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Consumer case study

Beware debt administration

Marilyn Budow

This is a case where a consumer was taken for a ride by being encouraged to go ‘under administration’.

Arthur Meintjies had six debts in 2001 totalling R15,000. Not all of this money was due at the time; he was paying them off in instalments totalling R1,000 per month. This put a squeeze on his finances as he could really only afford to pay R600 per month.

He saw an advert in the newspaper which said “Do You Have a Debt Problem? We Can Help!” Before he knew it, he had signed an application to go to court to be placed under administration. The administrator told him that he would have to pay R500 per month to the administrator, who would in turn then pay off the creditors.

He was not told anything else except that the creditors would now not be able to make direct deductions or receive any payments directly from Meintjies himself. He thought this was a great solution – he would have more money in his pocket and no more letters of demand from creditors.

For the next five years, Meintjies paid over the R600 per month, totalling R36,000. This was more than double what he had owed in the first place. He could not understand why he still had to continue making payments as he felt that he had paid more than enough to settle his debt.

When he asked for help he was surprised to find out that an administration order was quite different to what he thought. He then realised that he had made a mistake to go under administration as this actually made his situation worse than it was before.

How does debt administration work?

• The administrator or his lawyer charges a fee to bring the administration application to court – this varies depending on the administrator. Some charge as much as R3,500.
• The administrator first deducts this amount from the instalments he receives before any payments are made to the creditors – so sometimes creditors do not receive any payments for more than a year.
• The administrator also takes commission on the money he receives and deducts this before paying the creditors. Although the law says that an administrator may only take 10%, many administrators charge more than this – even more than double.
• The administration order does not replace the original contract that you signed with the creditors. So interest continues to be charged on all your unpaid accounts. As a result of this, Mr Meintjies’ balance of R15,000 actually went up because of all the extra interest that had to be paid – including for the year that the administrator collected but paid nothing to the creditors.
• The administrator only pays the creditors every three months, and then only a portion of the R600 to each creditor. This means that interest is charged for the months when no money is received and interest is charged on the portion which is less than the instalment (eg an instalment in terms of the contract is R300 per month ie R900 for three months, yet the administrator only pays R120 for the three months and the consumer will have to pay interest on the R780 shortfall). This means that an account balance can actually go up instead of down!
• Some administrators do not make the payments to creditors every three months, some do not make any payments at all, even although they are receiving the money. The consumer does not usually receive statements from the administrator so he is often not aware what is happening.

What to do if you are under administration?

• Ask the administrator for copies of all the distribution accounts on your file (an administrator must by law draw up this account every three months, to show what money he received from you and exactly what he deducted for himself and any other costs as well as what he has paid to your creditors).
• Phone your creditors and check if they have received all the money reflected on the administrator’s distribution account.
• Check if the administrator has been overcharging.
• Ask the administrator for details of what he charged you for; this will include:
• all work done before and including when the order was granted;
• what commission he has earned on all the instalments that you have paid; and
• how much interest he has paid over to creditors from his trust account (your money sits in this account before it is paid to creditors).

If you think that your administrator has been overcharging you, contact the Magistrate’s Court where your court order was granted. Ask them for help to get the administrator’s accounts taxed; if necessary, you can also bring an application to get the administration order rescinded or reversed.

If you get stuck or the court cannot help you, or you are not sure what to do, contact the National Credit Regulator on 0860 627627.

Marilyn Budow is the Internal Ombud for African Bank. Write to her at Private Bag X170, Halfway House , 1685; fax 011 2073890; or email cmenoe@africanbank.co.za

For legal help, see also the list of university law clinics in this edition.

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