Know your rights when it comes to debt obligations
In the run up to Human Rights Day (Saturday, 21 March), this guide will look at the rights consumers have, and don’t have, when it comes to their debt.
In South Africa the National Credit Act (NCA) 34 of 2005 protects consumers who make use of credit. “The act sets out to regulate credit and help the consumer to manage credit responsibly while making lending more transparent. Under the NCA, each part to a credit transaction has well defined rights and responsibilities,” explains Frank Magwegwe, certified financial planner and head of Momentum Personal Adviser Services.
What are your rights?
According to the NCA, consumers have several rights when it comes to debt, and credit. These include:
· Right to apply for credit,
· Right know why an application for credit was not approved,
· Right to receive one free credit report from a credit bureau per year and right to challenge this record if it is not correct,
· Right to confidentiality - lenders must keep your information private and cannot disclose anything without the consumer’s consent,
· Right to an understandable credit agreement in plain language,
· Right to a quote and pre-agreement statement which is valid for five days, which the consumer may accept or reject,
· Right to charged regulated fees and interest that as stipulated in the act, and
· Right to make use of debt counselling services.
“While credit providers must ensure that information contained in credit applications is accurate and truthful, and that the consumer can afford the loan, consumers must ensure that they understand the credit agreement and must repay the debt as per the credit agreement signed with the credit provider.
Furthermore, consumers must understand that if they skip more than three months' payment, they may face legal action from the credit provider,” highlighted Magwegwe.
Paying back creditors
Sometimes a consumer can find it difficult to pay back their debt. According to Magwegwe, if a consumer is battling, the NCA “introduces debt counsellors as an intermediary between the lender and the borrower. In such cases, consumers must utilise the debt review services that are offered by registered debt counsellors.”
The National Credit Regulator (NCR) states that “the aim of debt review is to assist over-indebted consumers who are struggling to meet their financial commitments by providing budget advice, and negotiating with credit providers for reduced repayments and restructuring debts.”
Magwegwe stressed that consumers must be aware that a debt review is “not a payment holiday.”
While you are under debt review you are still liable for paying your debts, but at a reduced instalment amount and at times even at a reduced rate of interest.
“It is critical for consumers to bear in mind that while under debt review they cannot borrow more money or even use their credit cards. That is, they will not be able to take on additional credit. This is a result of the debt review process,” added Magwegwe.
Once a consumer has signed up for debt counselling and is under debt review, all credit bureaus and credit providers are notified by the debt counsellor.
“The credit bureaus will then flag the consumer’s profile on their system as ‘under debt review.’ This is done in order to ensure that the client is prevented from taking on more credit since the debt counselling process is implemented to rehabilitate the consumer’s financial situation and taking on additional credit is detrimental to this rehabilitation process,” explained Magwegwe.
Only after a consumer has paid off their debt can consumers take out debt again, however, Magwegwe stresses that consumers need to be careful when re-applying for debt.
“Once the consumer has paid off their debt, the debt counsellor sends a clearance certificate to their creditors, notifies the NCR and the credit bureaus. Consequently, credit bureaus will be prompted to remove the ‘under debt review’ flag from the consumer’s profile, thus now allowing the consumer to take out credit once again.”
Emolument Attachment Orders
Emolument Attachment Orders (EAOs) are court orders that compel an employer to deduct money that an employee owes to a creditor from the employee’s wages or salary.
Magwegwe explained: “A court will only make such an order where it is satisfied that there is a valid underlying debt, or there has been a valid written consent to the order being taken, or the court has previously made an order instructing that the debtors (employee’s) salary or wage be attached.”
An EAO allows for a specified amount of money to be deducted from an employee’s earnings each time that the employee is paid. The money is deducted after each payday until the employee’s debt has been paid in full.
The amount that is deducted should be clearly stated in the EAO. However, according to Magwegwe, the creditor to whom the money is owing (the judgement creditor) is able to make the following claims:
· The full amount of the money loaned, less payments already made by the employee,
· Interest on the outstanding balance,
· Costs incurred by the judgment creditor to collect the money, and
· Sheriff’s (the messenger of the court) fees.
A valid EAO will have a case number, and a stamp from the clerk of the court. It will also be signed by the attorney handling the case for the judgment creditor, and have the full name and identity or staff number of the employee.
Magwegwe highlighted that with regards to an EAO, the employee has the right to:
· To dispute the amount claimed if it appears to be incorrect,
· To apply to court to reduce the amount of the order when the employee is unable to meet his and his dependents maintenance costs, and
· Be furnished, by the creditor or his attorney, free of charge, with a statement containing particulars of payments received up to the date concerned and the balance owing.
“[An EAO] stems from a default judgment. So if consumers who have taken on too much debt want to avoid [EAOs], it is imperative that they prevent a default judgment,” added Magwegwe.
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