There may be an appeal against last week’s decision by the National Credit Regulator (NCR) to halt a voluntary debt mediation service. And debt counsellors are divided over whether the regulator’s decision is, in fact, a victory for you, the consumer.
The National Debt Mediation Association (NDMA), which represents credit providers, was about to pilot a voluntary debt mediation service (VDMS) as an alternative to statutory debt counselling. Statutory debt counselling is a process designed to help over-indebted consumers pay their debts with the help of a registered debt counsellor and under the protection of the National Credit Act (NCA).
The VDMS pilot envisaged using registered debt counsellors to provide a service to consumers. But the regulator found it would create a conflict of interest for debt counsellors to be in the employ of credit providers – and it’s a contravention of the Act. The NCR also found that working for a credit provider would compromise a debt counsellor’s ability to independently assess if the credit provider has been involved in reckless lending.
Last week the regulator put a stop to the pilot on the basis that it would contravene the NCA and undermine statutory debt counselling.
The NCR’s actions followed complaints from debt counsellors and Cosatu, who questioned the NDMA’s motives for wanting to introduce a new process.
The NDMA is considering appealing the regulator’s decision as it is of the view that it has not contravened the law.
But not all debt counsellors distrust the intentions behind voluntary debt mediation or the motives of the NDMA, an organisation formed and funded by credit providers.
Debt counsellor Eugene Cilliers, of Pay Plan Solutions, says it’s unfair to say the NDMA is nothing more than an organisation formed by credit providers for credit providers. “Today we have the most uphill from a handful of small creditors that are not members of the NDMA. It is the NDMA that we debt counsellors run to when credit providers are not compliant because they [the NDMA] get results.”
Halting the pilot is a missed opportunity, Cilliers says, and banning it is like preventing attorneys from accepting unopposed divorce settlements or making bargaining councils and mediation illegal.
He says credit providers have realised the benefits of debt collection via debt review as an alternative to the heavy-handed approach of some debt collectors and attorneys.
Cilliers points to the success of the Debt Counselling Rules System (DCRS) – a web solution which hosts a set of rules agreed to by credit providers and debt counsellors to provide proposals for restructuring the debts of distressed borrowers.
Under DCRS, debt counsellors have seen “massive concessions from credit providers … reducing interest rates on certain unsecured agreements from 32 percent down to seven percent and at the same time increasing the term from 24 months to over 50 months ... Also, credit providers give up certain fees like administration and monthly fees in order to make it easier for consumers to get out of debt. It’s unfair to liken these with blood-sucking vampires”.
Deborah Solomon, a debt counsellor who complained to the NCR about the pilot, hailed the regulator’s decision “a victory for the consumer and debt counsellor”.
A press release issued on behalf of the Debt Counselling Industry portal, which was founded by Solomon, this week described VDMS as “a Banking Association of South Africa initiative that prejudiced consumer rights and potentially favoured credit providers, while purporting to assist those in debt”.
Solomon is quoted as saying those supporting VDMS “misrepresented the true state of affairs to the public”. They were aware – or ought to have been – that debt counsellors have a fiduciary responsibility and cannot be beholden to the banks while working within the system, she says.
Debt counselling is “enshrined in the NCA, with debt counsellors in the role of the consumer’s debt guardians”.
In a press release issued this week, Magauta Mphahlele, chief executive of the NDMA, said “an orchestrated attack on the NDMA in the media by a debt counsellor” has been used to create the impression that the NDMA set out to break the law.
“The VDMS pilot was a good-faith attempt by the credit industry to address a serious problem faced by millions of consumers”. The problem of over-indebtedness is a national one that requires constructive debate. It should not be turned into a turf war between debt counsellors, the NDMA and credit providers, she said.
“An adversarial relationship between debt counsellors and credit providers can only harm the consumer, who will bear the costs of a possible fall out between debt counsellors and credit providers.
“The NDMA has an excellent relationship with a majority of debt counsellors who appreciate the work it has done in supporting the statutory process and in creating a harmonious relationship between debt counsellors and credit providers.”
In addition to ordering the NDMA to halt its pilot, the regulator last week also issued letters to the debt counselling firms participating in the pilot, instructing them to withdraw. They are Octogen, Debt Busters and Consumer Assist.
Paul Slot, the president of the Debt Counsellors Association of South Africa and a director of Octogen, says that debt counsellors and consumers have gained substantially from constructive engagement with credit providers over the past six years. Constructive engagement means finding ways to facilitate resolution without compromising the NCA; it does not mean that reckless credit will not be pursued, he says.
Octogen has made applications to various magistrate’s courts to expose possible reckless lending, he says.