Consumers flooding debt counsellor offices

2010/01/11

Debt counsellors warn that economist predictions of an economic recovery may be premature

Consumers have flooded debt counsellors, offices nationwide after over-extending themselves over Christmas and now panicking as they face school and university fees and creditors begin calling.

Consumer Assist Cape Town manager, Leila Beltramo said, "it has been hectic we received so many enquiries in the first week of January. There are a range of problems, in some instances people expected bonuses that did not materialise or were far smaller than in previous years or they did not anticipate the big slice the taxman would take of the bonus.

"Many people overspent knowing they did not have enough money. Some people withdrew most or all of their funds from bank accounts so debit orders have bounced. They now have creditors demanding payment and too banks have taken anything from R75 to R150 per bounced debit order in fees, so they have an ever worsening debt situation and shortage of cash."

Tjaart Kruger, financial director of Consumer Assist said, "it is worrying that a full year after the global economic crisis began making an impact, people have still not learnt that they need to budget, that they need to cut spending and be more sensible with their income. We are concerned that some are taking economist predictions that the economy is starting to recover as an excuse to start overspending. We need to remind consumers that economists failed to predict the global economic crisis and they may be too hasty in predicting a recovery now. There are disturbing economic signals coming from the United States again and recently from South Africa."

Last week the National Credit Regulator also warned the economy was still depressed and an average of 9 000 consumers a month were applying for debt counselling, they advised consumers not to get into further debt and to be wary of taking out loans to pay off debt.

Andre Snyman, CEO of Consumer Assist said debt counsellors were also concerned that some consumers tried to manipulate and abuse the National Credit Act which says that those who go under debt review have a 60 day period in which creditors cannot take legal action against them while a debt counsellor attempts to restructure their debt repayments.

"We have situations where people do this and after the 60 days renege on payments or say they don't wish to be under debt review any longer. This not only threatens their credit record, it is almost certain to see creditors come after them with the full weight of the law. This increases their risk of losing homes and cars and creates a situation where some creditors mistrust debt review and that jeopardises the chances of tens of thousands of honest consumers who have fallen on hard times and want to get out of debt." He warned that creditors were alert to abuses of the system and had a zero tolerance approach when it happened.

Snyman said that debt counselling grew rapidly in 2009, "we had offices only in the city centres at the start of 2009 and this has now mushroomed into additional offices in major centres and in towns as small as Klerksdorp and Kimberly. There were also only two payment distribution agencies at the start of 2009 - the intermediaries that indebted clients pay and who in turn pay creditors but also monitor the legal aspects around repayments so consumers do not pay more than they should - now there are five.

"Debt became a growth industry in 2009 and that trend is likely to continue through 2010, most factories report quiet order books and although the 2010 Soccer World Cup is giving hope to many industries, South Africa has to be careful it does not price itself out of the market and get a tourist backlash which could in turn hurt those that have invested a lot in the hope of a tourist boom.

"Even if the economy does start recovering, job creation will lag substantially behind that because companies are going to be nervous of downturns and will wait before taking on new staff. Consumer debt will continue to rise over the short to medium term and not begin settling until at least 18 months after a real economic recovery takes place, which means that in the best case scenario South African consumers need to watch their rands and cents into well into 2011 and relief will probably not come before the end of that year.

"So we predict two more hard years for consumers. We urge companies to do more to institute financial wellness courses in their organisations like BMW, Absa, Woolworths, Mittal Steel and others have done with substantial success including dramatic reductions in absenteeism, indebted staff or those with garnishee orders.

"Schools and tertiary institutions and the media, especially radio, need to do more to warn young people about the dangers of overspending. We also see too many glossy magazines directed at children and women preaching the virtues of excess; it is not insignificant that women are less likely to come for debt counselling than men. Even top international magazines for the wealthy like Vogue have features called "More Dash than Cash" and show cheaper ranges, South African magazines need to help their readers more."

Snyman suggested too, that consumers need to "wake up to a world of new responsibilities. We went through a wonderful boom period where a lot more people were exposed to new opportunities and new wealth, but that has changed; the world is a harder place. People need to look at the A to Z of financial management, they need to learn how to budget, to teach money sense to their children and to live lives of thoughtful money management.

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