1. Background
   The National Credit Act (NCA) came into full effect on 1 June 2007. Before this event, people in serious financial difficulty had only two ways to rectify their financial situation, namely:

   • Sequestration/liquidation

   • Administration

   The NCA created a third option, Debt Review and Restructuring, which is more empowering and less traumatic for the person in financial trouble. The NCA stipulates that Debt Review and Restructuring can only be performed by a Debt Counsellor (DC).
    

2. Debt Counsellors
   Similar to Credit Providers and Credit Bureaus, all DCs have to register with the National Credit Regulator (NCR). For registration, the DC has to meet the qualifying criteria stipulated by the NCR, by passing an examination paper set by the NCR. The NCR then issues the DC with a certificate that authorises him/her to practice Debt Counselling. This certificate must be displayed at the business premises of the DC. All DCs also have to pay an annual fee and submit annual reports to the NCR to remain in practice.
    

3. What is Debt Counselling?
   Debt Counselling is a professional service provided for over-indebted consumers. The goal of Debt Counselling is to develop a new debt repayment plan that is affordable to the individual and acceptable to all their creditors. This repayment plan will still allow them to meet their basic living expenses.

During the Debt Counselling process, the DC assists a consumer to review his/her financial position and, if the person is found to be over-indebted, to renegotiate and restructure the person’s monthly debt repayments to all his/her creditors.

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The main steps in this process are as follows:

• The consumer applies to a DC for a debt review.

• The DC informs all of the consumer’s Creditor Providers and all Credit Bureaus that the person is under debt review. This fact is listed on the Credit Bureaus and means that, for a period of 60 days, no credit provider can take legal action against, nor require any repayments from, the consumer.

• The DC obtains all the relevant information from the consumer (details of incomes, living expenses, debt repayments, etc.) and compiles an assessment to determine if the person is over-indebted. Essentially, one is over-indebted if net monthly income minus reasonable living expenses is less than the amount required to pay total monthly debt repayments.

• If the consumer is found not to be over-indebted, the DC communicates this to the person and also notifies all his/her creditors and the Credit Bureaus. This then ends the work of the DC.

• If the consumer is found to be over-indebted, the DC will agree with the person a revised monthly budget for normal living expenses (food, fuel, rental, clothes, telephones, etc.) The DC will then renegotiate repayment terms with all creditors so that the monthly debt repayments of the person will total the amount left after living expenses are deducted from net income.

• This total amount for debt repayments will from then on be deducted in a lump sum every month, by way of debit order or payroll deduction, and will be paid over to the creditors. This function is fulfilled by a Payment Distribution Agent (PDA), as the NCA prohibits the DC from doing it, to avoid a possible conflict of interest.

• The total monthly debt repayment amount will also be kept constant until all creditors have been repaid in full. For this entire period, the consumer will be listed on all Credit Bureaus as over-indebted and will thus not be allowed to incur any more debt.

• Once all creditors have been repaid under the restructured agreement, the person will immediately be removed from all Credit Bureaus and he/she is considered debt free and in a position to incur debt again if they so wish. The DC will also issue the person with a clearance certificate stating that all debts have been successfully repaid.

4. What fees does the DC charge?
   The fees that a DC may charge for his/her services are controlled by the NCA and are presently as follows (all amounts exclude VAT):

   • An application fee of R50.00, payable by the consumer when applying for a Debt Review.

   • If the consumer is found not to be over-indebted, a fee of R300.00 is payable by the consumer to the DC for the debt assessment.

   • If the consumer is found to be over-indebted and the DC has to restructure all his/her debt repayments to all creditors, the DC can charge a restructuring fee equal to the first total reduced monthly repayment. This fee is however limited by the NCA to a maximum of R3 000.00 in the case of single applications, or R4 000.00 in the case of joint applications (e.g. husband and wife, married in Community of Property). The restructuring fee is included in the restructuring process and thus the consumer doesn’t have to pay it separately.

   • A monthly aftercare fee of 5% of the monthly instalment of the debt rearrangement plan for the first 24 months, thereafter reducing to 3% per month. Again the NCA limits these fees to a maximum of R300.00 per month. The aftercare fee is also included in the restructuring process and thus the consumer doesn’t have to pay it separately.

   • Should the consumer withdraw from the process after paying the restructuring fee, a fee equal to 75% of such fee is payable to the DC.

   • If a consent order has to be obtained, an attorney must be appointed. Any fees payable for this process will be communicated to the client in writing and the client will authorise these fees in writing to the DC.
      

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5. How will Debt Counselling affect those in need of debt counselling?

   • Once the client’s DC has notified creditors of their application for debt review, creditors can not take any further legal action against them or repossess any of their assets for a period of two months.

   • The client will be required to pay a reduced, affordable instalment, without necessarily extending the debt repayment period.

   • The client will be able to continue to pay for their basic living expenses.

   • The fees paid to the DC are included in their repayment plan (except the R50 application fee).

   • While they have outstanding debt, the client will be listed at all Credit Bureaus as "under debt review". However creditors may not initiate new black listings against them.

   • During the debt review process, the client will not be able to apply for any additional credit other than debt consolidation loans.

   • Once the client has received their debt clearance certificate, their DC will be able to remove them from Credit Bureau listings. This will enable them to qualify for credit again.