Johannesburg – Some First National Bank clients who are under debt review may get a nasty surprise.
The bank has apparently been terminating debt reviews and started legal proceedings to recover unpaid debt – without warning.
If a registered debt counsellor determines that you are over-indebted, creditors cannot take any action against you for 60 days.
In that time, the counsellor has to put together a repayment plan (usually instalments are reduced and the payment time extended) and obtain approval from your creditors.
If creditors do not agree, the counsellor will ask the court to approve the plan.
If the 60 days have lapsed and the matter is not before a court, the credit provider can terminate the debt review and – after a grace period of 10 business days - start legal proceedings against a client.
But because of the huge backlog of debt review cases in court, the major financial institutions have agreed to send a notice to debt counsellors 10 days before they plan to terminate the debt review.
This gives the debt counsellor some time to take action to prevent legal proceedings.
However, it seems as if FNB has now decided not to give the 10-day notice.
Some clients and their debt counsellors are getting notices of termination, indicating termination with immediate effect, which means that FNB is not adhering to the agreement, said Alan Manshon, a registered debt counsellor with Cape Town-based debt advisory and financial education group The Money Clinic.
"
Standard Bank Group [JSE:SBK],
Nedbank Group [JSE:NED] and
Absa Group [JSE:ASA], as well as a number of smaller credit providers such as
African Bank Investments [JSE:ABL] and
Capitec Bank Holdings [JSE:CPI], all adhere to this agreement, issuing the 10-day notice of termination."
In one case, an FNB client was accepted as being over-indebted and went under debt review in August 2009. For months, the bank did not react to any correspondence from his debt counsellor about new payment proposals.
In March, FNB said that it would oppose the new payment proposal. The court case, set for April, was postponed to July. And then in June, without any warning, the client received a call from lawyers, advising him that FNB had handed over his outstanding debt for collection.
In response, FNB says it has the legal right to issue termination notices after 60 business days have passed. According to the law, at least 10 days have to lapse after the termination before the credit provider may approach a court.
A bank spokesperson did not want to comment further.
A National Credit Regulator (NCR) spokesperson told Fin24.com that it is concerned about credit providers who are issuing termination notices in contravention of the National Credit Act (NCA).
"We are investigating these matters and will decide on the appropriate interventions once the investigations are concluded. It has to be pointed out that in instances where credit providers have followed the letter of the law there is nothing that we can do.
"It is also important to emphasise that success in implementing debt counselling is dependent on the collaboration of all role players. This is what the NCR is currently facilitating through (the) task team initiatives."
An NCR task team has proposed a number of measures - including establishing a National Debt Review Committee - to help unblock the debt review process.
Banks have long expressed frustration with the debt review process, which has seen some particularly painful teething problems since its launch in 2007. More than 180 000 consumers have applied for debt counselling, with only a small percentage of cases going through the courts.
Credit providers have complained that clients use the system to stop payments and there are also allegations that consumers abuse regulations by applying for debt counselling immediately after buying expensive items.
Manshon says, however, that FNB's actions suggest it is not acting in good faith.
"For the voluntary, non-statutory debt review process to work effectively there needs to be a greater willingness from the credit providers to voluntarily cooperate."
He says banks and other credit providers often make life difficult for over-indebted clients and their debt counsellors.
For example, some companies continue to attempt unlawful repossession of goods despite their clients being under debt review.
Banks and credit providers often take up to six months to respond to proposals, and then attempt to terminate the review process even if the matter is before court. They also withhold clients’ statements in violation of the NCA.
"These actions do not suggest to me that credit providers are interested in pursuing voluntary means of debt review."
- Fin24.com