In this article, we share everything you need to know about debt mediation and also give you a few insider tips and secrets.
Table of Contents
What is Voluntary Debt Mediation?
Debt mediation is a debt relief program know as Voluntary Debt Mediation Solution which was implimented in early 2012. This is program is unregulated by the NCR but not recommended for South African consumers. Should a consumer need debt intervention then we would recomend debt counselling.
Why are Debt Counsellors (and the NCR) against 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.
Disadvantages of Debt Mediation
- There is not one simple payment plan, as with debt counselling. (see benefits of debt counselling)
- The largest issue with the debt mediation procedure might be that there is no legal protection. The new agreements cannot be enforceable since a court or tribunal was not involved in the matter.
- The proccess is unregulated by the NCR as it violates the National Credit Act. This means that the process is not formally recognized and therefore has no legal framework.
- Lacks protection against creditors – having a binding contract is vitally important.
- There is no recognized or accredited Payments Distribution Agency ensuring that the money is distributed to the consumer’s creditors.
- 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.