum of R1,500, and the after-care fees, which ensure ongoing support throughout the repayment process, limited to R450,” Collins explains. “This fee structure has been designed to curb excessive charges, empowering consumers to regain control of their finances without being burdened by unexpected fees.”
Consumers also need to be realistic about the time frame that is involved in the debt review process, she adds. “It may take up to 60 business days to finalise the application. Thereafter, the duration of the programme can vary significantly depending on the consumers’ financial circumstances,” she says.
“Sometimes people start off small and as their finances improve over time due to factors like increased income or reduced expenses, they accelerate debt reduction. In essence, debt review is not a one-size-fits-all solution with a fixed timeline. It’s a dynamic process that adapts to your changing financial situation.”
How to avoid debt review scams in South Africa
Collins shares the following red flags that South Africans should be aware of to safeguard against debt review scams:
- Lack of NCR registration: Ensure that your debt counsellor is registered with the NCR in South Africa. Registration is a legal requirement and a mark of credibility.
- Upfront fees: Be cautious of debt counsellors who demand significant upfront fees before providing any services. As mentioned earlier, the NCR sets specific fee structures, and these should not be excessively high.
- Promises of guaranteed results: Beware of anyone who promises miraculous outcomes or guaranteed debt reduction. Debt review’s success depends on your specific financial situation and commitment to the process.
- Lack of clarity: Legitimate debt counsellors will provide clear explanations of the debt review process, fees and expected timelines. If you encounter vagueness or evasiveness, it’s a warning sign.
- Pressure tactics: Scammers may use high-pressure sales tactics to rush you into making decisions. A reputable debt counsellor will allow you time to understand the process and make informed choices.
“The ongoing investigation into underhanded debt review companies serves as a wake-up call for consumers. While debt review can be a valuable tool for managing financial challenges, it’s essential to tread cautiously, separate fact from fiction, and opt for ethical service providers to minimise the risk of financial loss and avoid falling victim to scams,” Collins concludes.