Recent activity by the National Credit Regulator, and the CEO of the creditor controlled NDMA, Magauta Mphahlele, has created a flurry of activity among South African debt counsellors who are not happy that the voluntary debt mediation project (VDMS) has been cancelled.
The new process sounds very similar to a UK or Canada IVA type arrangement or a U.S. non-judicial chapter 13 bankruptcy.
But the NCR felt there were reasons why it should not be rolled out. According to the Financial Mail:
“The NCR also criticises the debt counselling process. It bases its opposition to the actions of certain debt counsellors – who mediate between credit providers and consumers – on its own research. Apparently this shows that 55% of complaints reaching the NCR relate to debt counsellors. These include unprofessional conduct and creditors claiming not to have received proposals from counsellors.
Another problem area relates to creditors taking legal action while a consumer is under debt review, thus terminating the debt review process prematurely.
According to the NCR, the VDMS project is a masked form of debt counselling with attributes similar to statutory debt counselling. It says this weakens the protection afforded to consumers by the act.
The major organisations representing the debt counselling industry, now numbering about 400 debt counsellors, are working through the NDMA and reject criticism that debt counsellors are the problem. Debt Counsellors Association of SA (DCASA) president Paul Slot says though there are a few bad apples, most debt counsellors work strictly within the parameters of the credit act. “Where any transgressions do occur, we act,” he says.
The DCASA supports the VDMS project. Slot says debt counselling plays a positive role in the debt pipeline and that many debt judgments are plainly immoral. “It is clear that a new solution is necessary in a situation where a judgment could result in a R10000 debt ballooning to R100000,” he says.
Apparently one of the problems leading to the NCR decision was that only three debt counsellors were initially asked to be involved in the VDMS. This aggrieved some counsellors who felt left out.
One of the aggrieved parties is the Debt Counselling Industry (DCI). In legal documents addressed to the NCR, the organisation implored the regulator, NCR, to investigate the VDMS project and to instruct the NDMA not to proceed with it. It states that the project is a contravention of the National Credit Act in that it gives credit providers undue influence in the mediation process with consumers.
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