The benefit of the code of conduct in the Debt Counselling industry.

Section 86 (7) of the National Credit Act deals with the powers of the Magistrate’s court in re-arranging the consumer’s credit agreements if the consumer is over-indebted. The Magistrate can extend the period of the agreement by reducing the amount of each payment due accordingly, or postpone during a specified period the dates on which payments are due under the agreement. Neither of these rulings suspend nor reduce interest and fees, which might certainly be a shortcoming in the legislation as interpreted currently.
To give an example of the net effect of the interest rates over extended periods, we only need to look towards the result of consolidation loans. The maximum interest rates that may be charged on all loans are stipulated in Regulations of the Act and the only variable in the calculation is the Repo Rate. Currently for consolidation loans, which is considered to be a credit transaction for the purposes of this act, and with the Repo Rate at 5% it caps the maximum interest at a staggering 31%. If we assume that the repo rate will only increase from this point on, we could quite possibly see that figure increase to 33.2% if the Repo Rate only increases by 1% of the next two years. Including administration fees and the controversial credit life insurance, often see clients paying back way more than double the amount they borrowed over a 5 year period. This situation is worsened by the fact that a lot of unsecured debt currently is not being used for the purchase of appliances and furnishing that might actually last that long, but for day to day living expenses and to bridge shortfalls in earnings.
Credit providers lead by the major banks and retail groups have been very accommodating and willing to restructure repayment plans, but want Debt Counsellors and consumers alike to commit to responsible repayment plans that fulfil the debt obligations in pre-agreed timeframes. For the same reasons that Credit Providers themselves don’t like to extend unsecured debt beyond 60 months, it might be conceivable that they certainly want Debt Counsellors to operate under the same rules. In exchange, the concessions they will make seem tremendous.
In one example Pay Plan Solutions showed how a client with R 100 000 worth of debt would have paid back over R 231 000 if she were to consolidate the debt, yet, by putting it under debt review she would reduce that figure to R169000, a staggering R 60 000 less over the life of the debt. This can only be achieved successfully if the Debt Counsellor strictly adheres to the Codes of Conduct, using the concessions and systems provided.

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