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A truly horrendous collector of debts

In the first case of its kind, the National Director of Public Prosecutions is seeking to seize the ill-gotten gains of a debt-collecting firm found guilty of faking garnishee orders.

Earlier this year, a major South African debt collecting company - Pretoria-based Kochnel, Bantjes & Partners (KNB) - was found guilty by a disciplinary hearing of the Debt Collectors' Council of something truly horrendous.

They were paid by Absa Bank and Maravedi, a consumer finance company in which Absa has a 45 percent stake, to get their debtors to agree to pay up, either via debit order or emoluments attachments order, better known as a garnishee order.

Many of the debtors had taken out loans with Unibank, which was absorbed by Absa in 2002.

Served with such a garnishee order, an employer is required to make stipulated monthly deductions from the employee's salary, and pay it to the judgment creditor or their attorneys.

But instead of going through the legal process - applying to the relevant courts for these orders - KNB saved themselves a lot of time, work and money by simply faking the court orders, then submitting them to the debtors' employers, who then acted on the falsified orders and started garnishing their employees' salaries.

In essence, they defrauded the debtors, their employers, the Johannesburg magistrate's court, the Sheriff and Absa/Maravedi, which paid them handsomely in fees and commission for what they thought was a highly professional and ethical collecting service.

But while the debtors whose garnishee orders were found to be fake are still having their salaries garnished in respect of them, to the collective tune of some R68 000 every month, the guilty debt-collecting company - and its partners - are being asked to pay back almost R2-million in ill-gotten gains to the State.

On July 23, the day the council was to hand down sentence, the National Prosecuting Authority dropped a bombshell.

Richard Chinner, deputy director of Public Prosecutions and head of the Asset Forfeiture Unit's Pretoria office, applied to the High Court for a Preservation Order in terms of the Prevention of Organised Crime Act, effectively freezing Kochnel, Bantjes and Partners' assets.

The partners are Abraham Johannes Koch, Hendrik Nel and Alexander Petrus Bantjes.

Charges against Koch were dropped, as he resigned as financial director in May 2005, but he is named in the preservation order, as he was a director of KNB during the period in which the unlawful activities took place.

Along with Nel and Bantjies he benefited from them in the form of income or profits.

There were 287 cases before the Council in the hearing, pertaining to orders faked between July 2004 and November 2005.

The case dragged on from late 2006 until January this year, when the company and its partners were found guilty of improper conduct, the partners having chosen not to testify.

But while the council investigated only those 287 cases for which it had documentary proof, it was apparent that KNB had followed the same modus operandi in many other cases.

In calculating the extent of the company's "ill-gotten gains", the council showed that KNB was paid about R296 000 by Absa/Maravedi in commission and fees in respect of those 287 charges, which means they made R1 031 out of each fake court order.

But in total there was evidence that 1 849 fraudulent court orders were obtained by KNB between July 2004 and November 2005.

And that's how the council arrived at the total of R1 907 890.

Given that KNB had many other clients, the council argued, "there is no apparent reason why their instructions should have been handled any differently", and in all likelihood, the "irregularities" were not confined to those 16 months.

In an affidavit supporting the National Director of Public Prosecution's application for the preservation order, prosecutor Joan Adams said the falsification of court documents had saved KNB labour costs, transport costs to the Joburg court, and time.

They also saved the R20 revenue stamp cost on each order, which on its own added up to almost R37 000 on the 1 849 cases.

"The amount of R1 944 840 must be seen as a conservative estimate of the extent of the value of KNB's proceeds of unlawful activity," she said.

Adams also submitted the company's Pretoria property was bought with the proceeds of their unlawful activities, and as such, it ought to be "preserved".

KNB and its partners were given 20 days - until next week - to disclose all documents relating to their unlawful activities.

Meanwhile the Association of Debt Recovery Agents (Adra) - which represents almost 70 percent of SA debt collectors, rushed to record its "revulsion" at the conduct of Kochnel Bantjies.

"We applaud and support the Council for Debt Collectors for the strong and unwavering stance they have taken in this, and other matters, in their effort to rid the debt collection industry of unscrupulous practices," Adra said.

So why are those debtors still paying money every month in respect of a fake garnishee order? Where is their justice?

Well, it may yet come.

No-one at the Debt Collectors' Council is able to comment on this, given the matter is sub judice until sentence is handed down on January 20, Section 15 of the Debt Collectors Act does allow for debtors - or any other party which has been prejudiced - to be reimbursed.

"The difficulty," said a source close to the proceedings, "is these were, as far as we know, legitimate debts, albeit collected illegitimately."

Speaking of legitimate debts being illegitimately collected, the National Credit Act lays down specific steps for credit providers to follow when seeking to repossess the property of a debtor who has failed to pay.

How the fraud was discovered

How were they found out? By a few very astute women.

According to court papers, in 2005, the then deputy sheriff of Nelspruit, Estelle Venter, received a batch of garnishee orders from Kochnel, Bantjies and Partners (KNB), all issued by the Joburg magistrates court.

She found this strange as KNB's offices are in Pretoria.

So she called Lauretta Mabote, the clerk of the civil court in Joburg, and faxed her one of the garnishee orders.

Mabote and her supervisor, Yvonne Abrahams, discovered that the case number was invalid, there was no court barcode, the case number was handwritten rather than stamped, and they didn't recognise the clerk of the court's signature. So they reported the matter to the Debt Collectors' Council.

In court papers, prosecutor Joan Adams said: "Not only were Venter's suspicions that fraud was being committed confirmed, but subsequent investigations by the council, myself and Inspector Adele van Staden of the Specialised Crimes Unit in Pretoria, revealed that irregular and false court orders emanating from the Joburg Court, were issued by KNB on a much larger scale."

What they can charge you

In terms of the Debt Collectors Act, debt collectors are entitled to charge debtors the following fees:

1. Necessary ordinary letter, fax or email R12,60

Registered letter: R12,60 plus registration fee

2. Necessary phone calls: R12,60

3. Other necessary expenses: a total of R12,60

4. Acknowledgement of debt and an undertaking to pay: R45

5. Drawing up of settlement account at request of debtor (other than the free six-monthly settlement account): R25,20

Note: If you don't specifically state that you want the free statement you are entitled to every six months, the collector will be entitled to charge you for it. (Weird, but true). Don't agree to pay anything, or sign any document until the collector has provided you with this statement. Check the stated handover account with the company you defaulted with. And if it's a retail debt which has been dormant for the previous three years, it has proscribed, which means you are not legally required to pay it. (You must not have acknowledged the debt in the previous three years, made no payment towards settling it, and not been issued with a summons.)

6. Correspondence received and attended to: R6,30

7. Necessary consultation with debtor R30,50

8. A fee of 10 percent of the instalment received, subject to a maximum of R315. No additional fee shall be charged for any attendance in connection with receipt or payment.

Note: The total to be recovered from the debtor in respect of 1 to 7 may not exceed the capital amount of the debt, or R630, whichever is the lesser.

This article was originally published on page 8 of The Star on August 04, 2008

Debt in a time of turbulence

This article was originally published on page 4 of Sunday Independent on July 06, 2008

Amid fears of another interest rate hike, petrol going up by an estimated 80c a litre and the growing inability of consumers to meet their obligations, South Africans need to start facing their debt demons.

Toby Wooldridge, the head of Go Banking, a subsidiary of Nedbank, says that, while attention has been focused on the damaging effects of increased debt levels and general costs of living on consumers' pockets, little has been said about the devastating effects financial hardship has on people's physical and psychological wellbeing.

"A number of international surveys confirm that money worries create enormous stress, particularly when they threaten the way people live, their homes, businesses and even families," he says.

His warning on the damaging psychological effects of debt comes at a time when the Council for Debt Collectors says the economic situation in South Africa has led to a large number of consumers not honouring their debts. More than 6 million people have poor credit records.

And it is not going to get any better. Statistics South Africa noted this month that higher inflation was the result of the escalating price of food, transport, housing (excluding interest rates), household operations, medical care and health expenses, fuel and power, education, personal care, cigarettes, cigars, tobacco, clothing and footwear.

On Monday, it emerged that producer price inflation (PPI) rose 16,4 percent over 12 months and more than 4 percent last month - the highest in a single month since 1989, resulting in another rate hike. PPI is a comprehensive index of wholesale price changes, often viewed as an indicator of future retail prices - and the latest indications are not at all good for consumers already hammered by 500 basis points' increase in interest rates since June 2006.

Wooldridge says that, in a recent survey conducted in the United States by Psychology Today, 20 000 respondents were asked which emotions they most often associated with money - seventy-one percent listed anxiety, 51 percent depression and another 51 percent cited anger (the survey allowed for more than one response). Those most stressed by money - and they weren't necessarily jobless - complained of more fatigue, insomnia, headaches and other stress-related problems.

Wooldridge says that, while it is easy to be paralysed with fear when it comes to dealing with your financial problems, by dealing with them head-on, you will relieve the stress of worrying. As debt eats further into your limited resources, you need to implement a strategy to help you reduce it.

The first step is to determine whether your worries are justified. With South Africa's debt to income ratio of 82 percent, Wooldridge says several warning signs can indicate an individual's debt levels: these include determining whether you owe more than you own or on a monthly basis spend more than you earn. If more than 40 percent of your income goes towards paying off debt, more than 25 percent of your income is spent paying interest on the debt.

He says overcoming a debt crisis requires a plan. "Cut down on your variable spending and put the extra money towards your debt payments. Once you determine the maximum amount you can pay off each month, start paying off the debt with the highest interest rate first - that usually means your credit card balance - while paying at least the minimum monthly amount due on all other revolving bills."

Outside of fixed monthly bills, many South Africans don't have a precise idea of how they spend most of their money.

"If you want to get your debt under control, start by figuring out your spending patterns and identifying unnecessary expenses. Try to reduce your fixed expenses. Take steps to lower household bills; refinance your mortgage to get a lower interest rate; or, if you have a good payment history, ask your credit card company to lower the interest rate you're charged," advises Wooldridge.

Top local authorities owed more than R35bn as they battle to collect debt 

Posted to the web on: 04 July 2008 Business day

MUNICIPALITIES were struggling to collect debt, with customers in the six metropolitan and 21 high-capacity municipalities owing more than R35bn, the South African Local Government Association (Salga) revealed yesterday.

Gauteng municipalities, were owed R20bn, Johannesburg leading with R9,6bn.

Salga spokesman Mogomotsi Mogodiri said inability to collect debt was caused by outdated customer data and lack of capacity in financial management and ”follow-up“ on bills.

”Data need to be cleaned so that we have the correct information so that the billing is correct. Every municipality needs to have the requisite financial management to project how much is expected every month,“ said Mogodiri. ”Municipalities also need to be able to follow-up on bills. Pick up the phone, send or SMS a letter, and say please pay. If you can’t, let’s make some arrangements.“

Salga urged municipalities to initiate legal action and other debt-collection mechanisms.

About R26,6bn was owed to the six metropolitan municipalities. Ekurhuleni was owed R6,3bn, Cape Town R3,5bn, Ethekwini R3,2bn, Tshwane R2,7bn and Nelson Mandela Bay R1,1bn. Customers in highcapacity municipalities owed about R8,9bn.

Mogodiri said government departments owed Gauteng R191,8m. Figures from other provinces were still being collected and verified by Salga and the provincial and local government department.

Mogodiri said revenue collection was crucial for municipalities to be able to deliver services. ”If municipalities collect less revenue, they’ll have no money to build infrastructure and provide and other services.“

This week, the Democratic Alliance in Gauteng called on the provincial government to help municipalities come up with debt-collecting strategies.

Local government department spokesman Themba Sepoteleke said it was implementing strategies.

”Progress has been made regarding the cleaning of debtor s’ books and verification of the top 300 debtors,“ he said.

Credit squeeze haunts borrowers

This article was originally published on page 6 of Daily News on July 07, 2008

There is a dire need to educate South Africans about the pitfalls of debt, as the country slips deeper into economic recession.

Too many South Africans have been spending too freely and many do not fully understand the implications of buying on credit.

This was the consensus reached by a panel of experts on SAfm Radio's After Eight Debate when they discussed the topic: "Can South Africans survive the current economic meltdown, given their spending patterns?"

The discussion was held in the light of rising interest rates and evidence that growing numbers of people are unable to meet their financial obligations.

Reports show a marked rise in defaults and judgments, and the credit industry predicts that the latest increase in interest rates will put even more people into serious financial distress.

"The fact is that consumers are now feeling the repercussions of taking on too much credit," said a member of the discussion panel, Bongiwe Gumba, public relations officer for the National Credit Regulator.

Gumba said there had been "subtle warnings" this would happen, but these had not been understood by all consumers. "We are not saving enough and we are spending too much."

She said many people had got into trouble when they went to "loan sharks" to borrow and found themselves paying 97 percent interest.

There were now people paying their whole salary each month in garnishee orders.

"People go home with nothing," Gumba said. "We are talking about civil servants, ordinary people."

She said people had to be educated into the realisation it was not a right to borrow money. "It is a privilege."

There was also a lack of disclosure by many credit pro-viders and many people did not fully understand the full implications of debt. This situation had improved with the implementation of the National Credit Act.

"If you take something on credit you must understand you are using your future income," she said. "Credit is an unrealistic extension of income. What if you can't work tomorrow?"

Gumba said South Africans had "blurred the line quite badly between needs and wants", spending money on luxuries, not essentials.

The need to educate consumers was also stressed by the chairman of the National Consumer Forum, Thami Bolani.

He said one of the biggest problems in the past had been in "getting the right information to people in language they understand".

Bolani believed worse was yet to come as South Africa faced the problem of bad debt. "The worst will come in the next three to six months."

He believed there was now a growing awareness in financial institutions that they could not continue to give credit so freely. "The message is slowly getting home to credit provi-ders that they cannot continue as before."

The banks became "over-zealous" in giving credit, agreed a third member of the panel, American behavioural specialist Dr John Demartini.

"When we get into blind optimism, everybody does something foolish," he said.

Demartini said the present difficulties could provide learning opportunities for all, both borrowers and lenders.

This was a time of crisis, but it could also be a catalyst for opportunity. It could be a time to start the habit of saving. "It is not the amount of saving that matters. And everybody can save, even in a time of crisis."

He said people had to be educated into an awareness that they could not continue to live beyond their incomes.

"If they live beyond their means, it is going to bite them every time."

Demartini said he had grown up in poverty and learn-ed there was always a way of making money.

"Instead of looking for money, go out and find somebody to serve."

Bad debts on the rise in South Africa

June 27, 2008, 14:15

SABC News

The current economic situation in the country is leading to a large number of consumers not honouring their debts. Currently more than 6 million people have impaired credit records.

The Council for Debt Collectors has also seen a sharp rise in debt collector registrations during the past few months. Currently there are more than 13 000 debt collectors in the country.

The retail sector experienced exceptional growth during the past three years.

Much of this was fuelled by credit purchases and now it is time to pay back.

With increasing interest rates and bad debts on the rise, the number of debt collectors has also risen sharply, with more than 500 people registering as debt collectors a month over the last few months.

The council is currently busy with a national road show to educate people on their rights when a debt collector comes knocking -- sparked by an increase in complaints from the public.

Only registered collectors may take money from people between 6 in the morning and 9 at night, Monday to Saturday. Debt collectors are also bound by a code of conduct.

Debtors can’t be bullied  

04 June 2008

Thuli Zungu

Sowetan

Debt Collectors Act gives people many rights

Are you sick and tired of Illegal debt collectors who knock at your door at any awkward time – even on Sunday mornings when you are about to go to church?

If you are a debtor, like Bongi Mkhwanazi, the Council of Debt Collectors will help you.

Ten years ago Mkhwanazi bought goods from Home Choice. She paid her debt until she lost her job and was unable to pay. The balance was R195 then.

She did not hear from Home Choice until April this year. A debt collector came to her house at about 9pm, she said.

”With interest, the R195 had ballooned to more than R3000 – plus the debt-collector’s fees,“ she says.

Mkhawanazi checked with Home Choice to verify how much she owed, but they could not find her details in their system.

The debt collector has been harassing her since then, Mkhwanazi says.

”The guy is desperate. He even comes on Sunday mornings to demand payment.“

He told her that he was mandated to collect money for Home Choice through the store’s lawyers.

Advocate J Noeth, chairman of the Council for Debt Collectors, says it is not acceptable for a debt collector to visit a debtor on Sundays or at a debtor’s workplace.

He says the debtor must be treated in a civil manner and cannot be harassed.

Noeth says if a creditor has not pursued a debtor for more than three years the law of prescription applies.

This means that if you have debt, but have not received a letter of demand or summons from a creditor for more than three years, you can refuse to pay.

But if you have signed a document without checking the prescription period, you cannot later refuse to repay, Noeth says.

The act regulating debt collection in South Africa has transformed debt collecting practices for the better.

The Debt Collectors Act came into operation four years ago and has resulted in more than 19000 debt collectors being registered with the council.

Noeth says collectors who do not abide by the council’s code of conduct have been deregistered.

About 12000 active debt collectors are effectively controlled in terms of the act, code of conduct and regulations.

”In the past year alone almost 500 applications a month were received. Besides registering debt collectors, the council has also speeded up its ability to investigate complaints more effectively,“ Noeth says.

He says the council remains concerned that the public are still not fully aware of their rights and responsibilities when they are confronted by debt collectors.

”We want to ensure the public, and especially the most vulnerable, that they are protected,“ Noeth says. ”We have started information campaigns to ensure that they are fully aware of the protection the act affords them.

”If confronted by a debt collector you should ask if the person is registered with the council. If no proof of registration is provided, the person must be reported to the council immediately.“

Some tips:

Once signed, the debtor must pay or the debt collector can obtain a court order without telling the debtor.

If a debtor is dissatisfied with the action or conduct of a debt collector or unsure of his or her rights, contact the council at 012-804-9808

Debtors can also send complaints in a sworn affidavit to PO Box 836, Silverton, Pretoria, 8000.

Debt counsellors are also feeling the pinch

This article was originally published on page 1 of Sunday Independent on June 01, 2008

Cash-strapped debt counsellors are struggling to make ends meet, casting doubts on their ability to help the rapidly rising number of debt-ridden people cope with their financial problems, according to Johann Magermann, the director of You & Your Money, a non-governmental organisation.

He said debt counsellors were not well paid and, in some cases, waited for months before they were paid, resulting in many of them falling on hard times with no one to turn to.

"Debt counsellors are a pillar of the National Credit Act, which is aimed at ensuring that people do not go insolvent. But the system is not working because debt counsellors themselves often need help. It is a potential disaster because the success of the credit laws depends entirely on debt counsellors," he said.

The National Credit Act, which came into effect on June 1 last year, governs the granting and management of credit by all credit providers, including micro lenders, banks and retailers. The act was introduced to reduce reckless credit behaviour, by both credit providers and borrowers, and consequent over-indebtedness.

In terms of the regulations, there are two levels of payment for debt counsellors.

In the first, over-indebted people earning under R2 500 a month must pay the debt counsellor a R50 application fee for an assessment and the counsellor would earn R500 from the National Credit Regulator. It can take up to four months to finalise an application because debt counsellors have to wait for information from creditors.

If the client is declined because he is judged not to be over-indebted, the regulator would pay the debt counsellor R100.

Alternatively, people who earn more than R2 500 a month must pay the debt counsellor R50 and VAT if applicable. If the assessment is rejected, the client has to pay a rejection fee of R300. If the applicant is found to be over-indebted, the amount payable to the debt counsellor is capped at R3 000.

In addition, debt counsellors would get 5 percent of the monthly repayment, to a maximum of R300, for 24 months as an "after-care" fee.

Magermann said that as many as 100 debt counsellors throughout the country, trained and certified by the National Credit Regulator, were not practicing because it was not feasible for them to do so.

He said those debt counsellors not formally employed struggled to stay afloat without operating capital.

"It costs up to R20 000 to set themselves up in an office: they would have to pay rent, and purchase furniture, a computer, and a phone and fax, along with stationery," he said.

Trudie Broekmann, a board member of You & Your Money, said the credit system was "failing miserably, partly because debt counsellors could not make ends meet.

"The act does not provide for sufficient income for them and there are delays in payment from the credit regulator, and creditors are able to undermine the system effectively.

"We are worried that we're fighting a losing battle - all the signs indicate that the system is not working," she said.

Mpho Thekiso, the National Credit Regulator's project manager for debt counsellors, said the success of the credit laws depended on debt counsellors.

"Thus far, we have managed to regulate almost 400 people as debt counsellors but that is insufficient, given that over a million people are experiencing financial difficulties."

Thekiso said debt collectors were not immune from the current adverse economic conditions.

"Many people are struggling because of the high interest rates, fuel-price increases and the rising cost of living. Debt counsellors are also human."

In the past year, 12 574 people have asked for debt counselling. The average was previously 300 complaints a month but in the past four months the regulator has been receiving 150 applications for help each day.

"In the third quarter of last year, 84 people had their homes repossessed and in the fourth quarter the figure went up to 209.

"I have not seen the new figures but the signs are ominous,"she said.

Seventy percent of debt counsellors work in Gauteng (270), and there are 74 active in the Western Cape and seven in the Northern Cape.

Richard Stovin-Bradford, Robert Laing & Adele Shevel

Published:Apr 20, 2008

In deep water

A time bomb is waiting to detonate in this week’s seemingly harmless statistics about the number of people having trouble meeting their credit repayments.

Statistics SA said fewer summonses and judgments for debt were issued in February than a year ago.

Despite the prime rate climbing from 10.5% in April 2005 to the current 15%, the government’s official data provider has continued to report declining legal action against people in arrears.

However, the real reason for the fall is that banks and retailers are scared to take defaulting borrowers to court — for fear of being branded ”reckless lenders“.

This is because of the National Credit Act, introduced last June to protect consumers from dodgy money lenders.

What the Act has done, however, is obscure the real extent of SA’s consumer debt crisis. The booby trap is only likely to explode a year from now.

Marlene Heymans, the National Credit Regulator’s research and statistics manager, said the new rules have seen a dramatic fall-off in cases of debt collection claims before the courts.

Before taking a defaulter to court, a lender must first issue a Section 129 notice. This allows the distressed borrower a month to employ a debt counsellor — who has three months to help the borrower in trouble escape the insolvency courts.

This drawn-out legal process means Statistics SA is not able to reflect the true extent of how many consumers are in debt up to their eyebrows. Furthermore, the banks are obliged by provisions of the Credit Act to try to gently squeeze defaulting customers, not prosecute them.

”We’re certainly seeing increasing consumer strain,“ said Standard Bank’s chief of personal and business banking Peter Schlebusch. ”We saw it coming a while ago, and believe there’s probably more pain to come.

”Our focus has been on rehabilitating customers and rescheduling their debt. We’re pro-actively engaging with customers to help them before they get into difficulty.“

Standard Bank has, along with its peers FirstRand, Nedbank and Absa, hired extra debt-collection staff to manage their way through the current cycle, suggesting it may be more prolonged than at first thought.

Louis Reynders, Absa’s national manager of debt rehabilitation and counselling, confirmed that there is a bottleneck in the debt- collecting process. ”Most cases that enter the debt review process are caught up in debt counselling, and the intended consent agreements are not concluded.“

Even more worryingly, Jeremy Stevens, an economist at Standard Bank, wrote in a research note that household insolvency statistics typically lag changes in macro- economic variables by at least 12 months.

”The fact that an evident upswing in civil summonses for debt is already mounting is ominous,“ he said.

Non-performing loan bells usually start ringing with credit card accounts.

Standard Bank has found that the number of its credit card account holders behind in payments has gone from 4.8% to 6.9% in the last 18 months — its highest rate since the gloomy economic days of June 2004.

The debt-counselling process adds up to a six-month to two-year lag between interest rate increases and debt judgements.

The latest bank results showed credit impairments rising. First National Bank was surprised at the extent of strain in its credit card and vehicle finance books.

Absa reported an increase in non-performing loans as a percentage of total advances to 1.6% from 1.3%.

The big four banks moderated their pace of credit extension last year and tightened lending criteria.

But how are banks coping with consumer stress as living costs and interest rates rise?

Nedbank has had notable success in the low-income segment, but retail chief Rob Shuter said: ”We’ve seen signs of strain in our consumer portfolio for quite some time now, and they intensified in the second half of last year.“

He said the main challenge consumers face is affordability as debt instalments and the cost of living have risen. ”It’s tough out there, but it’s not cataclysmic.“

Nedbank has beefed up its systems to cope with clients falling behind on repayments, and has boosted its capability to help them out of difficulty.

Shuter is typical of bankers prepared to take a long-term, through-the-cycle, view. ”We really want to keep clients in their houses and cars where possible. Moving someone out of their home is a very traumatic event, but for someone who relies on their car to earn a living it’s also bad.“

Nazmeera Moola, head of macro strategy at Macquarie First South, said the middle- income group is most hard-hit by credit pressure.

Driving this are: inflation eating into real income growth and interest rates.

Any survival tactics?

”Peoples’ natural instinct when not making ends meet is they start using their credit card,“ said Moola. ”It’s already happened to a large extent — but don’t do it. This rate cycle is not going to turn around soon.“

how to manage your debt.

With 65% of South Africans living beyond their means and the number of defaults increasing, it can be expected that the two biggest credit bureaus in South Africa will be issuing far more negative than positive credit reports this year.

In SA, a person's credit score is worked out by taking into account these five main categories of information: payment history (35% of the overall score), amounts owed (30%), length of credit history (15%), new credit (10%) and type of credit used (10%). Companies then use your credit score to see how "risky" of an investment you are.

It's simple. The more payments you miss, the worse your credit score. Until your poor credit rating has been improved, you will unlikely qualify for more credit and, if you do, you will then struggle to get the credit at a low interest rate.

If you're in trouble, look into a do-it-yourself debt reduction plan before looking for help from debt counsellors. It's an easy and practical route, which is too often disregarded.

How it works is you look at how much you owe, what interest rates you're charged and the monthly amount due for each debt. With this in mind check your budget and subtract your monthly expenses from your income. Include main expenses such as rent or bond repayments, as well as other expenses, for example, entertainment. The amount of money you are left with will form part of your debt repayment budget.

Then decide, are you:

    * spending more than you earn;

    * spending exactly what you earn; or least likely

    * spending less than you earn.

From here you develop an action plan. Decide which debts you must repay first and which expenses you can do without. Try and pay the debt with the highest interest rates first, for example, micro-loans.

If all else fails, debt counsellors are a good option because someone else will decide how much you repay your creditors every month, leaving you with enough to live on. Also ask about a quick or accelerated repayment plan so you can repay your debts faster.

Whatever you do, it's always a good idea to take charge of your financial situation to turn your poor credit ratings into a positive credit report.

To help you save even more during these times, try the following:

    * Check what you pay for your insurance and assurance products

      Shop around again if you haven't done so lately, get competitive quotes and fight for a better rate - you may be able to reduce your premiums.

    * Manage your short-term debt

      The interest on credit cards, store cards, overdraft facilities and personal loans is usually higher, so the cost to service this debt is more expensive. So pay this off before you pay off anything else. Also make sure you budget for the minimum monthly payment due.

    * Do you need comprehensive medical aid cover?

      Evaluate your medical aid. Are you being over cautious? Perhaps you can downscale to a more basic cover.

    * Budget for bank charges

      Bank charges can also add up. You're off to a good start by banking with us but you can save even more by drawing money at Pick n Pay. Make sure you budget for these charges and that you don't go over your overdraft limit to keep your bank costs at a minimum.

    * Cut back on luxuries

      One less packet of cigarettes, four less cappuccinos and one less meal out could save you about R230 which could be used to pay one of your must have expenses, such as your bond insurance. If you need a financial break, have your DSTV decoder switched off for a few months. Or cancel that internet account you are not using.

    * Pay off your long-term debt as quickly as possible

      Make your home loan payment your first payment of the month. For example, If you get paid on the 20th of the month, pay this into your bond as soon as possible. The longer you wait, the more interest you pay. Also pay in any extra cash you might have into your bond. You'll be surprised at the difference it makes. It will ultimately bring down your monthly instalment and release disposable income.

    * If you're battling, let us know

      Call us on 0861 717 717 to make payment arrangements if you're strill struggling.

      ... and to help save our environment try the following:

    * Be a bright spark

      Swop your normal old-fashioned light bulbs with compact florescent light bulbs (CFLs). They last up to 10 times longer and use 66% less energy!

    * Choose energy-efficient appliances

      These can lower your electricity bills, save you money over time and reduce the green house gas emissions.

    * Look after your old appliances

      Reduce the work load of your appliances. For example, your fridge should not be next to a heat source. This forces your fridge to work overtime and results in energy wastage.

    * Go unplugged

      Your TV, Hi-Fi, computer and other electronic equipment that are left on in standby draw energy and collectively can make up 15% of your electricity costs. Switch them off at the plug.

    * Tuck in your geyser

      Insulate your geyser with a geyser blanket. Turn it down to about 55ºC. Install a geyser timer switch that activates your geyser at certain times of the day.

    * Think pink

      Installing insulation in the ceilings is the best solution - it will keep you cool in summer and warm in winter.

    * Drive smart

      A well-serviced and tuned car with the right tyre pressure uses less petrol which lowers CO2 emissions and saves you money at the pump.

    * Bath together

      Installing low flow shower heads and taps will use much less water and lower the amount of hot water you use, which will lower the energy used by your geyser.

    * Hug a tree (or at least plant one)

      Trees are the planet's lungs and through photosynthesis convert harmful CO2 (carbon monoxide) to oxygen. Plant or sponsor a tree or ten with City Parks.

Council promotes ethical debt collection

Zelda Venter

    April 07 2008 at 09:46AM

People in debt are human beings and should be treated in a humane manner. This is the message from the Council for Debt Collectors, which regulates the sector.

The National Credit Act, which came into operation in 2007, makes it more difficult for people to get credit, but according to the council, there has not been a decline in the number of people registering as debt collectors.

Council chairperson advocate Jasper Noeth said 11 233 debt collectors had registered with the council in the past five years.

Noeth said there had been a constant increase in new registrations, and attributed that to the council's awareness programmes.

"Debt collectors are aware that they must be registered and the public is now aware that no unregistered debt collector is entitled to collect any money from them. If a debt collector has no proof of registration with the council, he can be shown the door."

He said debt collectors were also aware that they could be prosecuted if they transgressed the council's code of conduct. The council received 583 complaints between January and November in 2007, of which 39 went for disciplinary hearings. Thirty-four of these had been finalised.

Most transgressions related to unregistered debt collectors or those who overcharged the public.

Noeth said during the same period they had also dealt with 4 548 queries.

The council embarked on several campaigns - in all 11 official languages - to ensure people knew their rights. These included phone-in programmes on radio stations.

The most common questions included what a person could do if a debt collector arrived at their home and was rude and threatening.

People also wanted to know if it was legal for a debt collector to go directly to a debtor's employer to arrange to have money deducted monthly.

Noeth said people should send complaints to the council in the form of an affidavit, to enable the council to investigate the matter properly.

"One of the most popular questions is whether the council can help a person get rid of debt. Debt has to be paid and we can do nothing about that, but we can ensure that people are treated decently and that debt collectors act according to the code of conduct," he said.

Noeth said in some instances, especially in the rural areas, debt collectors did not adhere to the code because of ignorance.

"They do not always understand the act and the code of conduct, and in such cases, they are given training instead of facing a disciplinary hearing," he said.

Noeth said the council could impose a fine of up to R100 000 on any registered debt collector who failed to practise ethically.

He said some debt collectors did not follow proper procedures in obtaining attachment orders. This included compelling a debtor's employer to deduct a certain amount from that person's salary to recover the debt.

In such cases debt collectors often added large amounts of interests, backdated to the time the debt was incurred.

Commission tests views on debt administration orders

March 29, 2008

By Laura du Preez Personal Finance & Independent Online

In light of allegations that debt administration orders are being seriously abused and with the provision for debt counselling under the National Credit Act (NCA), the South African Law Reform Commission is considering recommendations that administration orders be abolished.

The commission is calling for public comment on these recommendations, which are likely to come in for criticism, especially in light of the current problems with debt counselling. (See related article below))

Problems with orders

The Law Reform Commission says the problems with debt administration orders provided for under the Magistrate's Court Act include:

Administrators are allegedly overcharging over-indebted consumers when deducting fees for their remuneration and expenses.

The Magistrate's Court Act provides for administrators to take a maximum fee of 12.5 percent of the amounts collected.

Last year, Personal Finance reported that a Somerset West lawyer, Eduan Matthee, who also runs his own debt administration company, had found that administrators' distribution accounts showed that they were charging fees of about 23 percent to 50 percent of the amounts they collected.

Matthee estimated that more than a million people are under debt administration and estimated that debt administrators are collecting an average repayment of R450 a month from each person under administration, of which an average of about 15 percent, or R810 million a year, is in excess of the legal limit.

Unsuitable people are appointed as debt administrators - for example, people who are themselves under administration or who have been struck off the roll of attorneys.

Administration orders are not properly regulated. Debt administrators are required to file distribution accounts with the Magistrate's Courts for each person under administration, but the Department of Justice has admitted that the courts are incapable of checking these accounts.

There is no limit to the time for which administration orders may run, which means that debtors can be kept under these orders indefinitely. This is especially pertinent given that the administrators often take large percentages of the repayments for fees or for expenses, and little is used to repay the debt owed.

New measures

In a media release, the Law Reform Commission says the NCA was passed while it was reviewing debt administration orders.

The NCA provides for consumers who are over-indebted to volunteer for or to be sent for debt counselling.

The debt counselling process has, however, had difficulty getting off the ground because of the issues surrounding the jurisdiction of the courts.

The fees that debt counsellors can charge have not been regulated and, partly as a result of this, there are too few debt counsellors to serve the country's over-indebted.

The Law Reform Commission is inviting public comment on its recommendation to abolish debt administration orders if:

Some protection is provided for debtors who become over- indebted as a result of a delictual claim. The NCA does not deal with these claims, and it describes over-indebtedness as your inability to repay credit agreements only. A delictual claim arises from a wrongful act that results in harm or damage to another person.

A measure is implemented to deal with consumers who abuse the debt counselling process by failing to meet the rescheduled repayment plan proposed by a debt counsellor.

The commission is also recommending that the law be amended so that existing administration orders lapse after a specified number of years, or if the order has already run for longer than this term when the amendment is introduced.

This should put an end to the never-ending debt repayment cycle that debt administration has forced on some people.

Tienie Cronje, a senior researcher at the commission, says if such a "sunset clause" is introduced, when the order expires the debt would remain, but the debtor would be able to use the debt counselling process to ensure that the debt could be repaid in a manageable way.

Matthee says he believes it is a bad idea to abolish administration orders. The problem, he says, is with the debt administrators and not with the provisions of the Magistrate's Court Act, which provide a good vehicle to assist debtors who are in financial difficulty.

"The administrators are to blame and not the system. I believe that the NCA will have the same problems in the future as the current debt administration system. The facts are that many of the people who are currently registering as debt counsellors are also debt administrators. Thus the problem will continue under the new credit Act," he says.

Matthee says the Magistrate's Court Act should rather be amended so that action can be taken against unscrupulous administrators.

Cronje says that once the commission has assessed the comments it receives, it will make its recommendations to the Minister of Justice with a view to the relevant legislation being amended.

If you want to comment on the Law Reform Commission's proposals, you can do so before April 25. Follow the link under "Latest Documents" on the commission's website at www.doj.gov.za/salrc/

How a debt administration order works

If you are unable to keep up your debt repayments, you have debts totalling less than R50 000 and you have no other significant assets that you can sell to pay off your debts, you can, through an attorney, apply to a magistrate's court for a debt administration order.

The application will outline a plan in terms of which you will pay off your debt. If the court grants the administration order, it appoints a debt administrator and institutes a monthly garnishee order against your salary. The garnishee order instructs your employer to pay part (often a large part) of your salary to the debt administrator. Every three months, after deducting costs, the debt administrator should pay the amounts collected from you to your creditors.

The order will prevent your creditors from acting against you, for example, getting a judgment order against you. Interest on your debt will continue to accrue but is repaid only after you have repaid the debt owing when the order was granted.

The order can be rescinded when you have repaid your debts, but until then you won't be able to apply for any new credit agreements without stating that you are under a debt administration order and your credit record will record this for 10 years, or five years after the order is rescinded, whichever comes first.

EL loans group gets global credit rating

2008/03/19

EAST London-based financial services group Real People was given an entry level investment grade credit rating of Baa3.za by global ratings agency Moody’s this week.

By ROUX VAN ZYL

Business Editor -Daily Dispatch

This means that the company, which supplies financial products to the lower end of the market, has an average credit-worthiness and ability to repay their obligations compared with other lenders in the country.

Moody’s lauded Real People’s expertise in the high-risk credit environment it operates in, but warned the company to broaden its funding base to secure its position in a volatile global financial market.

Commenting on their first-ever credit rating yesterday, Real People deputy managing director Neil Grobbelaar said the rating met their expectations, but their immediate aim was to lift the rating to an A-level.

”Our company,“ he said, ”is dependent on access to capital, and presently it is a very difficult time with the collapse of the US sub-prime market.

”The primary reason (for having the rating) is to increase our ability to raise debt capital for the group. We need to raise equity to maintain our balance sheet growth.“

In its report, Moody’s said the rating reflected Real People’s small size and franchise, its focus on high-risk business segments, its vulnerable funding base and high level of non-performing loans.

But it also took into account Real People’s ”historically strong earnings performance, good capitalisation buffer and good knowledge of the unsecured lending and credit management business“.

It continued: ”Since its incorporation in 2001, Real People has built a good knowledge of the unsecured lending and credit management business, primarily based on its good IT and credit origination systems, and its effective collection capabilities.

”The group’s franchise is, however, constrained by its small size (with total assets of R1.259 billion as of December 2007) and early stages of development with its aggressive balance sheet growth which can hide risks.“

Grobbelaar said in the financial year ending 31 March 2008 Real People’s balance sheet grew by R700 million and the company expects this growth trend to be exceeded in the next financial year.

”The rating marks the start of a new phase for the company. It took a lot of work to get the company to a level where it could obtain such a rating. It also underpins the general stability and sustainability of the Real People Group.“

Moody’s said one of the main challenges facing Real People was maintaining its financial performance under more challenging operating conditions.

”Despite the progress made … we believe that Real People needs to further broaden and diversify its funding base in order to ensure the sustainability of the inflow of funds.“

Grobbelaar said the company has implemented strategies following the recommendations made by Moody’s.

He added that the Moody’s rating was a feather in their cap, because Moody’s brought their international expertise to the East London company.

”I’m not aware of any other non-governmental company in the Eastern Cape that has a Moody’s rating,“ he said.

Too much owing, too little knowing

Siya Miti - The Times        Published:Mar 17, 2008

Awareness of consumer rights relating to debt can set consumers free from the grip of perpetual owing money.

But according to Nceba Mafongosi, the legal adviser at the National Credit Regulator, only 1percent of consumers are aware that organisations such as the one he works for, and the Council for Debt Collectors, actually regulate the business practice relating to debt.

Mafongosi said the South African debt- collection system is riddled with irregularities and leads to consumers being in a continuous cycle of debt. Many garnishee orders issued by supposedly competent magistrates are invalid.

He said the exorbitant fees usually charged by debt collectors, including attorneys’ fees, force people into a debt trap because they get caught up in the robbing Peter to pay Paul scenario.

Advocate Andries Cornelius of the Council for Debt Collectors said debtors should be aware that they have a right to legal advice before they sign an acknowledgement of debt.

”The danger in acknowledging debt before you speak to an attorney is that you give away your right to defence,“ said Cornelius.

”Administration orders often run into perpetuity because there are no proper regulations in place relating to the administration of debt.

”The cost to set aside administration orders are high. Going to the supreme court to have an unfair judgment set aside can go up to R150 000 and is outside the reach of most consumers,“ Cornelius said.

Report of the Portfolio Committee on Justice and Constitutional Development on the Judicial Matters Amendment Bill [B 2 - 2005] (National Assembly – sec 75), dated 13 April 2005:

The Portfolio Committee on Justice and Constitutional Development, having considered the subject matter of the Judicial Matters Amendment Bill [B 2 – 2005] (National Assembly – sec 75), referred to it and classified by the Joint Tagging Mechanism as a section 75 Bill, endorses the classification of the Bill and reports the Bill with amendments [B 2A -2005].

The Committee wishes to report further, as follows:

Clause 5 of the Bill, as introduced into Parliament, is intended to amend the provisions of section 299A of the Criminal Procedure Act, 1977 (Act 51 of 1977), which enables complainants or relatives of a deceased complainant in respect of certain serious crimes to make representations to a Parole Board when the accused person in the case in question, at a later stage, is being considered for release on parole or correctional supervision. The section currently requires a judicial officer, when sentencing an accused person to prison, to inform the complainant or relative of the complainant who is in court at the time of sentencing, of this right to make representations to the Parole Board. The section also currently requires the Commissioner of Correctional Services to issue directives regarding the manner and circumstances in which a complainant or relative may exercise this right. Clause 5 of the Bill provides that the Commissioner of Correctional Services –

(i) must issue directives in order to ensure that the identity and whereabouts of the complainant or relative of the deceased complainant are kept confidential; and

(ii) may issue directives in order to provide for prescripts on how a complainant or relative who was not in court when the court sentenced the person in question, may be informed of his or her right as contemplated in section 299A.

The Committee raised the questions whether –

(i) the issue of confidentiality should not be addressed in section 299A itself and not in directives; and

(ii) the Department of Correctional Services is the appropriate institution to inform an absent complainant or relative of a deceased complainant of the right to make representations to the Parole Board and whether the court is not the appropriate mechanism to deal with this issue by possibly ordering the prosecutor in the case or the investigating officer to inform the absent complainant or relative, as the case may be.

The Committee consequently requests the Department to investigate these issues further and to revert to the Committee at a later stage with appropriate amendments, possibly in a further Judicial Matters Amendment Bill.

Clause 9 of the Bill, as introduced into Parliament, intends to amend the definition of "debt collector" in section 1 of the Debt Collectors Act, 1998 (Act 114 of 1998). The broad aim of this Act is to protect the public from irregular practices in the debt collecting industry. The Act consequently requires all persons who carry on the business of debt collecting to register as such, with the exclusion of attorneys and employees of attorneys who do debt collecting and who are regulated by the Attorneys Act. All these other persons who do debt collecting are debt collectors for purposes of the Act and must register as such; they are subject to the prescripts of the Act.

The definition of a debt collector at present reads as follows:

" 'debt collector' means—

(a) a person, other than an attorney or his or her employee or a party to a factoring arrangement, who for reward collects debts owed to another on the latter's behalf;

(b) a person who, other than a party to a factoring arrangement, in the course of his or her regular business, for reward takes over debts referred to in paragraph (a) in order to collect them for his or her own benefit;

(c) a person who, as an agent or employee of a person referred to in paragraph (a) or (b) collects the debts on behalf of such person, excluding an employee whose duties are purely administrative, clerical or otherwise subservient to the actual occupation of debt collector;";

Section 8(1) of the Debt Collectors Act, 1998, reads as follows:

"As from a date fixed by the Minister in the Gazette, no person, excluding an attorney or an employee of an attorney, shall act as a debt collector unless he or she is registered as a debt collector in terms of this Act and, in the case of a company or close corporation carrying on business as a debt collector, unless, in addition to the company or close corporation itself, every director of the company and member of the close corporation and every officer of such company or close corporation, not being himself or herself a director or member but who is concerned with debt collecting, as the case may be, is registered as a debt collector.".

Clause 9 of the Bill intends amending paragraph (c) of the definition of debt collector in order to close a gap that has come to the fore in practice where agents of attorneys carry on debt collecting work but do not register as required by the Act. Some of these agents unfortunately do not always stay within the prescripts of the Act and subject members of the public to abusive practices which the Act is intended to prevent.

While the Committee agrees with the proposed amendment, it raises the question whether the time has not arrived for all debt collectors to be regulated by a single statute and not by two statutes as is the situation at present where attorneys who do debt collecting are subject to the Attorneys Act, 1979 and where other persons who do debt collecting are subject to the Debt Collectors Act, 1998.

The Committee consequently requests the Department to undertake an investigation in this regard, by considering the viability of all debt collectors, attorneys included, falling under the ambit of a single statute, by consulting widely with interested parties and by reverting to this Committee with a draft Bill to this effect.

Report to be considered.