The VDMS project has been sunk by the NCR
The National Credit Regulator ( NCR ) have issued the National Debt Mediation Association (NDMA) and the three debt counselling firms lined up for the VDMS or Voluntary Debt Mediation with letters instructing them to stop the project. This instruction is in response to a proposed plan by the credit provider representative association the NDMA to create a non regulated debt review-like process called voluntary debt mediation. The program was to use debt counsellors and software designed for the NDMA called DCRS to make proposals to settle consumers over indebtedness. The DCRS system is one of several that Debt Counsellors can use to make proposals to creditors. The system was primarily designed by the creditors themselves. The process, also like debt review was to make use of Payment Distribution Agencies (PDAs) to distribute consumers monthly payments.
Several Debt Counsellors were concerned that the process was basically debt review without the limits of the National Credit Act. Foremost among these was Deborah Solomon of theDCI (the Debt Counselling Industry) a web portal for Consumers, creditors and Debt Counsellors. She says: “The Act is very clear that a debt counsellor cannot work for a credit provider and a credit provider cannot perform the role of a debt counsellor. A debt counsellor has a fiduciary responsibility to protect the interests of the consumer,”.
The issue divided the industry (Debt Counsellors) in regard to whether to support or oppose the VDMS project. The 3 debt counselling companies that were to pilot the project for the NDMA were obviously in support of the project. Some other Debt Counsellors such as the National Executive Committee of the Debt Counsellors Association of South Africa ( DCASA ) came out in support of the project. Something that is now (in view of the outcome) somewhat embarrassing.
There was talk of some dissension within DCASA in regard to the matter at first but this later seemingly disappeared. However there have been some big changes at DCASA in the last few days with the CEO now leaving and other members cancelling their membership. It is unclear if this issue is involved as the timing might suggest but what is clear is that not all rank and file members of DCASA supported the project. This has been clearly stated online at forums such as that hosted by theDCI.
Debt Counsellor, Deborah Solomons (and theDCI founder) essentially forced the NCR to investigate the project properly and the NCR have now come back saying that they do not approve of the project for several reasons. Not least of all is the way the project seems to be debt review by another name. The process is so similar to debt review (without the legal benefits of going to court) that Lesiba Mashapa (company secretary at the NCR) has said that the NCR’s investigation revealed that the VDMS pilot is “basically debt counselling”. This is a very strong statement. Mashapa continues saying: “Although debt counsellors are regarded as debt mediators in VDMS, the function they are performing is debt counselling…And the use of debt counsellors in the VDMS pilot contravenes the Act and the conditions of debt counsellors’ registration, which prohibits them from working for credit providers.” The NCR would therefore have to de-register any Debt Counsellors who partook in such a project.
One of the major issues surrounding VDMS is: who pays the Debt Counsellor? At the moment under debt review the consumer pays the Debt Counsellor but under VDMS this would have shifted to the creditor. “The Act, together with the conditions of registration of a debt counsellor, doesn’t allow for debt counsellors to receive a fee or commission from a credit provider. This is to safeguard their independence,” Mashapa has said. “The Act, together with the conditions of registration of a debt counsellor, doesn’t allow for debt counsellors to receive a fee or commission from a credit provider. This is to safeguard their independence,”.
Paul Slot, president of DCASA and a big supporter of the VDMS project in the past has told one reporter that it would be “bad news” for consumers if VDMS wasn’t given a chance. Mr Slot is a very dominant presence in the Debt Counselling world and his support for the project has carried a lot of weight. It seems then that some members of DCASA may still be supporting the project even though the NCR has decided to stop it for contravening the Act.
The Alliance of Professional Debt Counsellors ( AllProDC) another association for Debt Counsellors has been quiet on the subject but did commit itself to a “anti – VDMS” stance early saying that it would not stop it’s members from taking part in the project but did not back it. This somewhat vague stance has met with criticism from Deborah Solomons who feels that the project could have had dire consequences for the debt counselling industry and ultimately given consumers something equating to half protection as opposed to the benefits of debt review through the courts.
Cas Coovadia, managing director of the Banking Association of South Africa (BASA) says that BASA are disappointed and are surprised that the NCR has called a halt to the project at this late date. In the past BASA members have lead the charge to challenge debt review and Section 86 of the NCA at court. This eventually lead to the NCR seeking and achieving a declaratory order in regard to debt review. This confrontational approach by BASA members and resultant declaratory order has resulted in debt review matters all going through court at the moment. This unfortunately has pushed the cost of debt review up somewhat. Recently BASA members have lead the charge in regard to trying to stop helping consumers through debt review by issuing what are called 86(10) letters. It is thus amusing when BASA and the NDMA comment on how debt review is a difficult and legal process whereas the proposed VDMS project was going to be a easy and friendly process by comparison. SAdly it seems that BASA members are the cause of these factors instead of ebjoying the benefits of debt review.
What is now clear is that the NCR are not in support of VDMS and that they have clearly instructed the NDMA not to implement the pilot and to all VDMS-related work by Tuesday 28 August 2012.
Debt Counselling is a fairly inexpensive way for consumers to deal with debt and for creditors to ensure receipt of regular (if somewhat reduced) payments. The process has been tried and tested and refined for over 5 years and has helped hundreds of thousands of consumers through tough times. The publicity around VDMS has undermined that image and maybe the words of Lesiba Mashapa of the NCR say it best: “It is important that the credit provider industry supports debt counselling and should not be seeking to establish a parallel process that undermines it,” .
To visit theDCI go to: http://www.thedci.co.za/consumers_overview.php
To Visit the NDMA go to: http://www.ndma.org.za/
To visit the NCR go to: http://www.ncr.org.za/
To visit DCASA go to: http://www.dcasa.co.za/
To visit the AllProDC go to: http://allprodc.org/