Why is no one talking about debt mediation?

When consumers find themselves unable to pay their monthly debt instalments, they sometimes stumble on unadvisable programmes such as debt mediation in their quest for suitable debt relief.

What is debt mediation?

Debt mediation refers to a process in which a consumer and a credit provider negotiate the reduction of the consumer’s monthly repayment commitments as well as the interest being charged, says Catherine Isaacs, attorney at Bailey Haynes Incorporated.

The consumer can also appoint someone to assist with the negotiations.

How does debt mediation work?

You can contact any company or lawyer that specialises in debt mediating to be your mediator. The lawyer will have you sign an agreement as proof to your credit providers. Your financial situation will be assessed to see if you qualify for debt mediation. Sometimes the service provider will suggest other possible solutions to your problem.

Why is no one talking about it?

While there are institutions that offer debt mediation, in November 2014 the National Credit Regulator issued a circular denouncing the act. In the circular the NCR said debt mediation undermines the National Credit Act and the consumers.

The government put in place debt review as a mechanism to assist consumers who find themselves over-indebted.

“Debt mediation is not a legal process and therefore not binding on the credit providers. It is an informal agreement reached between the credit provider and consumer,” says Isaacs.

A credit provider can at any time change its mind and request that the original repayment plan be adhered to.

The other reason why debt mediation is not allowed is that you as consumer are not protected against the credit provider repossessing your assets or obtaining judgment against you, says Isaacs.

While you enjoy the freedom of not being blacklisted or restricted from concluding further credit agreements, you also put yourself and your money at the mercy of the provider.

Isaacs says the service providers sometimes charge exorbitant fees and you could end up incurring more expenses when you are already over-indebted.

She adds that it is important to consider the success rate of the service provider when dealing with debt mediation.

Hennie Krige, debt counsellor from Debt Sense, advises you to be careful of promises such as:

  • Not debt review/debt counselling
  • No court/consent orders
  • Your credit profile will not be affected
  • Your ability to borrow will not be affected
  • You may use your existing credit facilities/store accounts

He says these are all efforts to evade the provisions of the National Credit Act and the oversight of the NCR.

He adds that you should be cautious when you request quotes, even from legitimate service providers.

“If a quote is too good to be true, it most probably is not true – the basic financial logic is that instalments, interest rates and repayment periods are interdependent,” he concludes.

Debt review is the one that is recognised by the NCR and consumers are far more protected under debt review.

This article has been prepared for information purposes only and it does not constitute legal, financial, or medical advice. The publication, journalist, and companies or individuals providing commentary cannot be held liable in any way. Readers are advised to seek legal, financial, or medical advice where appropriate.