Debtor beware of mediation, says debt counselling body

South Africans who are struggling to repay their debt have become hot property with financial industry bodies fighting over the spoils of rehabilitation.

The portal of the debt counselling industry launched the first salvo early this week saying the voluntary debt mediation being punted in the press as a free service by the National Debt Mediation Association (NDMA) must be treated with caution if not suspicion.

Deborah Solomon, a registered debt counsellor and founder of The Debt Counselling Industry Portal theDCI.co.za, warned that South Africans who opt for the debt mediation process may compromise their statutory and common law rights.

In a peace initially published in theDCI.co.za and republished in other media, Solomon said the NDMA has been set up and funded by credit providers (banks, micro-lenders and credit retailers) and therefore the impartiality of its system and rules are open to question, said Solomon.

“Debtor beware! Think twice. The NDMA debt mediation process has been set up by credit providers. Do you think it is designed towork in your favour or might the outcome tend to favour the credit industry?”

Solomon scathing attack comes as the NDMA is rolling out a strong PR exercise claiming to be saviour of indebted consumers against creditors.

She adds: “Statutory processes set up by the National Credit Regulator and the National Credit Act have several debtor-friendly provisions. The fact that the NCR regulates this process affords all consumers fairness and justice. The NDMA are trying to bring in a debt mediation process that is not regulated by the NCR in which the rules and systems are potentially detrimental to consumers in financial stress.

“Creditors may well encourage debtors to opt for thisfree service. But consumers should realise this is not obligatory. It is voluntary and they should not feel they are under any pressure to agree to this supposed remedy.

“Other remedies are available – remedies set down in statute. By opting for the NDMA debt mediation rather than debt counselling or other remedies outlined in the National Credit Act, the debtor may forego some processes that can be highly beneficial.”

A key safeguard open to those who use statutory processes is the in duplum rule which states that a creditor may not claim unpaid interest in excess of the outstanding capital owed to the creditor.

Solomon adds: “In effect, a debtor using statutory processes can put a cap on the interest portion of a debt – interest that may have been piling up for years.

All consumer debts that can be brought into the debt review process are dealt with equally.

“Credit providers are not eager to see this cap applied. The in duplum provision is a major source of relief for indebted families that despair of ever getting out the debt trap and is only available under statutory debt counselling.

“Another concern is the willingness – or perhaps otherwise – of NDMA-appointed debt counsellors to blow the whistle on reckless lending. After all, the services of these NDMA appointees are free to the consumer; so who is paying them?”

Solomon advises consumers not to make an instant decision when a credit provider suggests or encourages the use of their ownmediators. Take time to think the decision through and in the interim gather information on the pros and cons of this approach.

She added that “It is vital that consumers make informed decisions on a step as crucial as this. One source of information is of The Debt Counselling Industry portal, theDCI.co.za.

The NDMA has dismissed Solomon’s assertions. The NDMA’s Magauta Mphahlele, was quoted saying “These are baseless allegations considering that the NDMA operates within the NCR and NCA regulations.

 

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