With South African consumers currently experiencing high debt to annual income ratios of 76,8%, many are not aware of the options available to them to resolve payment difficulties.
“Consumers are not aware that the National Debt Mediation Association (NDMA) provides free debt mediation and complaints handling service,” says CEO of the NDMA, Magauta Mphahlele.
The NDMA is a non-profit organisation designed to assist over-indebted consumers by resolving their indebtedness where possible through debt mediation. It is also empowered to receive and resolve complaints by consumers or debt counsellors against credit providers who subscribe to the Code.
“Complaints can be about the handling of the debt counselling process by the credit provider as well as how they handle consumers experiencing payment difficulties,” adds Mphahlele.
Under the National Credit Act (NCA) consumers experiencing payment difficulties can take advantage of various legal and voluntary options to resolve their problem. This includes direct negotiation with their credit providers or approaching a debt counsellor where the level of over indebtedness is severe.
“The NDMA receives complaints and enquiries from consumers who are under debt counselling as well as from those who are not,” explains Mphahlele. “For those under debt counselling the majority of cases relate to the process going wrong and as a result credit providers resorting to legal action to recover what is owed to them.” She says in such cases most complaints relate to the termination of debt review which is usually followed by legal action to realise the asset such as a car or house.
Following intervention by the NDMA, credit providers agreed to reinstate 47% of terminated cases back into debt review, 54% of vehicles repossessed and 48% of houses due for auction. “By working together with credit providers and debt counsellors, we were able to ensure that consumers enter into agreements to restructure their debt obligations, maintain affordable repayments and therefore retain their cars and remain in their properties,” she adds.
The rest of the cases were still pending or in some cases had a negative outcome. Mphahlele explains that where there was a negative outcome, it was because consumer had sought assistance very late; were not in a position to afford the restructured repayments; made sporadic payments which could not be re-instated; or paid less than agreed under the debt review process.
“Some consumers were simply unwilling to downgrade their lifestyles to increase affordability,” she says. “Others did not provide the necessary supporting documents.”
But in other cases the asset had already been repossessed or auctioned and the matter was too far advanced in the legal system for it to be rescued.
“The lesson here is that if you’re running into financial trouble and start to receive legal letters from your credit provider, act immediately,” she says. “The sooner you approach your credit provider or the NDMA for assistance and advice, the more chance you have of saving your house or car.”
Mphahlele says it’s vital for consumers to keep good records, such as proof of payment slips to ensure that supporting documentation can be provided if required.
In other cases credit providers seemed to be unwilling to negotiate with consumers on a case-by-case basis. “They issued standard responses and were slow to respond to requests for help,” she explains. “Many credit providers still operate in silos, with product, debt review and legal departments all operating separately and little co-ordination or sharing of information.”
Debt counsellors were also to blame for negative outcomes in some cases, being slow to implement new or revised debt review proposals, not keeping the consumer up to date and failing to provide the required documentation to credit providers.
Following an analysis of the complaints it received, the NDMA has identified some areas for improvement including credit providers providing leniency for paying clients and reinstatement of credit agreements in deserving cases.
“Putting in place simple steps, such as ensuring that notifications have been sent to the correct address, that the customer’s payment status is verified before their debt review is terminated and better co-ordination between the product, debt review and legal departments could improve the success rate of mediated outcomes where the consumer is doing their best to maintain reasonable payments,” she says.
From debt counsellors’ perspective, debt counsellors need to improve their capacity to deal with volumes of applications, communication with consumers at each step of the debt review process as well as ensure the process is finalised within the required timeframes.
“Mediation is being increasingly recognised as the better alternative to litigation in many areas and debt mediation is no exception,” says Mphahlele. “Debt counsellors need to refer disputes to the NDMA as soon as consensus cannot be reached in order to avoid lengthy and expensive litigation when mediation could yield a better outcome for all parties involved.”