The National Debt Mediation Association’s pilot debt mediation service, known as the Voluntary Debt Mediation Solution (VDMS), has been declared unlawful and banned from providing advice to consumers by the National Credit Regulator (NCR).
The finding requires the NDMA to stop its VDMS pilot scheme and provide written confirmation of its cessation by today (August 28).The Debt Counselling Industry portal (DCI) this week supported the finding by the regulator. The finding follows a complaint lodged by Deborah Solomon of the DCI to halt the VDMS as a Banking Association of South Africa initiative that prejudiced consumer rights and potentially favoured credit-providers while purporting to be a service to assist those in debt.
Solomon said: “The regulator’s finding that this scheme contravenes the NCA is a victory for the consumer and debt counsellor. It also returns respect and integrity to an already persecuted industry. For months, the NDMA has punted the benefits of its so-called ‘solution’ and certain banks have encouraged indebted individuals to go through these processes knowing their pilot scheme had not been approved by the regulator.”
“In effect, the NDMA and banks that eagerly supported this solution have misrepresented the true state of affairs to members of the public. They deliberately [and] negligently tried to circumvent the provisions of the NCA. They promoted a scheme that was supposedly beneficial to the public when the scheme compromised consumer rights. On top of that, the NDMA showed disrespect for debt counsellors, the regulator and the spirit of the NCA. They ought reasonably to have been aware that debt counsellors hold a fiduciary responsibility and cannot be beholden to the banks while working within the legally sanctioned system.”
NDMA CEO Magauta Mphahlele reportedly claimed there were “many abuses” in the debt counselling industry and cases where counsellors “absconded with the consumer’s money” or “messed up the process to such an extent the credit provider terminates the process and takes legal action”.
Solomon added: “These claims are biased, unsubstantiated and designed to undermine the public’s faith in independent debt review processes set up by the National Credit Act and thereby punt the NDMA. A few bad apples are not representative of an entire industry. This was a deliberate attack on the debt counselling industry in an effort to gain control of the debt review process that would enable credit providers to dictate the rules, processors and systems right down to the chosen debt counsellor.”
The NDMA denied it has contravened the law and will look to appeal the decision. “The VDMS is a credit industry initiative which was mandated by the Credit Industry Steering Committee (NISC) which is chaired by Mr Cas Coovadia of the Banking Association. The NDMA has referred the NCR letter to the Committee for consideration. The NDMA does not believe that it has contravened the law and will request the Industry Steering Committee to consider appealing the decision of the NCR. The NISC will communicate its final decision in due course,” said the NDMA in a statement.
When asked what will happen to the people currently getting advice under the scheme, the NDMA said: "The intention is to possibly take the matter on review as we are of the view that the process followed and the findings require further legal interrogation and interpretation. The outcome of these processes will determine what eventually happens to consumers already in the program. The full quota initially intended to be taken up will not be filled until the legal issues are resolved."