
CIF – DC FEE REVIEW Sub-Committee
January 25, 2024
Understanding Section 129 of the National Credit Act 34 of 2005: A Guide for Consumers with Debt Counselling Insights
March 11, 2024We have all seen the various adverts on social media making various promises to consumers to get them out of Debt Review and use Debt Mediation as an alternative to clear their debt and have their Debt Review flag removed from their status as this will allow them to take out further credit. (I have seen countless victims falling for the process as its not a simple transition and it can have devastating consequences).
Know the facts:
Under Debt Counselling:
- Regulated by the NCR.
- Agreed fee guidelines.
- All debt is included.
- Reduced interest rates. (Agreed systems in place with all major credit providers).
- Zero monthly service fees.
- Legally protected on the basis that you are making payments as agreed with your Debt Counsellor.
- Debt Counsellors must use a PDA (Payment Distribution Agency), to ensure a clear audit trail can be followed with clear transparency so you know where your money is being paid.
- Once your debt has been cleared a clearance certificate is issued. (All debt must be paid in full with the exception of your bond, however, your bond must be up to date to issue a clearance certificate.
Under Debt Mediation.
- NOT Regulated by the NCR.
- NOT Supported by the NCR.
- Credit Providers / Banks have limited resources to deal with these matters and often sell the debt to dedicated collectors which will lead to additional costs.
- No fee guidelines to follow. (Not regulated and they can charge as they feel fit).
- No reduction in interest rates.
- Standard monthly service fees charged.
- No legal protection.
- Payments can be made other companies to distribute your payments which are not audited by the NCR to ensure payments are made to your creditors.
- Only a registered Debt Counsellor can issue a clearance certificate.
These are the basic differences between the two so let’s have a look at the disadvantages
Disadvantage of being under Debt review/Counselling:
- You can’t access further credit whilst under Debt Review/Counselling.
- You will be listed on all credit bureaus that you are under debt review.
Disadvantage of being under Debt Mediation:
- Not regulated by the NCR.
- Credit providers do not endorse mediation.
- No reduction in fees or interest rates.
- Although you will pay less monthly, you will pay a lot more in the long run and banks can take legal action against you if they oppose the repayment offer.
- Fees are not regulated.
- Your credit report will become progressively worse as it will show you falling further and further into arrears.
In essence there is a place for debt mediation, especially for those that are unable to afford making use of Debt Review/Counselling or they have a partner that does not wish to be part of the process.
Yes, you can apply for further credit under Debt Mediation. However, in practice you have already demonstrated that you are unable to pay your current debt, (Credit bureaus will show that you are a slow payer). Lenders will have to take the following into account.
- Lending money to a person under debt mediation can be seen as reckless and if challenged in court they may be forced to write the debt off.
- Why would a bank lend money to anyone that they know is struggling to pay their current debt. They are in the business to make money not lose it.
- Signing a new rental agreement could also be a problem as they will use information on your credit report. (If you are not paying your debt, why would you pay your rent).
1 Comment
Awesome read!