Melanie Thompson is in debt and struggling to hold on to her home.
For the past six years she has been unable to reach an agreement with her creditor to restructure her debt under the debt review process that aims to help over-indebted consumers keep their assets.
Thompson, who asked not to use her real name for professional reasons, is one of 10.02 million South African consumers who are drowning in debt and who have impaired credit records. They make up 62.95% of the total number of credit active consumers who owe R2.31 trillion to creditors ranging from banks to micro-lenders, according to a recent Credit Bureau Monitor report.
She is also among an increasing number of consumers who are seeking debt counselling services to save their assets.
Statistics South Africa’s latest civil debt judgment data released on 16 November paints a bleak picture of consumer indebtedness. The total value of civil judgments recorded for debt increased by 7.5% in the third quarter of 2023 compared with the same period last year.
A total of 10 573 civil judgments for debt amounting to R313.8 million were recorded in September. The largest contributors to the total value of judgments were: money lent (R91.7 million, or 29.2%); services (R76.5 million, or 24.4%); and “other” debts (R64.3 million, or 20.5%).
Thompson said her debt counsellor, Martin Snyman of Debtability Financial Wellness, has not succeeded in negotiating with the bank to save her home despite claiming R32 100 in fees for handling her debt review application dating from 2017.
The debt review programme is a legal instrument under the National Credit Act and is designed to assist over-indebted consumers to restructure their debt and keep their assets.
Consumers can approach a debt counsellor for a fee to assess their financial affairs to determine whether they qualify for debt review, and then restructure the debt and file a court application to go under debt review, which can reduce monthly repayments by up to 50%.
But in Thompson’s case she has had no joy with the debt review process, and has filed a complaint against Snyman with the National Credit Regulator (NRC), a move that has also been an uphill battle. Nine months later her case still has not been resolved.
Her battle with Standard Bank started in 2016 when her financial circumstances changed dramatically, her income was reduced and she also had to deal with a family illness that affected her ability to work for the next few years. Her mortgage bond fell into arrears and the bank took steps to start the process of foreclosing on her loan.
She approached Snyman to assist her with the debt review process but he was unable to come to a payment agreement to restructure her debt with Standard Bank. The bank filed an application in the Durban high court to proceed with the foreclosure on several occasions, most recently in January 2023.
Thompson alleged that the bank had also refused to assist her by providing detailed statements so that she could verify the interest charges and “gardening fees” that had reflected in one month’s statement.
She decided in November 2022 to switch debt counsellors and approached Cobus de Vos of Complete Debt Counselling to take on her case, but Snyman declined to withdraw as the debt counsellor on record and demanded payment of R32 100 for services rendered over the years.
He later agreed to reduce this payment to R5 000 so that she could transfer her case to De Vos, but already debt-laden, she simply was not able to pay. She filed a complaint against Snyman with the National Credit Regulator, on 9 March this year.
The regulator asked the bank to halt the legal action, a request it complied with, but her troubles are far from over.
Snyman said he had responded to allegations contained in the complaint filed with the regulator.
“We have not received the outcome of the complaint from the NCR as yet. The complaint is therefore still part of an open NCR investigation and we prefer not to respond to the allegations made, until the investigation is concluded,” he said, adding that he did not have consent to disclose information about the status of the consumer’s debt review process.
De Vos said it was difficult to discern whether Thompson qualified for debt review without having sight of the payment proposal. He is also unable to handle her matter because Snyman will not release her files without payment.
“But in general it does not matter how much a loan is in arrears as long as the consumer has enough surplus funds to allow the debt counsellor to offer reasonable payments over a reasonable period of time,” De Vos said.
He could only suspect that the consumer did not have sufficient funds to be able to come to a payment arrangement, which was why the debt counsellor had been unable to resolve the matter.
“I have really tried to help her but without showing the creditors evidence that I am the debt counsellor on record they will not communicate with me,” De Vos said.
A spokesperson for the National Credit Regulator confirmed that Thompson’s complaint is receiving its attention.
“Our internal processes involve engaging registrants, consumers and/or their legal representatives or proxies,” the spokesperson said.
Standard Bank said in a statement that it could not comment in detail because the matter is subject to pending litigation.
“We are engaging with the client and their legal representatives to achieve an amicable solution. Standard Bank will not refuse the client statements. These would have also been sent periodically during the term of the home loan.”
The bank said it believes in home ownership for its customers and strives to “go the extra mile in ensuring that our clients are treated with respect, and above all, dignity”.
“With the mounting economic pressure felt by South African households in recent times, we encourage our clients to contact our offices the moment they experience financial difficulty in keeping up with their monthly repayments, in order to give us the best possible opportunity to create sustainable solutions that help provide alleviation.”
The latest DebtBusters debt index report for the third quarter of 2023 shows that although South Africans are spending slightly less of their take-home pay to service debt, debt-to-income ratios are still high and unsustainable for those in the top income bands.
But DebtBusters executive head Benay Sager, who is also chairperson of the National Debt Counsellors Association, said the slight reduction in the median annual debt-to-income ratio, from 115% in the third quarter of 2002 to 108% in Q3 2023, comes off elevated levels.
“The debt-to-income ratio for those earning R20 000 to R35 000 a month reduced from 150% in Q2 to 140% in Q3 2023 and that of people taking home R35 000 or more from 189% to 164%. These ratios continue to be at unsustainable levels,” he said.
“The ratios for these income tiers were the highest they’ve been since 2016.”
Demand for debt counselling and online debt management also continues to grow, with inquiries up by 28% compared with the third quarter last year. The use of online debt-management tools increased by 65%, with particularly younger consumers using these to manage debt more proactively.
Sager said sustained high interest rates had increased the burden of servicing asset-linked debt. The average interest rate for a bond has risen from 8.3% in the fourth quarter of 2020 to 12.4% in Q3 2023, while the interest rate for unsecured debt is now at an eight-year high of 25.5%.
According to the DebtBusters index, compared with the same period in 2016, consumers who applied for debt counselling in Q3 2023 had:
• Forty percent less purchasing power. Nominal incomes were 1% higher than seven years ago, but cumulative inflation of 41% over that time means that in real terms take-home pay buys 40% less than in 2016.
• A higher debt-service burden. On average consumers are spending 63% of their take-home pay to service debt. Those taking home R35 000 or more need to use 67% of their income to repay debt.
• Unsustainably high levels of unsecured debt. On average unsecured debt was 21% higher than in 2016. For consumers taking home R35 000 or more, unsecured debt was up by 42%.
This is on par with inflation and is evidence that, in absence of meaningful salary increases, consumers are using credit to supplement their income.
Sager said debt counselling and debt review can help over-indebted consumers but it is vital to seek help immediately. He said debt counselling can reduce the interest rates on unsecured debt by more than 90%, from an average of 25.5% to less than 2%, allowing consumers to pay back expensive debt faster.
“Debt counselling is proven and effective, and this time of year, just before the festive season is the best time for those who need it to apply for debt counselling.
“The number of people completing debt counselling has increased eightfold over the past seven years,” he said.
Consumers who received their clearance certificates to exit debt review in the third quarter of 2023 paid back more than R500 million to their creditors.