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A Big Issue
You may have recently seen news about how the NCR is trying to shut down scammers who are abusing consumers desperate to leave debt review.
This has become an issue affecting 1 out of every 60 South Africans. You might wonder: How did we get here?
They Never Realised It Would Happen
Due to the strange way the National Credit Act is written, there is only one way to leave debt review: by paying up all your existing debts (technically 2 ways, if you count dying).
The optimistic lawmakers of years gone by, never imagined that anyone would not want to finish the process.
They couldn’t foresee a situation where people would have buyers’ remorse right after signing up (admittedly they were politicians and not marketing people). Only later down the line, would the Consumer Protection Act really talk about cooling off periods.
They never imagined the situation where people would miss payments and lose the services of their Debt Counsellor, but would still have a debt review status showing at credit bureaus for years to come. As a result, credit bureaus end up displaying irrelevant and inaccurate information.
They didn’t realise that after nearly 2 decades, there would be around 1 million people with debt review status’ showing on credit bureaus who are not actually “doing” debt review.
Oops!
Did You Know?
When a consumer signs up for debt review, a Debt Counsellor is obliged to capture this application on the National Credit Regulator’s (NCR) database within a few days. The database then forwards info to all credit bureaus informing them that the consumer has applied for debt review (which is something the Act requires Debt Counsellors to do).
The law then says that consumers have to pay off their debts before the status is removed.
18 Years Later People Are Desperate
The core of the problem lies in the credit bureaus displaying a status on people’s credit reports that the credit providers fear.
Even if consumers can realistically pay for new credit, the risk of reckless credit accusations is just too scary and can result in fines, writing off of that debt and most importantly the all too real risk to share prices.
Since no one has bothered to update the National Credit Act to sort out this giant issue, which is preventing people from having access to credit, people have become desperate.
And so, they have begun to look for solutions.
Some people tried to use the courts to change their over indebted status. They paid attorneys to go to court to try get rid of debt review court orders or be declared “not over indebted” – you won’t find that in the NCA.
Interestingly, it can be argued that any such orders should not actually remove the status’ shown at credit bureaus, since the current wording of the NCA does not allow for the bureaus to simply remove the listing.
Other people simply asked Debt Counsellors to issue them with Clearance Certificates (Form 19s) even if they still had some debts remaining. For a while this was going on. But since that is untrue it is illegal.
Since many people have court orders through the National Consumer Tribunal (which don’t actually rule on the consumers over indebtedness), such orders were next to come under attack. Smart attorneys argued that their clients (who wanted to change credit bureau statuses) should never have got a NCT order in the first place. For a while, some of these applications worked. Later they were shut down and are now regularly rejected.
All of these attempts were made by desperate consumers eager to get their debt review status removed at the credit bureaus, so they could go out and ask for more credit.
Enter The Scammers
Imagine finding a group of 1 million consumers who are desperate and uneducated about the very thing they are trying to get rid of.
What an amazing opportunity for scammers! The market was ripe for the picking and so social media soon became flooded with more adverts to help people get out of debt review than there are to help people with debt review.
Desperate consumers were throwing themselves into the scammer’s laps.
Some scammers went low and charged R500 for fake clearance letters. Others charge R5000, R8000 or even R20 000.
The scams generally fall into 3 categories:
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- In some cases, the scammers operate with one email or phone number for a while and then after getting enough money, simply disappear.
- In other cases, the scammers say they tried to help but the credit providers refuse to cooperate. They then try trick the consumer into starting up debt review again.
- In extreme cases, the scammers produce fake letters supposedly from credit providers to try con the credit bureaus and send these false documents to the Regulator.
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These scammers have all been so busy they have set up call centres just to deal with all the work coming their way from desperate consumers who want to get rid of their credit bureau listing.
The money has been pouring in and consumers are the ones losing out.
DC Transfers
Many of these scams start with advice from the scammer to try get away from the Debt Counsellor on record at the NCR (on the NCR’s database).
The NCR and hard-working Debt Counsellors have been inundated with hundreds of thousands of requests to transfer clients from one Debt Counsellor to another. The “other Debt Counsellor” being a front for the scammers.
Sadly, due to the extreme grey area and confusion surrounding these issues, there are some people who are prepared to front such scammers in exchange for bundles of cash. They do the debt counselling course, sign up with the NCR and then proceed to abuse their registration by working with these scammers.
Until recently only a few scammers have been bust, so that made them brave. As yet, no scammers have ended up in jail or prosecuted for fraud in their personal capacity. There has been little to fear.
It even seems that some scammers work in tandem with sloppy Debt Counsellors who seem to purposefully sign-up people who are not committed to debt review, taking fees from them, only to then extract fees from them with a “get out of debt review” scam. They get fees from them twice, first to join debt review and then to leave, shocking!
Destroying the Purpose of the Act
It might be argued that this current scamdemic is happening due to mistakes made in the wording of the NCA.
Perhaps because no one has bothered to go and amend the NCA when the problem first appeared.
It could be argued that allowing credit bureaus to keep record of people who are not actively under debt review is wrong. Maybe it is keeping these consumers from a constitutional right (access to credit).
Whatever the reason, scammers have a pool of a million desperate South Africans who are prepared to gamble thousands of hard-earned rands to try get rid of these listings with the credit bureaus.
At the moment, Debt Counsellors are putting in effort all day, every day to try and find consumers who want to pay off their debts through debt review. Sadly, much of that messaging is simply drowned out by these scams.
‘consumers who are actively under debt review with good intentions are being contacted by scammers with false promises’
Even worse, consumers who are actively under debt review with good intentions are being contacted by scammers with false promises and are falling for it.
Each time a Debt Counsellor gets a request from someone to transfer their clients away it makes them die a little inside.
Let’s hope that something can be done in time to save these consumers because, at present, this issue is invalidating the entire purpose of the National Credit Act.
The post How We Got Here first appeared on Debtfree Magazine.