What does debt review cost?

Companies offering debt counselling advertise that you can “unlock cashflow” by going into debt review – or debt counselling. They don’t, however, always advertise what it will cost you. You typically only find that out after you’ve applied.

The debt review process is prescribed in law, meaning your debt counsellor must follow a regulated process, which can be contentious and labour intensive. The fees that debt counsellors can charge are set by the National Credit Regulator (NCR), according to a fee guideline which debt counsellors are expected to comply with, in terms of the conditions of their registration.

What a debt counsellor can charge

Here’s what the regulator’s fee guideline – last published in 2018 – recommends a debt counsellor charge you, including what the fee covers and when it is payable:

• An application fee of R50 is payable upfront and in full.
  
  
• An admin fee of R300 is payable upfront and in full. This fee covers a consultation with you, explaining the process and the fee disclosure.
  
  
• A fee for the drafting and submission of the proposed repayment plan (otherwise known as the “restructuring fee”) that is:
  
  
  • Equal to the distributable amount (the sum total of what is paid to all of your creditors under the re-arrangement plan every month); or
  • Up to R8000, whichever amount is the lesser.

        If you’re married in community of property, the fee is:

• • Equal to the distributable amount; or
  • Up to R9000, whichever is the lesser.

This fee is paid in your first and second month in debt review and your entire monthly repayment is used to pay your debt counsellor this fee. Your creditors are then paid from month three.

• If applicable, a reckless lending fee of R1500 may be charged to carry out a reckless lending assessment and supply documents to an attorney to draft an affidavit on the outcome of your reckless lending assessment. This is payable in month two.

An “after-care fee” paid monthly, after month two, equal to 5% of the distributable amount or up to R450, whichever is the lesser. This fee covers the debt counsellor’s time for things such as attending to payment queries and reviewing your financial situation as and when it changes. It also covers the final part of the process, which is obtaining from all of your creditors paid-up letters and issuing you with a clearance certificate, which releases you from debt review once all of your re-arranged debt is paid.

Since all of these fees are contained in a guideline, debt counsellors can arguably charge more.

What the payment distribution agent can charge

When you are in debt review you can pay your creditors directly the amount agreed in the repayment plan or use a payment distribution agent (PDA).

If you use a PDA, you will also be charged a fee by the PDA to distribute your repayments as agreed in the repayment plan to your creditors.

The NCR also regulates these agents and their fees. The fees are based on the amounts distributed by the PDA under your debt re-arrangement plan. The highest fee is  R15 for each payment over R500 that is distributed.

Legal fees

Over and above the fees payable to your debt counsellor and the PDA, you may also be charged legal fees if your creditors oppose the repayment plan proposed by your debt counsellor.

The NCR’s fee guideline says the legal fee covers the cost of an attorney to draft a court application and for attendance in court.

The NCR doesn’t regulate attorney’s fees, but the regulator’s fee guideline states that your debt counsellor should negotiate a legal fee aligned to your disposable income.

The fee must be agreed upon upfront with the attorney and communicated in writing to you when you apply for debt counselling.

The NCR also recommends that you pay the attorney only after:

• One or more credit providers rejects the proposed repayment plan;
• The attorney has drafted the court application; and
• The attorney has attended the hearing of the court application.