This week we are talking about debt mediation and the pitfalls.
In South Africa, countless consumers grapple with the onerous task of meeting their monthly debt obligations, often experiencing overwhelming feelings of despair and an urgent need for assistance in reducing their debt instalments. Yet, all too frequently, individuals lacking a comprehensive understanding of their options resort to debt mediation as a means of addressing their debt-related challenges.
This blog post endeavors to provide insight into the concept of debt mediation, shed light on its legal implications, and underscore the reasons why it may not always be the most judicious choice for achieving debt relief.
What is Debt Mediation?
Debt mediation represents an unregulated method employed to aid consumers in the reduction of their monthly debt instalments. While it might initially appear appealing, this approach harbors significant disadvantages. In the majority of cases, there is no assurance that agreements will be successfully negotiated with creditors, rendering it a precarious choice, especially for individuals already grappling with overdue accounts. Engaging in debt mediation may, in fact, engender more substantial complications in the future, including the involvement of legal collections, and heightened stress for the debtor.
The Problem and Disadvantages with Debt Mediation
One of the most glaring issues surrounding debt mediation is that it principally benefits the individuals or entities offering these services. Invariably, fees are levied in the first month, with additional administrative charges incurred in the second month. However, by the third month, consumers may make a payment, only to learn that creditors did not consent to the mediation, leaving the debtor with both depleted resources and unresolved debt. The mediator can negotiate and mediate the settlement of a debt in a legal dispute or litigation. It is crucial to underscore that debt mediation is entirely unregulated, offering no legal protection for the consumer against potential legal action. Furthermore, no recognized and accredited Payment Distribution Agents exist to ensure the proper disbursement of funds to the consumers’ creditors. The fees charged for administering this practice lack regulation or oversight, being determined at the discretion of the mediator.
Research Mediation Companies: Before engaging with any mediation company, it’s essential to do your research. Verify their credentials, check for reviews and testimonials, and ensure they are registered and authorized to offer mediation services.
Educate Others: Share your experience and knowledge about the mediation company’s fraudulent practices with others to prevent more consumers from falling victim to the same issues.
The Process of Debt Mediation Violates the National Credit Act!
Who Can Mediate in the National Credit Act?
Pursuant to the stipulations of the National Credit Act, only Alternative Dispute Resolution (ADR) agents are duly authorized to mediate in matters related to debt. These registered practitioners are not equipped to fulfill the responsibilities vested in a registered debt counsellor. This underscores the paramount importance of comprehending the constraints associated with mediation and the specific qualifications required to offer such services.
Choosing a Reputable Debt Counsellor
When endeavoring to secure debt relief, it is imperative to collaborate with a reputable debt counsellor. An accredited debt counsellor should be affiliated with an overseeing body, such as the Debt Counsellors Association of South Africa (DCASA), and should additionally hold prescribed membership status. Furthermore, they must be officially registered with the National Credit Regulator (NCR) register of registrants. It is prudent to conduct due diligence by verifying with the NCR whether there are any pending complaints or investigations against the debt counsellor, thereby ensuring compliance with established codes of conduct.
The Better regulated Alternative: Debt Review
Rather than succumbing to the allure of debt mediation, a more efficacious alternative is to embrace the legal and time-tested process of debt review. Under the aegis of debt review, consumers can reap the benefits of significantly reduced interest rates, which not only curtail monthly instalments but also abbreviate the term for debt settlement. The advantages of debt review are substantial, necessitating careful comparison of available options.
Take Your Time to Choose Wisely
The decision to select the most suitable debt counsellor should not be hasty or impulsive. Identifying the right fit may require an investment of both time and patience. Notably, our clients typically spend three to four days to fully understand and accept the terms of their debt restructuring process. Rushing into decisions can lead to regret, exacerbate financial difficulties, amplify stress, and foment anxiety.
What the NCR Says About Debt Mediation
For individuals wrestling with uncertainty over whether debt mediation is the right course of action, consulting the National Credit Regulator (NCR) for guidance is a prudent step. Their expert insights can contribute to an informed decision regarding one’s financial future. Notably, the NCR staunchly disapproves of voluntary debt mediation, withholding any endorsement under any circumstance.
The NCR has issued formal correspondence to the Banking Association of South Africa (BASA) and other industry associations, directing them to discontinue all involvement with voluntary debt mediation.
Here is the simple truths of the NCR stand on debt mediation: https://www.ncr.org.za/documents/pages/circulars/nov2014/Circular%20(Voluntary%20Debt%20Mediation).pdf
In Conclusion:
Make Informed Choices
When confronted with issues related to debt, it is imperative to exercise sound judgment and make informed decisions that will promote one’s long-term financial well-being. Instead of gravitating toward unregulated debt mediation, it is advisable to explore the advantages of a legal, time-tested process like debt review. Collaborating with a reputable debt counsellor who comprehends the legal intricacies of debt relief can facilitate the formulation of sound financial decisions.
About the Author:
Annienne Nel, the founder and author of this blog, boasts a wealth of 14 years’ experience in the field of debt counselling. She is resolute in her dedication to empowering consumers to make informed decisions concerning their debt management.
