What is Debt Mediation, Debt Management or Dispute Resolution?
Debt Mediation, also known as Debt Management or Dispute Resolution, is a debt solution targeted at South Africans who are struggling to make debt repayments, but are not yet classified as over-indebted.
Companies offering these services promise to negotiate with creditors on the consumer’s behalf in order to initiate a repayment plan.
The consumer thereby pays one monthly instalment to the Debt Mediation/Management or Dispute Resolution Company which then distributes the money over to the consumer’s creditors…hopefully.
The major and fundamental problem with “Debt Mediation”, and the countless other names it goes by, is that it is not recognised by the National Credit Regulator (NCR) as in it is not a legitimate legal process for paying ones debt back.
- There is no form of legal protection or binding legal contract/agreement between the creditor and debtor which means that any given time the creditor can call the full outstanding balance of the debt concern into question, cancel the agreement in place and proceed with legal action (in terms of the National Credit Act no: 34 of 2005) against the consumer if the account in question is indeed in arrears.
- There is no recognized or accredited Payments Distribution Agency ensuring that the money is distributed to the consumer’s creditors.
- The majority of these Debt Mediation/Management or Dispute Resolution companies do not hold qualifications recognized by the National Credit Regulator in order to act in the capacity to afford proper regulated practices or clearance of the consumer’s debt.
- The fees charged to administer this “practice” are not regulated nor listed in a legal capacity or any regulatory body. They are calculated and done so by the Mediators own discretion.
It has been a long held view that these companies offering these services do so in a way to circumvent the legal requirements, qualifications and strictures of the National Credit Act no: 34 of 2005 and National Credit Regulator.
It is a practice heavily frowned upon and not performed by individuals authorized in terms of the NCA to do so.
In November 2014 the NCR published a circular (No: 13), quick link to attached NCR PDF Circular (Voluntary Debt Mediation), on condemning the practice of Debt Mediation,
They had the following to say regarding the practice thereof:
- “The National Credit Regulator (NCR) is aware that the Banking Association of South Africa (BASA) and other industry associations are in discussions with various stakeholders to introduce voluntary debt mediation. The NCR stopped the implementation of voluntary debt mediation in 2012 because it undermines the National Credit Act 34 of 2005 (NCA) and statutory debt counselling and will prejudice consumers.
- The NCA makes provision for debt counselling and a mechanism for voluntary debt restructuring in section 86 which must be supported and used by all credit providers. These mechanisms protect both consumers and credit providers by ensuring debt restructuring which ensures that all credit providers are eventually repaid.
- The NCR does not support voluntary debt mediation and will not approve it under any circumstance. The NCR has written letters to BASA and other industry associations to cease all work relating to voluntary debt mediation.
- Credit providers, debt counsellors, credit bureaus and payment distribution agents are requested not to participate in discussions to introduce voluntary debt mediation. In particular, credit providers must continue using statutory debt counselling and allow all consumers to use statutory debt counselling.”