Debt review is a statutory or legal process that provides debt relief to over-indebted consumers.
The programme provided for in the National Credit Act 34 of 2005 helps over-indebted consumers restructure their debt into affordable monthly payments.
Now, the National Credit Regulator has announced that it will be launching an investigation into several debt review companies that were acting unethically and taking advantage of people in financial trouble after complaints from consumers.
According to Charnel Collins, CEO of National Debt Advisors, this has demonstrated the critical need for consumers to distinguish between the good and the bad when it comes to debt review services.
“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,” said Collins.
“Poor customer service is another concern, with many clients experiencing delays in response times or even complete disregard for their inquiries.“
There were instances of verbal agreements, where individuals were enrolled in debt review programmes without proper written consent and complaints of misleading claims that have left consumers feeling deceived. Some companies also failed to disclose important legal aspects of the debt review process during initial discussions with clients.
To protect themselves against scammers, people need to seek complete transparency from their debt counsellors, especially regarding fees, as the NCR has outlined specific guidelines for fees.
According to Collins, the restructuring fee, for example, is capped at R8000 for single applicants and R9000 for those married in a community of property.
Consumers also need to be realistic about the time frame involved in the debt review process. It can take up to 60 business days to finalise the application, while the duration of the programme can vary and depends on the financial situation of the consumer.
Here are the five red flags that you should look for when you are going through the debt review process.
Lack of NCR registration
Make sure that the debt review company or the debt counsellor is registered with the National Credit Regulator (NCR) in South Africa. Registration with the NCR is a legal requirement, and people see the registration as a mark of credibility.
Upfront fees
Beware of debt counsellors who demand significant upfront fees before providing any services. The NCR has specific fee structures, and they should not be too high.
Promises of guaranteed results
Be cautious of debt review companies that promise miraculous outcomes or guaranteed debt reduction. You should know that the success of a debt review depends on your financial situation and your commitment to the process.
Lack of clarity
Legitimate debt counsellors will provide you with clear explanations of the debt review process, fees, and expected timelines. Any sign of vagueness or evasiveness is a red flag.
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.
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