Debt mediation found to be in contravention of the law

Indebted consumers who have been seeking financial rehabilitation through the voluntary debt mediation process, as touted by the National Debt Mediation Association (NDMA), have to reconsider their options. Consumers may have to opt for statutorily sponsored debt review process.

This after the National Credit Regulator ruled that the practice of voluntary debt mediation as undertaken by the NDMA is in contravention of the National Credit Act. The ruling followed a complaint by an agent of the debt counseling industry to the NCA which argued that voluntary debt mediation was a compromised practice which while touted as a service to the consumer favored credit providers. The complaint was obviously motivated by the fact that voluntary debt mediation threatened to elbow out debt counselors out of the financial rehabilitation market.

The establishment of the voluntary debt mediation was sponsored by the Banking Association of South Africa (BASA) as a service that helps indebted consumers to rehabilitate. In a way the service stood against the statutorily sponsored debt counseling process.

The NCA is said to have ruled that the NDMA must stop its voluntary debt mediation pilot scheme and provide written confirmation of its cessation by Tuesday (August 28).

The finding follows a complaint lodged by Deborah Solomon of the Debt Counseling Industry portal, DCI.co.za with an argument that the practice prejudiced consumer rights and potentially favored credit-providers while purporting to be a service to assist those in debt.

In a statement Solomon said “The regulator’s finding that this scheme contravenes the NCA is a victory for the consumer and debt counselor. It also returns respect and integrity to an already persecuted industry.”

“For months, the NDMA has punted the benefits of its so-called ‘solution’ and certain banks have encouraged indebted individuals to go through these processes knowing their pilot scheme had not been approved by the regulator.”

“In effect, the NDMA and banks that eagerly supported this solution have misrepresented the true state of affairs to members of the public. They deliberately, alternatively negligently tried to circumvent the provisions of the NCA. They promoted a scheme that was supposedly beneficial to the public when the scheme compromised consumer rights. On top of that, the NDMA showed disrespect for debt counselors, the regulator and the spirit of the NCA. They were aware, alternatively ought reasonably to have been aware that debt counselors hold a fiduciary responsibility and cannot be beholden to the banks while working within the legally sanctioned system.”

In an attempt to strike back the NDMA had argued that there were “many abuses” in the debt counseling industry and cases where counselors “absconded with the consumer’s money” or “messed up the process to such an extent the credit provider terminates the process and takes legal action”.

“These claims were biased, unsubstantiated and designed to undermine the public’s faith in independent debt review processes set up by the National Credit Act and thereby punt the NDMA,” said Solomon. “A few bad apples are not representative of an entire industry. This was a deliberate attack on the debt counseling industry in an effort to gain control of the debt review process that would enable credit providers to dictate the rules, processors and systems right down to the chosen debt counselor.”

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