Category: <span>News</span>

Illegal debt collection

Have you (or someone you know) been contacted by a debt-collecting firm about an old debt for which they’re now demanding payment? Are they claiming that the outstanding balance has increased significantly, due to the accumulation of interest and other charges? Be warned that many of these collecting companies have a track record of using bullying tactics to illegally collect amounts for which you may NOT be liable.

Firstly, the Law of Prescription (1969) protects any debtor from having to pay a debt which has been dormant for more than three years. This means that if the debtor has not acknowledged the debt (by signing an acknowledgement or making a payment) AND the creditor has not obtained judgement for that debt within that three-year period, the debt has legally lapsed and the debtor cannot be held liable for payment.

Secondly, Section 103(5) of the National Credit Act (2005) limits the amount to which an outstanding balance can increase. In brief, this means that a creditor cannot add interest and charges that exceed the amount that was outstanding at the date that the debtor defaulted on the debt. For example, if you owed R5 000 on an account and stopped paying the creditor, that creditor is legally not allowed to add more than another R5 000 in interest and charges, so the total balance that they can demand from you cannot exceed R10 000.

These are not suggestions which a creditor can choose to apply if they feel like it ; These are LAWS. Unfortunately there are creditors and debt collectors who take advantage of the fact that it’s unlikely that the proverbial “man in the street” will know all of his legal rights. It’s ironic that, by demanding payments to which they’re not entitled, THEY are effectively stealing from these debtors.

Blacklisting – what is it?

We are frequently contacted by people who have been told (usually by a creditor when they want to apply for more credit) that they are “blacklisted”. These clients often assume that this is either a form of legal action (like a judgement) or a type of block that has been placed against their name to prevent them from applying for credit, but this is not that case. The following article sheds good light on what “blacklisting” actually means, with authoritative input from someone “in the know”, namely the Consumer Brand Manager at the TransUnion Credit Bureau :

http://www.fin24.com/Money/Debt/What-your-credit-record-says-about-you-20150925.

Incidental Credit

For someone who is working on a tight budget (which, to be honest, is most of us), unforeseen expenses such as medical bills or sudden demands for payment of arrears on contracts (such as club memberships and cell-phone contracts) mean that we have to try and find extra money that sometimes just isn’t there. When one is already battling to make ends meet and keep up with all of the other payments that have to be made, that extra demand is like a brick being thrown to a drowning person.
According to the National Credit Act, if a creditor (i) charges any fees or interest because an account was not paid by a specific date or (ii) quoted a higher price if an account was paid after a certain date, that account automatically becomes an “Incidental Credit Agreement”. This means that, for anyone who does feel that their debt repayment instalments are unaffordable and decides to apply for Debt Review to relieve them of this burden, accounts such as those mentioned above are eligible for inclusion. The only condition is that 20 business days must have passed since the creditor charged a fee or interest for late payment, or since the higher price for the later payment became applicable. Should the accounts be placed under Debt Review, the creditors cannot proceed with legal action, and the law requires them to negotiate a reduced instalment with the Debt Counsellor.
This is yet another way in which the National Credit Act meets its stated aim of relieving consumers who are over-indebted. Thankfully, it aims to throw a drowning person a rope, rather than a brick!

Judgement on your Credit record?

How long does a Judgement remain on one’s credit report? Many people have the mistaken idea that a creditor controls the information that the credit bureaus display, and can instruct the credit bureaus about whether to retain or delete information. In fact, creditors are legally required to provide credit bureaus with facts about how someone has managed their accounts (including loans, overdrafts, credit cards, etc.). These facts will include whether the account was always paid on time and, if not, how far in arrears the debtor allowed it to fall.
If a creditor has obtained a Judgement against a debtor/consumer for a debt on which there was default, the creditor must provide the credit bureau with this information. This remains on the consumer’s credit report for five years from the date that the order is granted, whether or not the debt is settled during that time. If the debtor does NOT settle the outstanding debt during that time, the Judgement remains in effect (from a legal point of view) for ten years from date of granting. This means that, even if the credit bureau removes the listing after five years, the creditor can then advise them that the debt is still outstanding and the judgement is still valid, and therefore that the credit bureau should re-list the judgement for the remainder of the ten-year period.
If the debtor settles the debt within the first five-year period, the credit bureau will automatically remove the listing after the five years. However, a debtor has no legal right to request the removal of a Judgement listing earlier, even if they’ve settled the debt. Settlement of the debt doesn’t change the fact that a Court granted a Judgement, and credit bureaus are required to provide this information.
There are also companies that advertise that they can clear credit records. Be wary of these claims. Our attorneys (Liddle & Associates), as well as the Frequently Asked Questions section of the Credit Ombud’s website (www.creditombud.org.za) have confirmed that there is no easy way to do this. Many people have also reported that, even after paying for this service, their credit records have not been cleared.
There is truth in many old sayings, in this case that “Prevention is better than cure”. There are ways of dealing with debts before they proceed to the stage of legal action and Judgement, so it’s much better to confront the problem earlier, when resolving it will be easier and the long-term impact will be much less severe.

Budgeting

Budgeting is important (unless you’re one of the really fortunate people who is getting so much that you don’t need to worry about expenses). Without a budget, how do you know whether your salary is going to last until the end of the month? Can you afford to treat yourself to something special this month – maybe a new CD or a nice evening out? What about the unforeseen expenses – car repairs, appliances breaking down, medical bills? Are you saving enough for your retirement, or your childrens’ education?

If you’re reading this in the hope that we have some miraculous application that’s going to do all your budgeting for you, you’re going to be disappointed. We haven’t yet come across any budgeting method that doesn’t take time and discipline. However, if you haven’t worked with a budget before, be assured that it will be a worthwhile exercise.

Just because we’ve said that we don’t have a miracle solution doesn’t mean that you have to be overwhelmed at the thought of putting a budget together. It doesn’t take a degree in Accountancy, and the process is actually quite simple.

  • Your starting point is your income. Work with your nett income (not gross), and try to work only with the amount that you’re confident you’ll get every month (so maybe exclude bonuses, insurance payouts and lottery wins!). For people who are married or living together, it’s preferable to combine your incomes and work with one nett amount.
  • Secondly, make a list of your expenses. For this, you may find the downloadable spreadsheet on our website useful (https://creditbalancingservices.co.za/services/). If you can, make provision for a “contingency” fund every month, to provide for those unforeseen expenses (appliances breaking down, roofs leaking, etc.). Also, don’t forget about expenses which may not occur every month, but which also need to be provided for (e.g. car licence, servicing, tyres). Ideally your monthly expenses should not exceed your nett income. If they do, you need to review those expenses and reduce some of them.
  • Thirdly and finally comes what is probably the hardest part of budgeting : making sure that you’re not exceeding your budgeted expenses. The reason this is so hard is that it means keeping track of everything you’re spending. Each person will have to choose a system that works for them. Those who are sufficiently computer-literate may choose to create a spreadsheet and track their spending that way (be warned that this may mean keeping the slip from every transaction, or making a note of every amount spent so that it can be entered into the spreadsheet later). There are cellphone apps for tracking spending (again, don’t under-estimate the discipline needed to record each transaction). We’ve even advised clients to draw their cash when they get paid, divide it into envelopes (an envelope for each budget “category” e.g. rent, transport, electricity, groceries, etc.), and use the money in each envelope ONLY for its budgeted purpose (although please consider the obvious danger of having large sums of cash standing around).

It’s often said that nothing good comes easily, and sticking to a budget is no exception. If you can do it, though, it can truly change your life for the better.

Surprising Debt Facts

The article which follows was written by Neil Daya as an editorial, published in the “Financial Feature” section of the Cape Flats edition of the Peoples Post on 23/02/2016. It contains some interesting information about debt and Debt Review that may surprise a few people :

Using credit and being in debt is common to the majority of us South Africans. The current population of South Africa is approximately 55-million people. According to credit bureau figures, approximately 23.45-million of us are using or have used credit. Despite credit and debt being so widely used, there are many facts about debt that many people don’t know.

  • According to the National Credit Regulator, of the 23.45-million credit-active consumers, almost 10-million have “impaired” records (i.e. are in arrears with one or more of their accounts). So, if you’re struggling to keep up with your debt repayments, don’t feel alone ;
  • Consumers in South Africa have laws (such as the National Credit Act) which protects them from being exploited. Credit cannot be granted recklessly (i.e. extended to people who cannot afford to pay it back), and interest rates are capped. Even first-world countries such as England don’t have this kind of legal protection ;
  • South Africa has more than one Credit Bureau. The major bureaus are ITC (also known as TransUnion), Experian and Compu-Scan. Consumers are entitled to one free credit report from each of them every year ;
  • The Law of Prescription also protects consumers from being harrassed to make payments for debts which have been dormant for more than three years (i.e. the consumer hasn’t acknowledged the debt, and the creditor hasn’t taken legal action). Consumers cannot be held liable for payment of these debts i.e. they must be written off ;
  • The National Credit Act protects consumers whose accounts are in arrears by limiting the amount of interest and fees that can be added by the creditor. This means that a creditor can’t claim that the R5 000 that you owed them three years ago has now grown to more than R10 000 because of arrear interest and penalty fees.
  • The National Credit Act also protects consumers who are over-indebted (i.e. cannot afford their monthly debt repayments), by allowing them to see a Debt Counsellor and apply for Debt Review ;
  • If over-indebted consumers apply for Debt Review, it doesn’t matter how far in arrears they are ; the creditor still has to negotiate with the Debt Counsellor to reduce their instalments ;
  • Although our credit protection is among the best in the world, be warned : Over-indebted consumers can’t hide from creditors by ignoring them. It doesn’t matter if you don’t open your statements or collect your Registered Mail. The Law says that creditors only have to be able to show that they’ve sent you correspondence, not that you’ve fetched or read it ;
  • Debt Review applicants are protected from legal action as soon as they apply. It doesn’t matter if a Debt Collector has already threatened to collect your vehicle or furniture or auction your house ; As long as the creditor hasn’t actually already gone to Court to proceed with legal action, you can still apply for Debt Review and receive that legal protection ;
  • Once a consumer is under Debt Review, most creditors will also accept a proposal for lower interest rates from the Debt Counsellor. This is just one of the advantages of Debt Review over Administration ;
  • Debt Review clients are not blacklisted forever. Once their debts have been settled, the Debt Counsellor issues a Clearance Certificate and forwards this to the Credit Bureaus so that the consumer’s credit record is cleared.

South Africa’s credit protection legislation is a benchmark internationally, which means that we as consumers are among the best-protected in the world. We will always enounter hurdles in life, but the good news is that there are qualified experts to help you overcome them.

Emolument Attachment Orders

In July 2015 we placed a post on our Facebook page regarding the ruling by Judge Desai in the Western Cape High Court, regarding illegitimate Emolument Attachment Orders (also colloquially known as garnishees). In this matter, Judge Desai ruled that these orders, which instructed employers to deduct amounts from the salaries of their employees to pay to creditors for outstanding debts owed by these employees, had been obtained illegitimately and were therefore not valid. Although this case was specific to 15 employees, the Honourable Judge also stated that there was wider application, and that there was a need to re-evaluate the ways in which Emolument Attachment Orders (or EAOs) are granted.

Subsequently, another case in the Western Cape High Court (Tuffy Manufacturing and others vs Various debt collectors) has used Judge Desai’s ruling to challenge other EAOs. Part of the ruling which has been handed down in this case states that employers in the Western Cape are exempt from implementing EAOs which have been obtained outside the province. This is an interim order, which applies until there is a final decision regarding Judge Desai’s ruling (which has been appealed) in the Constitutional Court. This final decision is expected to be handed down by March 2016.

Therefore, if you are an employer (or salaries controller) in the Western Cape who has received an instruction to deduct a monthly instalment from an employee’s salary, but the Court Order relating to that instruction was obtained in a Court outside the Western Cape, you should not implement that deduction. Also, if you’re an employee who sees that there is suddenly a Garnishee or EAO amount being deducted from your salary, you’d be well-advised to query that with your HR/Salaries department. They should have a copy of the Court Order, instructing them to deduct a specific amount, and you’re entitled to see a copy of that Order. Check where it was granted and don’t be afraid to query its validity.

We’re not arguing that consumers who owe money to creditors should be able to escape repaying it. We ARE, however, arguing that proper procedures should be followed, and being in debt doesn’t justify being treated unjustly.

Payment Distribution Agencies (PDAs)

A concern which some clients have raised is : Will my accounts be properly paid up and settled via Debt Review? And why should I make my payments through a PDA (Payment Distribution Agency)?
To a large extent, these questions have been addressed in the February 2016 edition of DebtFree Digi magazine (available to read on our website – great issue, thanks Zak & team), but we’d like to add the additional weight of some of our experiences to answer these concerns.

It’s unrealistic to expect that there won’t be any discrepancies between the records of the Debt Counsellor & PDA and those of the creditors. One day’s difference between the PDA making a payment and the creditor receipting that payment will result in a small difference in the interest calculation. However, these discrepancies usually aren’t substantial, and can be resolved relatively simply. For the Debt Counsellor, though, it emphasises the importance of reconciling accounts with creditors, to ensure that balances are synchronised. The PDA’s Payment Tracking facilitates this significantly.

We’ve also found the PDA to be a valuable resource for record-keeping. We recently had a case where a client’s Credit Card account with one of the major banks was Paid-Up, according to our records. However, when we requested confirmation of this from the bank, they claimed that there was still an outstanding balance in excess of R3 000.00. When we requested, received and reconciled (using the PDA payment history) the statement of this account, it was revealed that the bank had added significant amounts of fees and annual charges while the account had been under Debt Review. To their credit, though, when we pointed out to the bank that these additional amounts had neither been disclosed on the Certificate of Balance which they’d provided when the client applied for Debt Review, nor had they been made provision for in the Debt Restructuring Court Order, the bank reversed all of these fees and issued the requested “Paid-up” letter.

We have also encountered situations where an account has been settled via Debt Review, but creditors subsequently contact the client, claiming that there’s an outstanding balance. In all such cases, though, we’ve simply forwarded them THEIR Paid-Up letter, and those claims of an oustanding balance have been silenced.

Finally, it is definitely NOT recommended that Debt Review clients make payments directly to their Debt Counsellor (or any staff or agents of the Debt Counsellor) for them to distribute to creditors.

These are compelling reasons for Debt Review clients to make their payments via a PDA (even though they have the right to pay their Restructured instalments directly to their creditors). In our experience, the PDA is a valuable mechanism for keeping records, tracking and verifying payments, resolving queries and ultimately ensuring that clients’ accounts are properly settled, while relieving both clients and debt counsellors of a significant administrative burden.

Petrol Price August 2015

At midnight on the 5th of August (Wednesday morning), the fuel price will drop by 51c per litre. So, if you fill a 50-litre tank on Wednesday morning rather than Tuesday evening, you’ll be saving R25.50.

Opinions regarding the short-term future of the petrol price (i.e. what will happen in September) are divided. On the one hand, much depends on the exchange rate of the Rand vs the Dollar. The Rand has been weakening steadily recently and, should this trend continue, it will cause the cost of petrol to increase. On the other hand, there are factors which could result in further decreases in the petrol price. These include a decreasing oil price (internationally), and an over-recovery on the petrol price in South Africa during July 2015. At this time, it’s just too early to predict what might happen in September. Our suggestion? Be grateful for the lower fuel price in August which, if you’re filling up every week, will save you over R100.00 this month…oh, and try not to fill up before Wednesday, if possible!

Repo Rate increase July 2015

The South African Reserve Bank has announced an increase in the Repo Rate, effective as of the 24th of July 2015, from 5.75% to 6% per annum. This automatically affects the Prime Interest rate, which will increase from 9.25% to 9.5% per annum. In turn, this will affect the majority of home-owners who still have outstanding bonds, as most of these bonds are linked to the Prime Interest rate. For these home-owners, when the Prime Rate increases, the interest being charged on their outstanding balance also increases, and therefore the monthly instalment owing increases. A glimmer of good news is that this increase doesn’t generally impact Personal Loans, as these are usually granted at a fixed Interest Rate.
To break this down to real figures, let’s consider a Home Loan with an outstanding balance of R800 000, granted at Prime + 3%, and with 15 years of instalments still owing. Before the increase, the monthly instalment on this Home Loan would have been around R9 735.00 monthly (excluding insurance premiums). The increased interest rate will result in this instalment increasing to around R9 865.00 monthly.
That difference of R130.00 monthly may not sound like much, but to a family for whom every month is a real struggle to make ends meet, and when considered with increased vehicle repayments (which are often also linked to the Prime Rate), ongoing inflation, a weak Rand (resulting in more expensive imported goods and petrol), and other increasing costs (education fees, public transport, etc.), it may not take a very big straw to break the camel’s back.