Summit shines spotlight on abusive debt charges
Administrators handling debt for you sounds great — until you discover illegal charges and a lack of enforcement of the relevant law
Handing over the management of your debts to an administrator who is then tasked with paying your creditors on your behalf seems like a good idea if you are so stretched you have no way to turn.
And if you have default judgments against you because you missed repayments, debt administration may be your only option, because these debts can’t be included in debt counselling. To be eligible for debt administration, your debts can’t exceed R50,000 in total. For this reason, it’s mostly lower earners who opt for debt administration.
In theory, it’s a safe and transparent way of consolidating and settling debt timeously, but in practice, it takes on average between 10 and 12 years to settle debt that is put under administration.
This raises questions about the charges you face when under administration — especially those from attorneys involved — and makes administration anything but safe and transparent.
When you enter debt administration you pay the administrator one amount that you can afford, and the administrator distributes it between all your creditors until you’ve settled your debts. The positive is that throughout the process you enjoy financial protection from creditors — they won’t hound you for payment or threaten to repossess things you bought on credit.
Now here’s the huge negative: the law allows for a debt administrator to charge a fee of 12.5% (excluding VAT) of the money collected as payment for the work done. In practice, however, many administrators, including attorneys who act as administrators, are charging additional fees, such as legal fees that an attorney charges a client.
Being overcharged in this way can imprison you in a cycle of debt for years, even when you are paying towards the settlement of your debts every month. You may suspect you’re being overcharged when months, or even years, of deductions results in nothing but a dent in your debt.
You can engage your administrator to find out how much of your instalment is being used to service your debt. But relatively few people in debt administration have the nerves to question an administrator. And, even if you do, you may find it difficult to understand the information disclosed to you by an unscrupulous administrator or attorney who doesn’t want you to understand it.
HVDM and abusive charges
Summit Financial Partners recently asked a court official (known as a taxing master) to check the costs a debtor was charged by an administrator. Even after the costs were approved by the taxing master, Summit still believed they were excessive and abusive. Summit then asked a judicial officer to review the taxed costs.
The administrator was HVDM Administrators in Rustenburg and the attorney was Hannatjie van der Merwe of HVDM Attorneys. She racked up fees to the tune of R20,600 yet was found by the court to be entitled to only R8,200.
The case highlights the type of abuse that thousands of debtors in SA face. In this instance, the attorney acting as the administrator had overcharged by an amount of R12,400. In addition, the magistrate ordered Van der Merwe to pay the costs incurred in taking the case on review because the magistrate took the view that Van der Merwe knew her charges were unlawful.
Although charging the additional fees is not allowed by the law governing debt administration, there is a lack of oversight and enforcement of the law, and consumers who are charged illegal fees seldom challenge these costs.
Summit believes that there is an imbalance of power in the relationship between a debtor and an administrator that needs to be regulated. An intervention is sorely needed: probably one that involves a change in the law governing the administration of debt.
To help consumers who have an administration order administered by HVDM, Summit Financial Partners will audit your order — checking for overcharging or levying of unlawful fees — at no cost to you.
• Van Blerk is a regional executive at Summit Financial Partners.