According to a recent analysis, as many as 8% of Cars.co.za’s users are under debt review at a major credit bureau, which means that they will find it virtually impossible to get vehicle finance. What is debt review? And, if you’re erroneously under debt review, how do you fix the problem?
What is debt review?
The National Credit Act makes provision for over-indebted consumers to apply for debt review with the help of a debt counsellor. It’s a debt rehabilitation program that protects consumers from creditors who may institute proceedings to garnish their income or repossess their assets.
When used the right way, it’s a very positive thing because it protects consumers from the banks while they sort out their financial affairs. A major benefit of debt counselling is having a registered debt counsellor who will negotiate with creditors on your behalf for reduced payments (in line with your disposable income), as well as putting forth restructured payment plans that protect consumers from any legal action by credit providers. It was created with great intentions, but it has since got a poor reputation due to the unscrupulous behaviour of some debt counsellors…
Also read: Falling behind on vehicle payments? How to reduce your debt
The debt counselling “hard sell”
Thousands of people are trapped in debt review because they get taken in by schemes offered by unscrupulous debt counsellors. We all get those calls… The agent will offer things such as “a discount of up to 50% on your debt”, plus the simplification of your debts into “one consolidated payment”. They offer an assessment to determine if you qualify and some even allow you to sign up by Whatsapp.
That’s all that is needed for your credit profile to be flagged and the process to start. With this, a legally mandated set of steps will be followed and you, the unsuspecting consumer, will be under review. From that point onward, ANY and EVERY application for credit that you submit will FAIL because credit providers are legally prohibited from offering loans to anyone under debt review.
Getting out of debt review
Your debt counsellor should have advised you right up front that this can ONLY happen when your debts are paid in full, even if this takes many years. In other words, you have to pay all your debts completely before the review flag can be removed from your credit profile.
Many people find that unfair. They entered debt review during a hard period in their life to protect themselves from nasty creditors. Now that their financial life is in a better state, they don’t need debt review and they want out.
Sadly, it does not work that way. Your debt review plan was created and imposed on your creditors by a court order and this court order is mandated by the National Credit Act. The rule in the NCA is that ALL debt must be paid in full before debt review is completed.
If you are listed but you are completely unaware of this, it’s a warning sign that you have been scammed in some way.
However, the incentive to “oversell” debt review is clear – the debt counsellor can charge up to R8 000 for the initial assessment and keep up to R450 of any future payments.
So what can you do?
If you are under review and want to leave it by yourself, the only way to clear the flag from your credit profile is to pay off ALL of your debts. Depending on your situation, this may not be easy. Your options include:
- Engage with each of your credit providers and negotiate a payment plan to clear your debt. Once your debt is cleared, you can request a “paid-up letter” for each account, then contact a major credit bureau to dispute the debt review flag armed with your paid up letters to prove you are debt free.
- Engage with your existing debt counsellor to negotiate a new payment schedule.
- If you were unhappy with your previous debt counsellor, you are entitled to change to a different debt counsellor.
If you believe that you are erroneously under debt review because due process has not been followed, i.e. you have been scammed into debt review, then the first step is to contact the debt counsellor listed on your profile.
If this does not bring success, you can lodge a complaint with the National Credit Regulator, which commits to resolving complaints within 90 days depending on the complexity and nature of the complaint.
Legal expertise on debt review problems
It is very likely that resolving issues with your review status will require legal representation. Debt review is a legally mandated process and it may require a debt assessment as well as going back to the Magistrates Court to prove that you are not over-indebted.
Need a quick solution?
If you can’t secure a finance agreement because you have no credit rating, consider car subscription services such as Flexclub, which are much more likely to help you acquire your new wheels.
Related content:
The problem with living debt-free
All options for financing your car
