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What’s a debt collector’s favourite threat? “We’re going to ‘blacklist’ you on the credit bureau.”
And while that may be a valid threat when it comes to current debt, it’s illegal for a credit provider or its debt collectors to list a prescribed debt.
What is a prescribed debt?
According to the Prescription Act, if, in the past three years, you have not made any payment towards settling a debt, acknowledged owing the debt in any way – including over the phone – and you have not agreed to pay it, or been summonsed in respect of it, it has prescribed, and you can raise this as a defence when asked to pay a prescribed debt.
By the way, this excludes mortgage debt, taxes and any State-related debt such as a TV licence.
But here’s the thing – it is perfectly legal for a debt collector or attorney to demand payment from a debtor for a prescribed debt, and if you cave in to the harassment and pay it, you can’t raise the defence of prescription afterwards.
Hence, some collectors, knowing that the words “credit bureau” inspire fear in consumers, have taken to threatening to place a “trace alert” on a person’s credit bureau record, if they don’t pay a prescribed debt they’re trying to collect from them.
This is totally misleading, because a trace alert is placed on your credit report if a credit provider, or its collecting agent, is unable to get hold of you.
But if a collector has already “traced” you via your cellphone number, and he is urging you to pay up, they don’t need a trace alert, so this is a meaningless threat.
Komalan Naidoo of Isipingo Beach, near Durban, recently received an SMS from JM Attorneys of Randburg, which continues to hound former Health & Racquet Club members for payment of gym fees allegedly owed to the group which went into liquidation about 10 years ago.
Naidoo has a very vague memory of signing a H&R contract some time before 2000, but never used the gym and has not been contacted in respect of any debt owing, until now.
The SMS read: “A TRACE ALERT MAY BE PLACED ON YOU AT THE CREDIT BUREAU. JM Attorneys iro Health & Racquet acc. Call xx Ref xxx. R5,237.52 due by 31Jan13.”
In November 2011, I questioned JM Attorneys managing director Gert Visser about the case of a young man who had received a letter from JM Attorneys, headed: “Negative Impact on your Future Job”, followed by the words “Did you know that if you are listed with the major credit bureaus, your chances of getting employment in the future will be affected?”
Visser said at that time that any threat of “blacklisting” was contrary to his company’s policies “and we absolutely do not do so”.
“It may be your understanding was incorrect and that you inadvertently thought that we might give adverse information to credit bureaus,” he said.
I can’t imagine what other “understanding” anyone could have come to, on reading that letter.
That SMS had the desired effect on Naidoo. “I am so worried and scared,” he told me.
Asked to comment on the wording of that SMS this week, Visser confirmed that a trace alert was intended to indicate to all credit providers that a collector had been unable to contact a debtor.
“You are correct that a trace alert is not an adverse listing of credit,” he said.
“We would again like to stress that anyone who receives a message from us (JM Attorneys) in connection with a debt should immediately contact us as avoidance does not assist them.”
And I would again like to stress that if you are being asked to pay a debt that you may or may not have owed many years ago, you should respond by saying it has prescribed.
Credit bureau TransUnion’s group marketing manager, Derek van Wyk, confirmed that its trace alert product was “not a blacklisting”.
“TransUnion does not support threatening messages that credit providers may use,” he said.
In order to blacklist a customer, credit providers had to follow the legal process as prescribed under the National Credit Act, Van Wyk said.
“A trace alert is placed on a customer’s credit report if a lender is unable to get hold of them.
“When the credit bureau receives notice that your contact information has been updated, they will inform the lender who has placed the trace alert, that there are new contact details available.”
Remember, you can view your credit report, free, every 12 months. If there is a trace alert on your report, you’ll see it.
* The idea behind the Prescription Act was to compel creditors and their collecting agents to collect monies owed to them within a defined period, in order to protect consumers from unscrupulous creditors and/or collectors who intentionally delay the recovery of their debt so that it accumulates massive amounts of interest and costs.
Of course, the debt-collecting industry argues that the act was never designed to give people an excuse not to pay their debts, as this would be morally wrong. There is some merit in that argument, of course, but what’s also morally wrong is for a collector to contact a consumer many years after an alleged default, and demand that they pay a sum which they cannot or will not substantiate.
In the case of very old debt, the collectors have usually bought the so-called “debt book” from a company for relatively little, added costs and interest to each debt amount, to cover the intervening years, and are collecting for their own account, not that of the “client”.
WHAT TO DO
If you are suddenly faced with a demand for an old debt – especially if the collector refuses to provide you with any detail or supporting documentation – tell them, IN WRITING, that the debt has prescribed, and that unless they can prove otherwise, they must close your file.
They are extremely unlikely to pursue legal action once you have stated that the debt has prescribed.
In fact, I don’t know of a single case of this happening.
And remember, a creditor or collector may not list a prescribed debt on your credit record.