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A Fin24 user wants to know how changing over from debt review to mediation will affect her. She writes:
I am currently under review but I want to cancel it and do mediation.
Is possible to do it, and will this have an effect on people that I owe?
Lerien Bester, manager: customer service department at DebtRescue, responds:
To answer your question in as much detail as possible so that you can make an informed decision, let's retrace the steps of the debt review versus debt mediation process.
This will help you make the best possible choice to fit your current position.
The National Credit Act (NCA) was implemented on June 1 2007 and is still considered a very “young” act and subject to change. As such, many modifications have taken place in the interpretation of the NCA since its inception. This has drastically changed the way debt counselling works.
The main purpose of the act is to "To promote and advance the social and economic welfare of South Africans, promote a fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market in the industry and to protect consumer".
Another aim of the act is to protect the consumer from creditors who regularly grant loans to people who can obviously not afford to repay them.
This is known as reckless lending. When consumers defaulted on payments in the past, credit providers often proceeded with legal action against them and, in many cases, repossessed their assets without following the correct procedures. This left whole families homeless or without the means to travel.
The NCA stipulates that all credit providers have to follow certain regulations before any assets can be repossessed. This ensures that the consumer is protected from unlawful repossession and given the opportunity to take action before the law takes its course.
Despite this, credit providers often still resort to unlawful behaviour.
Credit providers often outsource their collections to debt collectors, many of whom work on a commission basis only.
Some of these debt collectors appear to be nothing more than gangsters and will bully and cajole consumers with threatening phone calls, as late as midnight, and will even harass them at their place of work.
This is not the kind of behaviour one would expect from listed companies as well as the banking industry, who supposedly pride themselves on their high ethical and moral code. Unfortunately, some of their debt collectors seem to be unaware of this code.
Many consumers find themselves in financial difficulties, struggling to pay all their debt and still have enough money left to survive through the month. In most cases, this is not because of negligence as many economic factors contribute to their financial woes.
This brings us to perhaps the most important purpose of the NCA, which is to provide any consumer who has experienced such a financial crisis with the right to apply for debt counselling.
How does debt counselling work?
When a consumer applies for debt counselling, the debt counsellor evaluates his application to establish if he is over-indebted.
If this is the case, he presents the credit providers with a reasonable payment plan which is subsequently made an order of court. This court order protects the consumer from any further action by the credit providers.
The credit providers, in conjunction with the National Credit Regulator and the National Debt Mediation Association, implemented certain rules to ensure that all offers are reasonable. If the debt counsellor ensures that the offers adhere to these rules, they will minimise the consumer’s risks.
Although it these rules might appear to protect the credit providers only, this is not entirely the case. The whole idea of debt counselling revolves around reasonability. If a debt counsellor presents an unreasonable offer to credit providers, it not only has a negative effect on the credit provider, but on the consumer as well.
An unreasonable offer will result in extremely long repayment terms, which will in turn result in consumers remaining under debt review for unnecessarily long periods. When reasonable offers are made, this drastically reduces the term and as a result the consumer will obtain financial freedom in a shorter period of time.
The debt mediation option
Recently, credit providers have attempted to implement a new system known as Voluntary Debt Mediation Solution (VDMS). Although this system is similar to debt counselling in certain ways, it has some major flaws.
One of these flaws is the fact that a credit provider can only restructure payments on the consumer's profile at their own company. For example: if the consumer has a home loan with FNB as well as a vehicle financed through MFC, FNB can only restructure the payments on the home loan and not on the vehicle finance as well.
Another flaw is that no court order is obtained. As a result, the consumer is not protected from future action by the creditor.
Under VDMS the consumer will only obtain relief on a small portion of his debt, whereas debt counselling restructures the client’s complete credit profile.
The National Credit Regulator rejected this VDMS system, indicating that it is against the regulations of the NCA and will not protect the consumer as the act prescribes.
- Fin24
Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
I am currently under review but I want to cancel it and do mediation.
Is possible to do it, and will this have an effect on people that I owe?
Lerien Bester, manager: customer service department at DebtRescue, responds:
To answer your question in as much detail as possible so that you can make an informed decision, let's retrace the steps of the debt review versus debt mediation process.
This will help you make the best possible choice to fit your current position.
The National Credit Act (NCA) was implemented on June 1 2007 and is still considered a very “young” act and subject to change. As such, many modifications have taken place in the interpretation of the NCA since its inception. This has drastically changed the way debt counselling works.
The main purpose of the act is to "To promote and advance the social and economic welfare of South Africans, promote a fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market in the industry and to protect consumer".
Another aim of the act is to protect the consumer from creditors who regularly grant loans to people who can obviously not afford to repay them.
This is known as reckless lending. When consumers defaulted on payments in the past, credit providers often proceeded with legal action against them and, in many cases, repossessed their assets without following the correct procedures. This left whole families homeless or without the means to travel.
The NCA stipulates that all credit providers have to follow certain regulations before any assets can be repossessed. This ensures that the consumer is protected from unlawful repossession and given the opportunity to take action before the law takes its course.
Despite this, credit providers often still resort to unlawful behaviour.
Credit providers often outsource their collections to debt collectors, many of whom work on a commission basis only.
Some of these debt collectors appear to be nothing more than gangsters and will bully and cajole consumers with threatening phone calls, as late as midnight, and will even harass them at their place of work.
This is not the kind of behaviour one would expect from listed companies as well as the banking industry, who supposedly pride themselves on their high ethical and moral code. Unfortunately, some of their debt collectors seem to be unaware of this code.
Many consumers find themselves in financial difficulties, struggling to pay all their debt and still have enough money left to survive through the month. In most cases, this is not because of negligence as many economic factors contribute to their financial woes.
This brings us to perhaps the most important purpose of the NCA, which is to provide any consumer who has experienced such a financial crisis with the right to apply for debt counselling.
How does debt counselling work?
When a consumer applies for debt counselling, the debt counsellor evaluates his application to establish if he is over-indebted.
If this is the case, he presents the credit providers with a reasonable payment plan which is subsequently made an order of court. This court order protects the consumer from any further action by the credit providers.
The credit providers, in conjunction with the National Credit Regulator and the National Debt Mediation Association, implemented certain rules to ensure that all offers are reasonable. If the debt counsellor ensures that the offers adhere to these rules, they will minimise the consumer’s risks.
Although it these rules might appear to protect the credit providers only, this is not entirely the case. The whole idea of debt counselling revolves around reasonability. If a debt counsellor presents an unreasonable offer to credit providers, it not only has a negative effect on the credit provider, but on the consumer as well.
An unreasonable offer will result in extremely long repayment terms, which will in turn result in consumers remaining under debt review for unnecessarily long periods. When reasonable offers are made, this drastically reduces the term and as a result the consumer will obtain financial freedom in a shorter period of time.
The debt mediation option
Recently, credit providers have attempted to implement a new system known as Voluntary Debt Mediation Solution (VDMS). Although this system is similar to debt counselling in certain ways, it has some major flaws.
One of these flaws is the fact that a credit provider can only restructure payments on the consumer's profile at their own company. For example: if the consumer has a home loan with FNB as well as a vehicle financed through MFC, FNB can only restructure the payments on the home loan and not on the vehicle finance as well.
Another flaw is that no court order is obtained. As a result, the consumer is not protected from future action by the creditor.
Under VDMS the consumer will only obtain relief on a small portion of his debt, whereas debt counselling restructures the client’s complete credit profile.
The National Credit Regulator rejected this VDMS system, indicating that it is against the regulations of the NCA and will not protect the consumer as the act prescribes.
- Fin24
Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
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