The National Debt Mediation Association (NDMA) is concerned that consumers are not aware of the costs of legal action should they delay seeking assistance when they start experiencing difficulties with meeting their monthly debt obligations.

An analysis of complaints received by the NDMA shows that consumers are still not approaching their credit providers the moment they start experiencing payment difficulties, with the consequence that by the time they seek help, their case is already in the legal process or a court order is in place. This makes the case difficult and expensive to resolve.   For the year ending December 2011, in more than 50% of cases dealt with, the credit provider was in the process of executing a court order.

Depending on who manages the collection process, legal costs incurred can include collection commission, interest on outstanding costs, sheriff expenses and correspondence expenses.

“By not acting quickly enough, it can cost thousands of rand, which the consumer could have used towards settling outstanding debts,” says CEO of the NDMA, Magauta Mphahlele.

In one case a consumer who owed R5 443 in capital and interest ended up with a salary attachment order of R12 409. This included R6 976 in legal fees that went to the collecting attorneys. This included 10% collection commission at R1 104, costs of R3 166, R2 795 interest on outstanding costs and R598 for VAT. While these fees and charges are not necessarily illegal, consumers can avoid them if they seek assistance early.

She explains that this trend draws attention to the possibility that the average South African consumer is either ignorant of their rights and responsibilities or does not trust what action the credit provider will take once they approach them for assistance.

“Organisations such as the NDMA are there to assist consumers through this difficult process and consumers are urged to take advantage of the avenues available to seek advice and assistance,” says Mphahlele.

She says that many consumers approach the NDMA a day or two before their houses or vehicles are auctioned or repossessed, which is often too late.  With credit agreements that are regulated by the National Credit Act (NCA), the legal process usually commences with a section 129 notice that credit providers are obliged to issue to a consumer once they are in default for at least 20 business days. If 10 business days elapse without the consumer responding to the credit provider, the credit provider is at liberty to take legal action.

“While the section 129 notice might seem like an intimidating document for many consumers, it is not necessarily the end of the world if the consumer takes action in respect of the options provided in the letter,” says Mphahlele.

Once a consumer has received a section 129 letter they have the option to refer that specific credit agreement to a debt counsellor, an alternative dispute resolution agent, consumer court or Ombud with jurisdiction. The intention is that the credit provider and the consumer resolve any dispute related to the agreement or to bring the payments up to date.

Mphahlele urges consumers to inform their credit providers as soon as they experience or anticipate that they will experience payment difficulties. If they find this process intimidating or are not sure who to approach, the NDMA will provide them with free advice and the relevant channels to follow within the credit provider institutions.

Where a section 129 letter has been issued, consumers are urged to respond to the letter by contacting the credit provider and informing them how they intend to remedy the default or take any other relevant actions. If they are under debt counselling, they should consult their debt counsellor. If after approaching the credit provider, a consumer is unhappy with the response, Mphahlele urges them to contact the NDMA for assistance.