Debt Review Proposals
Every step in the debt review process is important, but none more so, than the proposal we present to the credit providers.
The proposal is also known as the repayment or restructuring plan.
By the time we reach the proposal stage in the debt review process we have already determined the amount of money you can afford to pay towards your credit agreements.
Each credit agreement will receive a portion of the monthly debt review payment but first we need to deduct aftercare and PDA fees from the debt review amount.
Credit life Insurance, Home Owner Cover or any other Value Added Products linked to one or more of the credit agreements will be deducted from the debt review amount.
The cost of these products are included in the proposal as a separate payment and will not reduce the outstanding capital and interest on any of the credit agreements.
for example:
- R 20,000.00 per month. Contractual credit agreement instalments.
- R 12,000.00 per month. Debt review payment per month.
- R 1,000.00 deducted from the R12k for aftercare, PDA and insurance, and/or value added products.
- R 11,000.00 to service the outstanding capital and interest for the credit agreements under debt review.
- Each credit agreement will receive a portion of the R 11, 000.00
There are basically only two types of proposals a debt counsellor can present to the credit providers.
The first is a DCRS proposal and the second is a Pro-Rata proposal.
In 2015 a Task Team Agreement was approved and signed by participants in the debt review industry.
The participants included the Ministry of Trade and Industry, The National Credit Regulator, Banking Association of SA, Debt Counsellor Association of SA, Credit Bureaus, Payment Distribution Agencies and other stakeholders.
The purpose of the Task Team Agreement was, and still is, to establish a uniform and consistent approach to all debt review matters amongst all debt review stakeholders.
The DCRS proposal system was created and what it basically mean is that when a debt counsellor present a debt review proposal based on the DCRS rules, the credit providers will accept the proposal.
The DCRS Rules
Mortgage Agreement
The debt review payment must be at least 80% of the contractual instalment.
The interest rate presented must be the current repo rate plus 2%.
The debt review payment term can be extended to 360 months.
NB!! Mortgage Agreements will have a debt review concession period of 60 months. You will not be under debt review for 360 months.
Vehicle Agreement
The debt review payment must be at least 70% of the contractual instalment.
The interest rate presented must be the current repo rate plus 2%.
The debt review payment term can be extended to 90 months.
NB!! Vehicle agreements can at times be a bit tricky because it is sometimes financed over a period of 72 months and include a balloon payment of, up to, 35%
Unsecured Agreement
Interest rates are reduced to 0.00%
Monthly service fees are cancelled.
The capital amount, if more than R 3,600.00, is payable over a period of 60 months.
Capital balances between R 1,501.00 and R 3,599.00 is payable over 36 months.
Capital balances less than R 1,501.00 is payable over 18 months.
Let us resume our example of the R 12,000.00 debt review payment per month.
When we run a DCRS proposal on our software systems and the R 11,000.00 available to service the credit agreements, based on the DCRS rules, is sufficient, we will have a “solved” DCRS proposal.
We will present the DCRS proposal to the credit providers and expect letters of acceptance in return.
When we run a DCRS proposal and the system show us that an additional, let’s say, R 2,000.00 is required it means that we will need R 14,000.00 per month to comply with the DCRS rules.
In the event that a client can simply not afford the additional R 2,000.00 per month, we will revert to a Pro-Rata proposal.
In our example we have R 11,000.00 available to service the outstanding capital and interest for the credit agreements.
On our software systems we can manually adjust the pro-rata payment and interest rate for every credit agreement.
When we “run” the scenario we will have a pro-rata proposal that show us the amount and interest rate allocated to each credit agreement and, very important, we will have the total debt review payment period.
We present this proposal to the credit providers.
With proposals, other than a DCRS proposal, the credit providers will not accept 0.00% interest rates on unsecured credit agreements.
For Mortgage and Vehicle agreements they will allow the current contractual interest rates to be fixed for a concession period.
When a credit provider receive a pro-rata proposal they run their own payment scenario on their systems.
They capture an interest rate and payment term they deem reasonable and the system will calculate the required debt review payment.
They then present this payment scenario to the debt counsellor as a counter offer.
From experience we have seen that the counter offers exceed or come very close to the requirements of a DCRS proposal.
In the event that a client can simply not afford the payment of the counter offers. we approach the magistrate’s courts for a debt review court order.
Three important aspects to consider when we do not have consent from the credit providers and we approach the court for a debt review Court Order.
- #1. The courts do not have the authority to reduce interest rates.
- #2. It can take months before the order is granted.
- #3. Because there is no consent, the credit providers will not restructure the agreements based on the pro-rata proposal.
In Conclusion
It is imperative that the debt review proposal benefit our clients.
The monthly debt review payment must be less than the original credit agreement payments.
The payments allocated to each credit agreement must be acceptable to the credit providers.
In our consultation phase, before the Form 17.1 is issued to the credit providers, we can determine, based on the affordability assessment, which proposal we will present to the creditors.
In the event that a proposal will not benefit our clients we will inform our clients accordingly and suggest alternative remedies to combat over-indebtedness.