If your creditors are hounding you, will you be charged collectors’ fees?

Let’s imagine you missed your monthly instalment and your creditor has decided to get in touch with a collection agency so that they can follow up with you regarding your late payment.

You eventually settle your instalment, but then you realise they’ve added a new line on your statement called “collectors' fee”. How do collectors’ fees work, and are you liable to pay them?

Tip: If you’re struggling with your instalments, consider debt consolidation to reduce your payments.

What do debt collectors do?

Lebo Nong, co-founder at Nong Wealth, says that debt collectors manage non-payers’ accounts that have been handed over to them by the credit provider after multiple defaults.

“Debt collectors are responsible for communicating with defaulting clients in order to recover outstanding debt for the credit provider. Therefore, credit providers are reliant on debt collectors to handle questions, complaints, and record-keeping of their outstanding debt,” says Lebo.

He explains that debt collectors are responsible for using their resources to investigate unresolved cases and discrepancies on outstanding accounts.

“Debt collectors do not necessarily go to debtors’ homes. However, they communicate with debtors through phone calls, SMS, or emails and letters,” says Lebo.

“Unlike a repo company, debt collectors may not repossess the debtor’s assets, hence there is no reason to go to people’s homes,” says Lebo.

However, he points out that debt collectors may hand over the case to the court, which may result in repossession by the sheriff, the debtor paying interest, or even a criminal offence against the client.

READ MORE: Asset repossession: What banks want you to know

Who pays debt collectors’ fees?

According to Neo Nong, property investor and co-founder of Nong Wealth, debt collectors’ fees are regulated by the Debt Collectors Act.

“The DCA stipulates that debt collectors may only collect from the debtor what they owe the credit provider, along with interest and the debt collector fees,” says Neo.

“If a debtor has defaulted on a credit agreement and has been handed over to a debt collector, they may charge the debtor a fee of no more than the capital amount of their debt amount, or R814, whichever is higher,” says Neo.

He adds that, in addition to the debt collection fees, the debtor will be liable for commission of ten percent of each instalment paid, to a maximum of R407 per instalment.

“These are the terms set out in regulation under the DCA, which applies to all debt collectors,” says Neo.

What should you do if you are in this position?

Lebo says that it’s important to verify the claims made by the debt collectors.

“Debtors have the right to contest fraud or discrepancy claims with the debt collectors or the credit provider. Should this not be resolved, the debtor is advised to present their case in court,” says Lebo.  

“When signing or agreeing to any contract, whether it be a loan or credit card application, you must understand every term and condition – especially the cost implications as a result of contract cancelling or defaulted payments,” he explains.

Lebo says that the credit provider and debt collector are required to give a breakdown of any implications to the debtor before taking legal action.

“Once the debtor has been formally made aware of the claim, it is their right to request legal documentation and statements for the respective claim made against them. This is for the purpose of critical analysis and perusal, in assistance with the debtors’ legal team,” says Lebo.

“Should the debtor feel that there are irregularities in the claim made against them, this needs to be immediately communicated with the credit provider or debt collector in response to the claim. If the matter remains unresolved, the debtor may escalate their complaint with the Council for Debt Collectors,” Lebo adds.

He recommends that debtors don’t sign any documents they don’t fully understand. As a client of the credit provider, it’s the debtor’s right to have these documents or contracts assessed by their lawyer for interpretation before making any legal commitments.

“Most importantly, it’s crucial that the debtor maintains communication with the debt collector. Debtors are encouraged to keep up communication by answering phone calls and responding to emails from the debt collector or credit provider,” says Lebo.

He points out that through this communication, the debtor is able to potentially negotiate repayment amounts, repayment structure, and interest rates charged, with the aim of avoiding legal implications. 

Don’t fall behind on your instalments. Get debt counselling today to free yourself of debt.