In a bid to curb abuses in the debt collecting industry, legislation was introduced in 2015 that made trading in prescribed debt and collecting prescribed debt illegal. Typically, what happened was unscrupulous agencies would buy prescribed debt for several cents in the Rand. They would add interest to this debt and service charges and would then zealously pursue these debtors.
This left an almost impossible cycle of debt for low income communities.
What is prescribed debt?
A debt prescribes if, for three years (this is the prescription period for most commercial debt but there are different prescription periods for e.g. instruments such as mortgage bonds) –
- No payment is made,
- The debtor has not acknowledged that a debt is owed, and
- The creditor has not summonsed the debtor.
Warn your staff about this new twist
The amendment that banned trading in and collecting of prescribed debt has a clause outlawing the collection of prescribed debt “where the consumer raises the defence of prescription or would reasonably have raised the defence of prescription had the consumer been aware of such a defence in response to a demand”.
Some debt collecting firms have begun highlighting this clause to debtors. Legally, this ensures the debtor is aware he/she can use prescription to void the debt. If the debtor then fails to invoke the prescription defence and agrees to repay the debt, then the agencies proceed to collect the debt.
The National Credit Regulator has reportedly stated that this interpretation is wrong, and although it hasn’t yet been tested in our courts, check that your staff are not subjected to it without challenge.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)