Know your rights when it comes to debt obligations

You’re highly like to become a debtor at some point in your life. There are certain items you can’t buy with cash, and credit will be essential. But did you know that, as a debtor, you have various rights?

In South Africa, credit consumers are protected by the National Credit Act (NCA) 34 of 2005. Frank Magwegwe, certified financial planner and former head of Momentum Personal Adviser Services, explains.

“The act sets out to regulate credit, to help the consumer to manage credit responsibly, and make lending more transparent,” Magwegwe says. “Under the NCA, each component of a credit transaction comes with well-defined rights and responsibilities.”

Tip: You have a right to apply for debt counselling when you're overindebted. Click here to find out more.

Your rights and responsibilities

The NCA notes that, as a consumer, you have the right to:

• Apply for credit,
• Know why an application for credit was not approved,
• Receive one free credit report from a credit bureau per year and challenge this record if it is not correct,
• Confidentiality – lenders must keep your information private and cannot disclose anything without your consent,
• An understandable credit agreement in plain language,
• A quote and pre-agreement statement which is valid for five days, which you may accept or reject,
• Be charged regulated fees and interest, as stipulated in the act, and
• Make use of debt counselling services should you require these.

“While credit providers must ensure that the information contained in credit applications is accurate and truthful, and that the consumer can afford the loan, consumers must ensure that they understand the credit agreement, and they must repay the debt,” says Magwengwe.

“Furthermore,” he says, “consumers must understand that if they skip more than three months' payment, they may face legal action from the credit provider.”

Paying back creditors

At times consumers can find it difficult to pay back their debt. According to Magwegwe, if you’re battling, debt counsellors are a useful intermediary between you and the lender.

The National Credit Regulator (NCR) states that the aim of debt counselling is to assist over-indebted consumers by providing budget advice, and negotiating with credit providers for reduced repayments and debt restructuring.

Magwegwe warns against confusing debt counselling with a payment holiday. While you are under debt counselling you are still required to your debts, but at a reduced instalment amount and, at times, a reduced rate of interest.

“It is critical for consumers to bear in mind that while undergoing debt counselling, they cannot borrow more money or even use their credit cards. That is, they will not be able to take on additional credit,” says Magwegwe.

Your profile will be flagged

Once you have signed up for debt counselling, the credit bureaus and your credit providers will be notified by the debt counsellor.

“The credit bureaus will then flag your profile on their system as ‘under debt review.’ This is done in order to prevent you from taking on more credit, as the debt counselling process is implemented to rehabilitate overindebted consumers’ financial situation. Taking on additional credit is detrimental to this rehabilitation process,” explains Magwegwe.

Once you have paid off your debt you can take out debt again, however, Magwegwe stresses that you need to be careful.

“Once the consumer has paid off their debt, the debt counsellor sends a clearance certificate to their creditors, and notifies the NCR and the credit bureaus. Consequently, credit bureaus will be prompted to remove the ‘under debt review’ flag from the consumer’s profile, thus allowing the consumer to take out credit once again.”

Emolument Attachment Orders

Emolument Attachment Orders (EAOs) are court orders that compel an employer to deduct money that an employee owes to a creditor from the employee’s wages or salary.

Magwegwe explains, “A court will only make such an order where it is satisfied that there is a valid underlying debt, or that there has been written consent to the order being taken, or the court has previously made an order instructing that the debtor’s salary or wage be attached.”

An EAO allows for a specified amount of money to be deducted from an employee’s earnings each payday, until the employee’s debt has been paid in full.

The amount that is deducted should be clearly stated in the EAO. However, according to Magwegwe, the creditor to whom the money is owing (the judgement creditor) is able to make the following claims:

• The full amount of money loaned, less payments already made by the employee,
• Interest on the outstanding balance,
• Costs incurred by the judgment creditor to collect the money, and
• Sheriff’s (the messenger of the court’s) fees.

A valid EAO will have a case number, and a stamp from the clerk of the court. It will also be signed by the attorney handling the case for the judgment creditor, and have the full name and identity- or staff number of the employee.

Magwegwe highlights that with regards to an EAO, you as an employee have the right to:

• Dispute the amount claimed if it appears to be incorrect,
• Apply to court to reduce the amount of the order if you are unable to meet your and your dependents’ maintenance costs, and
• Be furnished, by the creditor or his attorney, free of charge, with a statement containing particulars of payments received up to the date concerned, and the balance owing.

“An EAO stems from a default judgement. So, if consumers who have taken on too much debt want to avoid EAO, it is imperative that they prevent a default judgement,” says Magwegwe.