A company that collects monthly payments from 75,000 consumers in debt review, and then pays the consumers' creditors and debt counsellors, has dismissed fears that it is facing a liquidation application.

Both it and the credit regulator have assured debtors that the money they hand over each month for the repayment of their debts is safe.

DC Partner, SA's second-biggest payment distribution agent (PDA), was served with a letter of demand in December from a former service provider that claims it is owed R1.1m by the company.

DC Partner is one of four PDAs registered with the National Credit Regulator (NCR). PDAs distributed R11.3bn to credit providers last year, according to the regulator's 2018/2019 annual report.

Kaveer Beharee, CEO of Ubiquity AI, says DC Partner owes his company money for the development of an artificial intelligence pilot project to promote financial education.

"Consumers are advised to exercise extreme caution if DC Partner is their service provider," he says, explaining that the letter of demand is a precursor to a liquidation application and that negotiations with DC Partner have broken down.

When the NCR was informed of the impending liquidation application against DC Partner, Beharee says, the regulator expressed its concern about the potential impact on consumers and consumer funds being held in trust by DC Partner.

But Nthupang Magolego, a legal adviser at the NCR, told Money this week that consumers should not be concerned.

She says the regulator conducted an audit of DC Partner in December, for the period January 1 2019 to July 31 2019, which "did not reveal any areas of noncompliance or

Herman Joubert, the CEO of DC Partner, says the PDA is operating in a liquid position and that if an application for liquidation is brought against DC Partner, it will be defended. The issue is a "private payment dispute between two private companies", he says.

"DC Partner does not have any creditors to whom money is owed outside the course of normal business."

What would happen to your money if your PDA were to be liquidated?

"All consumer funds are safeguarded in ring-fenced accounts specifically designated for collection and distribution activities. These accounts, as mandated by law and regulation, are entirely separate from the operational business accounts and activities of DC Partner," he says.

"A section 435 [of the Companies Act, relating to a letter of demand] application, or any application for that matter, cannot incorporate client funds as these funds legally belong to consumers who are under debt review. These client fund accounts are vigorously audited by the NCR on a monthly basis and also carry fiduciary fund insurance," Joubert says.

The NCR audits funds that PDAs receive from consumers as it earns interest from these amounts quarterly, he says. "The bank automatically swipes the PDA's accounts and the funds go to an account specifically set up for the interest. The NCR will then request payment once a quarter. DC Partner does not receive any interest on funds collected," says Joubert.

The NCR has earned interest of R48m from money held by PDAs since 2015, its annual report says.

The report says PDAs are audited twice a year by external auditors, and NCR officials visit PDAs quarterly to ensure they are complying with the relevant regulation.

Last year, the NCR did 23 compliance checks on the four PDAs, the report says.

Debt review is a process you can voluntarily enter when you are unable to manage your debt repayments. A debt counsellor will rearrange your repayments by reducing the instalments and extending the terms, allowing you to repay all the debts over time. You will not be able to take out any more credit while in debt review.

Most people in debt review pay their restructured repayments to a PDA.

Some debt counsellors, who asked not to be named, say any interest earned on money paid by consumers in debt review to a PDA should be paid to consumers rather than to the regulator.

PDAs charge you, as a consumer in debt review, between R5 and R15 per payment per month, depending on the amount being paid to the creditor, and up to a maximum of R500 a month.

The National Credit Act (NCA) says that you are not compelled to use a PDA. You can pay your creditors yourself. But consumers are rarely told this by their debt counsellors, who tend to have relationships with specific PDAs, usually because the PDA provides software that helps debt counsellors manage their businesses.

The NCR's Magolego says the law allows you to pay your creditors directly, but doing so may expose you to a "high risk" of your debt review process being terminated if you fail to pay the agreed restructured repayments. "Consumers are encouraged to make payments through a PDA that is registered with the NCR," she says.

But some debt counsellors say that paying your creditors yourself puts you in control of your payments: "Failure to pay results in termination, regardless of the payment method. If a consumer fails to make a payment to his credit provider, the chances are he wouldn't pay his PDA either," one said.

The reason debt counsellors generally push you towards a PDA is because the PDA processes the monthly fee they are paid, known as the after-care fee. You can pay your debt counsellor his or her fee directly, but a debt counsellor may not receive your debt payments to distribute to credit providers.

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