National Debt Mediation Association releases annual report

Highlights

• Mediation matters attended to increased by 120% from 538 matters in 2010 to 1877 matters in 2011
  
• 2045 credit providers subscribed to the new Industry Code of Conduct
  
• A New Debt Counselling Rules System (DCRS) containing a set of agreed industry debt restructuring rules was developed and implemented.
  
• 11 755 consumer portfolios made up of 81 208 credit agreements submitted to DCRS for restructuring.
  
• 79% of consumer portfolios submitted through DCRS successfully restructured

Managing complaints

Requests for mediation, which were either a formal complaint against a credit provider in terms of the credit industry's new Code of Conduct to Combat Over-indebtedness, or requests for assistance to negotiate the restructuring of debt obligations, increased by 120% from 538 in 2010 to 1 877 in 2011.

Its mandate in terms of the Code is to receive, manage and resolve complaints against credit providers; facilitate voluntary debt rearrangements; promote compliance by credit providers; implement consumer education and awareness programmes; and provide a platform for the debt counselling and credit industry to engage and find common solutions.

"Through its debt mediation service the NDMA made it possible for hundreds of consumers, individually or through their debt counsellors, to engage with credit providers and find win-win solutions to alleviate the consumer's debt stress while allowing credit providers to receive reasonable payment," says NDMA CEO, Magauta Mphahlele.

She added that through the its interventions, consumers were able to retain their assets, such as primary residences and means of transport, through mediated debt restructuring agreements.

Of the 1 877 matters dealt with in 2011 by the NDMA, 95% were finalised. Of the finalised matters 77% (1 345) were in favour of the consumer, while 33% (444) were not.

"'In favour' does not mean the credit provider was in the wrong in all instances, but it does reflect the willingness of credit providers to make a concession if the merits of the case permit," says Mphahlele. "For example, with regards to car repossessions and property auctions, the credit provider in most instances had a valid court order to execute, but through mediation, 126 property auctions were stopped, 207 car repossessions were halted and 426 terminated matters were reinstated back into debt review."

Reinstatement into debt review is an important remedy for the consumer as they then continue to enjoy protection from legal action while making reasonable and approved payments to the credit provider.

The results also show that 26% of the complaints received by the NDMA related to terminations from debt review, followed by car repossessions (17%), then summons issued whilst consumer is under debt review (11%) and property auctions (8%). A number of consumers and debt counsellors approached the NDMA to assist in preventing repossession or other enforcement action even if no particular complaint was raised against the conduct of the credit provider.

"The fact that the NDMA offers a quick and free service is a welcome relief for many consumers who otherwise could have spent huge amounts of money to cover legal costs if they had to engage with credit providers in court," she says.

Code of conduct

Through collaboration with the National Credit Regulator (NCR), the NDMA also played an important role in ensuring the successful adoption of the amended Credit Industry Code of Conduct to Combat Over-indebtedness which became effective on 1 January 2011. As of December 2011, 2 045 credit providers had subscribed to the Code, representing 45.6% of the total number of registered credit providers and 90% of the credit industry in value terms. Banks hold in excess of 80% of the credit extended in South Africa and all the major banks subscribe to the Code. The same applies to major clothing and furniture retailers, micro-lenders and non-bank vehicle financiers.

"Overall there is evidence that the role of debt mediation is beginning to be recognised and consumers are beginning to benefit from a free and objective service that saves them time and money. Credit providers are beginning to realise the value of maintaining good client relationships by assisting their consumers when they experience financial difficulties."

She says successful mediation occurred for a number of key reasons including the fact that even when credit providers were not incorrect in their action, they were willing to review the case and negotiate a settlement even where they had the right of execution in terms of a court order.

"Not only was it the skill and technical expertise of NDMA mediators that came into play, but it also helps when consumers are willing to make good on their default as soon as the full and correct information about the situation is made clear to them. Mediation efforts were also successful when there was a willingness by the credit provider to rectify incorrect actions as well as when debt counsellors co-operated and followed through with required actions from the credit provider."

She said improving consumers' awareness and education around over-indebtedness was crucial. The NDMA participated in a number of innovative consumer education campaigns, which reached millions of consumers through workshops, press articles, television programmes and exhibitions.

"Another initiative we're involved in is partnering with the World Bank to test whether edutainment is an effective education and awareness tool. Soap operas which have a finance theme and use true stories and characters to resolve their debt problems will be piloted."

New rules

The NDMA had also implemented a new Debt Counselling Rules System (DCRS) containing a set of agreed industry debt restructuring rules, which should further improve the rehabilitation of consumers owing to the reduction in interest rate and fees. Debt Counsellors who applied the industry rules reported an 80% solve and acceptance rate. "We hope that more debt counsellors will use the rules so that consumers can benefit from the concessions offered by the industry."

Mphahlele says that over indebtedness can only be combatted through a combination of legal and voluntary self-regulated interventions.

"It is only through a cooperative approach that involves constant communication and co-ordination between credit providers, payment distribution agencies, debt counsellors and regulators in the industry that effective and lasting solutions to combat over-indebtedness can be developed and implemented," she concluded.