Beware! Upfront fees for credit repair are unlawful

Credit repair in South Africa has become a formidable industry. Only ten years ago, one needed an attorney to improve one’s credit record. Today there are dozens of so-called credit repair agencies and most do not employ attorneys, and many do not have any legal qualifications.
With the proliferation of credit repair agencies, there has also been a rise in fraud committed against defenceless and ignorant consumers. Many of these agencies charge their clients upfront and in full for these services and many consumers complain that the services aid for are not delivered.

Consumers with impaired credit records need to beware. It is unlawful for “credit repair agencies” to charge a fee upfront. Even a so-called evaluation fee to determine if a consumer qualifies fro a credit repair service is unlawful.

Section 126A (3) of the National Credit Act states:
(3) A person who offers to supply, or supplies, any service for the express purpose of –
(a) improving a consumer’s credit record, credit history or credit rating; Or
(b) causing a credit bureau t remove credit information from its records concerning the consumer,
MAY NOT (own emphasis) charge a consumer, or receive any payment from the consumer, for the credit repair service until that service has been fully performed, and must provide each consumer with a disclosure statement in the prescribed manner and form.
In other words, credit repair agencies who charge a fee upfront are in breach of the National Credit Act. According to subsection (4), this does not apply to attorneys.
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Sequestration, Administration and Debt Review Compared
Sequestration some salient points:
• High Court procedure – more costly
• Court grants only IF it is in the interests of your creditors – no guarantees:
• Your assets must cover the debts
• Associated costs of sequestration are paid out of your estate, i.e. bad for creditors.
• Without creditors agreeing, the court will not accept your application
• If granted, your assets will be sold and each of your creditors repaid a portion of what you owe. The balance is written off and you never have to pay it, by law
• Creditors must make a claim against your insolvent estate, if they don’t their claims will be written off
• You lose your assets and you have no control over how much they are sold for and you get none of the proceeds either
• Your credit record carries a notice of sequestration and you are legally forbidden to get more credit until your estate is rehabilitated
• You must apply to court to be declared rehabilitated.
• It could take up to 9 years before you can get credit again
Administration, some salient points:
• Only applies where you owe less than R50 000.
• No write offs!
• Reduces monthly repayments to an amount you can afford.
• You pay for a much longer period, which increases total debt, as interest continues to be charged
• Magistrates’ court procedure
• Notice of administration on your credit record until the administration order is set aside.
• High costs
• Order has to be set aside in court