There is a growing financial scam involving unsolicited offers for debt relief designed to unknowingly enrol individuals into a formal debt review programme, making them ineligible for future credit including vehicle finance.
This is according to the National Automobile Dealers’ Association (Nada) which has cautioned consumers to steer clear of these scams.
Debt review is a legal process designed to assist over-indebted consumers. It involves a debt counsellor, who gets paid for their service, assessing the applicant’s financial situation and negotiating with creditors to restructure their debt into a more manageable repayment plan.
However, Nada chairperson Brandon Cohen said South Africans are increasingly receiving unsolicited calls from organisations offering debt relief services.
“By participating in a brief survey and answering a series of questions with a simple ‘yes’, consumers may find themselves enrolled in a debt review programme without providing explicit consent,” said Cohen.
He said the organisation has noted a rise in the automotive industry with car finance application rejections due to buyers being under debt review.
To avoid this, Cohen advised consumers to remain vigilant when speaking with agents who offer debt relief services.
“Do not consent to anything you do not fully understand and have had a chance to think about. Make certain that debt review is the right option by conducting independent research and only make use of the services of registered debt counsellors with a proven positive track record. We also recommend using caller identification software to help avoid these unsolicited calls that can lead to the debt review trap.”
The debt review process is not a quick-fix and can be protracted, lasting several years depending on debt obligations of the consumer. During this period, an individual under debt review will not be able to obtain new credit. This poses a significant problem for those who are unwittingly enrolled, especially when they need to apply for credit or any type of finance.
MJ Davis, CEO of retail loans at FNB said some agents were misleading consumers about debt review.
“They use smooth marketing (with cold calls their; favoured channel), often along with vague promises to get people into debt review without explaining the consequences. Desperation can lead to risky decisions. When you’re stressed about money, it’s tempting to grab the first solution that promises relief,” said Davis.
They use smooth marketing (with cold calls their; favoured channel), often along with vague promises to get people into debt review without explaining the consequences.
— MJ Davis, CEO of retail loans at FNB
But not all solutions are equal, he added.
“Debt review might be the right choice for some. But for many, a less severe alternative is debt consolidation. Debt consolidation lets you combine multiple debts into one personal loan, giving you one monthly payment, lower interest rates, zero legal restrictions on future credit, and (most importantly) no credit bureau flagging.” he said.
Here’s what you should do before you agree to anything:
- Ask for everything in writing – If someone offers you a financial service, make sure you understand what it is. Ask for a written explanation and don’t sign anything until you’re clear.
- Watch out for vague promises – “Save money” and “reduce interest” sound great but ask “how?”. If it’s debt review, they need to tell you upfront.
- Check their credentials – Only work with debt counsellors registered with the National Credit Regulator. You can verify them at www.ncr.org.za
- Know your rights – You must give explicit, written consent before being placed under debt review. If you think you’ve been misled, report it to complaints@ncr.org.za
“Debt review can be a helpful tool, but only when alternative options like debt consolidation are no longer feasible and when it’s used correctly and with your full understanding. If you’re feeling overwhelmed, take a breath, call your bank, ask questions, and explore all your options. Because when it comes to your financial future, you deserve to be in control,” said Davis.
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