How to make old debt go away

Late afternoon on Friday March 13, several hours after the deadline for this column The Minister of Trade and Industry, Dr Rob Davies signed into law the National Credit Amendment Act, which makes it illegal for a company to sell a prescribed debt, or to collect a debt which has prescribed, “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.”

In other words, it is no longer up to the consumer to know about the Prescription Act in order to raise it as a defence and avoid having to pay an old debt. They can’t be asked to pay a prescribed debt.

This applies to all credit agreement-related debt - car and home loans, credit card accounts, store accounts and the like - which is 94% of all debts in SA.

Within minutes of my short piece on a prescribed debt case being published on Times LIVE last week, my inbox was awash with e-mails from people desperate for more information.

Some were being hounded for old debts and had heard about prescription for the first time. For many of them it was too late - they had already caved in to pressure and started paying.

The Prescription Act is a odd piece of legislation. It was intended to incentivise credit providers and their collectors to collect debts from lapsed payers quickly, rather than sit on them for years before tracking down and leaning on people to pay a debt which, by then, had been bloated with interest and costs.

In many cases, the bank or retailer wrote off the debt and sold it on to a debt collector for a song, and that collector - or possibly the one it sold it on to - is collecting for its own account, not that of the bank, retailer, gym, etc.

It is not uncommon for collectors to harass people to pay debts to companies that no longer exist, such as Cuthberts and Health & Racquet Club.

So here is how prescription works, in a nutshell. If, in the past three years, you have not acknowledged a debt in any way, such as promising to pay at a future date, or made a payment or been summonsed in respect of it, you can pull out your prescription trump card and refuse to pay.

However, if, like many thousands of consumers, you have never heard of prescription, and you either admit to once owing that company money, promise to pay later, or go ahead and make a payment, you forfeit your right to claim prescription.

Collectors often trick people into cancelling their right to claim prescription, for example by asking "If you won the Lotto, would you pay?" A "yes" answer is regarded as an acknowledgement of the debt.

One collector sends SMSes to alleged debtors, asking them to "pay R95 within 48 hours and get your credit score". If they pay that relatively small amount, their prescription defence is gone. Incidentally, you are entitled to a free credit bureau check annually.

It is not illegal for credit providers or collectors to attempt to collect prescribed debt. It is up to consumers to raise prescription as a defence, and when they do, their files should be closed.

Often, the collectors will not give up that easily - they keep up their demands for payment, insist the debtor provides proof of prescription or instructs their target to "send us a prescription order" from court.

National Credit Regulator spokesman Lebogang Selibi told me last year that, strictly speaking, it was true that only when a court has made a ruling that the debt has been prescribed, will the prescription defence be enforceable but, practically, once an alleged debtor raised prescription as a defence, debt collectors stop collecting.

Many people cave in because they are threatened with blacklisting - an "adverse listing" on a credit profile that prevents further credit being granted. Here's the thing - the National Credit Act prohibits the listing of prescribed debt, so that's an empty threat.

Not all debt prescribes in three years. A 30-year prescription period applies to mortgage bonds, any judgment debt, and any debt in respect of taxation imposed or levied by or any other law, including municipal rates, traffic fines and TV licences.

What to do

In your Corner is not advocating that people don't pay their debts. Of course it is wrong not to.

But it's also wrong for a collector to contact a consumer many years after an alleged default, and demand they pay a sum which they cannot or will not substantiate.

With half of South Africa's 19 million credit-active consumers currently three months in arrears, money is best spent on current debt rather than old, inflated debt.

So this is what I suggest you say if you receive a call or SMS about a debt that has been dormant for more than three years: "The alleged debt has prescribed. Unless you can prove otherwise, close my file and don't harass me again."

Do that in writing so you have a record of it.

If they persist, as with any other debt demand, ask to see the original contract, proof of the date of default, the handover amount and a break-down of all costs and interest that has accrued since.

If they can't provide any of that, tell them you will see them in court.

E-mail: consumer@knowler.co.za

Twitter: @wendyknowler