Over-indebted consumers who are under administration need to be aware of unscrupulous administrators who abuse the process by taking advantage of their lack of knowledge, warns the National Debt Mediation Association (NDMA).
In many instances the process of administration does not achieve anything except dig a deeper hole for consumers due to the costs of the process and abusive practices by some administrators.
NDMA CEO, Magauta Mphahlele, says many consumers are put under administration without even knowing it- and without the process, its costs and implications being explained to them.
Credit Bureau statistics show that more than 2.7 million consumers have judgments or administration orders against their names.
An administration order is a legal remedy available to consumers who are unable to pay their debt and whose total debt does not exceed R50 000. An administrator, who is appointed by a court, is empowered to take control of the consumer’s financial affairs and manages the repayment of debts due to creditors.
Mphahlele says the intended purpose of administration orders is to help some consumers to get on top of their debt, as all legal action is placed on hold once it is granted and debt repayments are rescheduled to affordable monthly instalments. But, she says in many instances the process does not achieve anything except to dig a deeper hole for consumers due to the costs of the process and abusive practices by some administrators.
In a specific case, the NDMA cites the example of a consumer, a sole breadwinner in her 60s, who was placed under administration in 2009. Since then, the administrators have deducted R500 per month from her salary, amounting to R18 102. The consumer currently takes home R1 547 and her living costs are R1 700. Like many other South Africans, she supplements her income with microloans.
Mphahlele explains that the main challenge for this consumer was that she had been paying the administrator through a salary deduction for four years, but she recently found out that the administrator had not been paying the money over to her creditors and as a result some creditors commenced with legal action against her.
The consumer managed to produce all her payslips after undergoing administration, as well as all court documents and statements that she got from the administrator. One of the credit providers approached also did their own investigation and found that some of the creditors were not even informed that she was under administration, while some last received payments in 2011.
“Because of the non-distribution of funds and in some instances overcharging, the consumer was left in a financially worse-off situation than when she started as the debt ballooned. She only had three credit agreementswhich could easily have been restructured informally with credit providers - if that had happened she could have paid off the debt by now.”
Through a collaborative investigation and intervention the administrator has been asked to refund the consumer and she has been assisted with settling the outstanding amount and becoming debt free. Mphahlele says the consumer now understands that she should never sign anything she does not understand and that in future she should hold anyone who acts on her behalf accountable and now faces a better future without debt.
If a consumer wants to report an administrator they have to approach a court. “In many cases consumers under administration cannot afford more legal costs as they are mostly in the low income category – this can leave themfeeling completely helpless.”
Mphahlele adds that consumers who, after weighing their options, choose to go under administration should ensure that they seek assistance from credible administrators who will comply with the Act and charge the legally prescribed fees.
She says consumers who are unable to pay their debt should first investigate all alternatives available to them before deciding on the best suited remedy.
Consumers may contact the NDMA National Responsible Credit Helpline on 0861 11 6362 for guidance regarding possible solutions and information on what to look out for when under administration.
Mphahlele suggests the following tips for understanding administration orders:
- An administration order enables over-indebted consumers to reschedule their debt in terms of a court order.
- Consumers have an obligation to make regular payments to the administrator or could face legal action from creditors.
- Administrators charge for their services, usually more than R1 000 to get the court order and at least 12.5 percent of each instalment that is paid.
- Administrators distribute money once every three months, so often the balance on the debts may increase instead of decreasing because the creditor is receiving less than the interest that is being charged.
- Administrators are supposed to prepare distribution accounts every quarter, but most often consumers do not receive copies, so they do not know what the charges are, and how much each creditor is receiving.
- Consumers need to be proactive and request the distribution accounts and query any irregularities with the administrators and/or credit providers.
- Consumers whose financial circumstances have improved since they went under administration, have the option to apply for the rescission of the administration order. This means the order will be set aside by the court and the consumer will not have to make any payments via the administrator. However, it is the responsibility of the consumer to contact all creditors that were receiving payments in terms of the administration order and arrange to directly pay any outstanding debts.
- Unless the administration order is rescinded (set aside) it will reflect on the consumer’s credit record for a period of 10 years.
- A consumer is not allowed to apply for any credit while under administration and a credit provider is not allowed to grant a consumer any credit while the consumer is under administration.
- All legal action is placed on hold once an admin order is granted.
Print
