The life industry will be extending a lifeline to over-indebted public servants from next month when the National Credit Act comes into full force.
From June 1, public servants drowning in debt repayments will be given free access to debt counsellors approved by the National Credit Regulator under the ambit of the Life Offices’ Association’s (LOA) financial wellness programme for government employees.
The programme was launched just more than a year ago and is run by The Careways Group, which specialises in providing corporate employee well-being services, including helping employees gain control of their finances.
Lerato Mametse, communications manager at the LOA, says the good news for public servants caught in the debt trap is that The Careways Group has been appointed as a trainer of debt counsellors by the National Credit Regulator.
This means that all Careways consultants providing financial education to public servants as part of the LOA programme will be trained as accredited debt counsellors.
“This will ensure that all government employees participating in the LOA’s financial wellness programme have free access to accredited debt counsellors who will be able to enforce restructured repayments in line with the National Credit Act as opposed to having to negotiate a solution with each individual creditor.”
In terms of the Act, only qualified debt counsellors will be able to declare applicants indebted and propose the restructuring of their debt commitments to magistrate’s courts to ensure that they will be able to afford basic living expenses with their net salaries.
A debt counsellor will also be able to expose reckless loans, which will result in the suspension of such loan obligations or having them declared void altogether by a magistrate’s court.
Mametse says that since the launch of the financial wellness programme in March last year, the LOA has spent close to R1,3-million on the financial education of government employees. A total of 5 542 public servants from a cross-section of government departments were educated during this period.
All workshop participants were also given access to financial consultants via a telecare service. In the past year, 236 public servants made use of this service — 76% of queries were in connection with over-indebtedness, 20% were about blacklistings and debt advice, and 4% made up other queries.
“With the help of the Careways consultants, we were able to save these employees R129 800, simply by challenging irregularities discovered in their debts.”
Mametse says statistics gathered over the past year show that more than 60% of government employees are over-indebted. It was therefore decided to make available debt counsellors to public servants needing help in escaping the debt trap.
But she points out that over-indebtedness is not unique to government employees, but rather indicative of a massive debt problem facing South Africans.
According to national research conducted by The Careways Group, South Africa has about three million employees who experience negative cash flow every month and more than four million employees with bad credit records.
“What is worrying is that people do not necessarily have excess debt, but are forced to their knees financially by excessive debt repayments,” says Mametse. “One of the participants in the workshops, for example, owed creditors a total of R13 591. But with excessive interest charges, this debt spiralled to a whopping R85 743. And every month the compounding effect of interest pushed the debt higher and higher.”
Mametse mentions another example where the original debt amounted to R28 006, but repayments demanded by creditors amounted to R162 385.
“It was found by The Careways Group that people with short-term debt are commonly paying finance charges of up to 157% a year. Invariably, this often forces people to take on more debt to finance the older debt.”
Mametse says once they have attended one of the financial wellness workshops, public servants who believe they are over-indebted will be put in touch with a debt counsellor who will:
inspect all debt documentation, including garnishee orders and loan contracts, to identify irregularities;
challenge identified irregularities in a magistrate’s court or with the appropriate regulators on behalf of the employee;
ensure that the person in debt can still maintain a household on the net salaries received after garnishee deductions (unaffordable instalments will be reduced in accordance with this law);
provide the employee with a detailed budget and financial plan explaining how disposable income should be spent on living expenses and on debt commitments;
where over-indebted, make recommendations to a magistrate’s court for restructured repayments in accordance with the debt-counselling provisions in the National Credit Act;
create awareness on what not to do, such as signing consent to judgements, using debt to pay debts, resigning in order to realise pension or provident funds, or going under administration;
provide a longer-term plan on how to create wealth; and
follow up three months later to monitor results and to provide assistance where required.