Debt Mediator Bust
We all know that people who offer credit must register as a credit provider with the National Credit Regulator (NCR) and are limited by the provisions of the National Credit Act.
But what about those offering to help people with their debt repayment problems?
Do they have to register as Debt Counsellors?
Well, someone who was offering debt review like services while presenting themselves as a debt mediator just got fined R200 000 for breaking the law.
Debt Counsellors Are Part of the National Credit Act
South Africans have struggled with debt for many decades.
More so as more and more credit providers have started operating. Nowadays most formally employed people have some form of credit and millions of people have fallen behind on payments.
In the past, before the National Credit Act was around there was a real need for someone to help consumers deal with their debts in a reasonable and responsible manner. But there was little help available.
Back then, indebted consumers had to represent themselves or call on the services of an expensive attorney to try deal with their credit providers. Because credit providers knew all the legal tricks and had all the money there was a real imbalance in power between consumers in debt and massive big banks and credit providers.
Then in 2007 everything changed. The National Credit Act came into effect and a new form of help called debt review and debt counselling became available to everyone. Credit providers were forced by law to set up entire departments to deal with consumers entering debt review and getting assistance through a Debt Counsellor.
The Rise of Debt Mediators
Around 2007 banks and others who were afraid of debt review and debt counsellors tried to set up a parallel option called debt mediation and even funded a national debt mediation association to try divert consumers away from debt review.
Though later the banks saw the benefits of debt review they had set in motion a snowball that would grow over time.
Over the years more and more people have offered debt mediation services that are essentially an unregulated form of debt review. Some people offering the service are just scammers who trick people into paying them for services they don’t ever intend to actually offer and others have made minimal efforts to negotiate with credit providers on their clients’ behalf.
A 5 Year Investigation
In 2019 the NCR were receiving a lot of complaints about one such operation that was offering to help people get out of debt by consolidating all the debt repayments into a single monthly reduced debt repayment to their creditors monthly. Lots of people had given money to this operation and in many cases the funds had not even been paid to the credit providers.
Interestingly the complaints were not about an NCR registered Debt Counsellor. Rather it would turn out (after investigation) that this operation was yet another one of many such debt mediation scams.
Recently, the NCR took the matter to the National Consumer Tribunal and asked for a ruling on the operations of the debt mediator.
Are they allowed to operate a parallel industry where the operators are not registered with the NCR and where matters are not sent to court?
What Do Debt Mediators Say They Do?
It is clear that such mediation services closely resemble almost all the functions reserved for Debt Counsellors in Section 86 of the NCA and Regulation 44.
As you can see from the advertising of Tryco Debt Management (who are the particular debt mediators in this case with the NCR) they offer services that closely resemble debt review.
The NCT Ruling
The NCR brought the matter before the National Consumer Tribunal (NCT) this year.
Case Number: NCR vs TRYCO DEBT MANAGEMENT (PTY) LTD NCT-314933-2024-Section 140(1)
After the NCR served papers on Tryco Debt Management (also known as Accord Debt Solutions on Facebook)* who never bothered to try defend themselves, the matter went before the Tribunal who looked at the services offered and compared them to those offered by Debt Counsellors.
The NCT found them to be the same, except perhaps for the fact that the consumer had no legal protection and Tryco was trying to operate without any oversight from the NCR.
The NCR also looked into how the consumers funds were supposedly to be distributed while under mediation and found that they had effectively held themselves out to be a Payment Distribution Agent (or to perform the functions of a PDA). Since PDAs have to also be registered with the NCR this was found to be illegal.
‘the NCT found in favour of the NCR and ruled that this debt mediator was offering unregistered debt review services’
At the end of the matter, the NCT found in favour of the NCR and ruled that this debt mediator was offering unregistered debt review services. Services which can only be offered by a Debt Counsellor and PDA services which can only be offered by a registered PDA.
The Tribunal then considered a suitable fine (which could have been up to R1 million) and settled on R200 000 and ordered them to stop offering these services without registering with the NCR. They also said they should pay back all fees charged to their former clients.
They also must appoint an auditor and give a full report on all fees charged and refunded.
This ruling seemingly finally answers the question of whether people can go around offering the services of a Debt Counsellor without actually being registered as one with the NCR.
*We reached out to Pius of Tryco but he declined to give us any comment.
The ADR Loophole?
Several people who would like to offer debt mediation services to consumers (but do not want to register the consumer on the NCR’s database or with the credit bureaus) have tried to pose as Alternative Dispute Resolution Agents (ADRs).
In the case of Tryco Debt Management they were not even registered as an ADR with the NCR. Interestingly, the NCR did not pursue this side of things too much in the case. Most of Tryco’s offerings had to do with disputing credit reports. The NCR do not mind a consumer appointing an agent to dispute credit report information on their behalf. They did however point out that no person can charge up front for helping to clear or dispute information on someone’s credit record.
NOTE: Many people offering “get out of debt review” services and try to clear this information off the credit bureaus like to charge upfront and this is illegal.
The National Credit Act is however quite specific that such ADR Agents handle only ‘disputes’, and not payment problems due to over indebtedness. So, ADRs can handle balance disputes, payment history disputes, contract disputes, services not paid due to services not rendered etc but certainly not simply consumers struggling to repay debts and then helping restructure debt repayments. That would be the function of a Debt Counsellor.
Hopefully, this case is a R200 000 warning to anyone looking for loopholes.
More To Come? Let’s Hope
Does this mean we will suddenly see debt mediators disappear overnight, running scared and hiding from the NCR?
That is not likely.
You probably received a scam email today from someone pretending to be a credit provider, offering you loans even if you are “blacklisted” or something similar. These scammers abound.
So too, there are a lot of people out there who, much like dodgy loan sharks, are going around offering debt mediation or pretending they are an ADR and can help with debt restructuring.
Such scammers are taking peoples money and not offering them the real help that the National Credit Act offers: debt review and proper debt restructuring through the courts.
‘the NCR has finally opened the door to pursuing more enforcement against such unregistered individuals’
This does however mean that the NCR has finally opened the door to pursuing more enforcement against such unregistered individuals and companies. The net is finally beginning to tighten.
Perhaps this is just the first of many such fines issued to debt mediators offering unregulated debt review.
Why it matters to Debt Counsellors: Finally, some protection for the debt review and debt counselling industry. Debt Mediators outed as unregulated Debt Counsellors.
Why it matters to Consumers: A warning not to deal with debt mediators who act illegally offering debt review without being registered with the NCR.