The industry which is built on the collection of old, potentially prescribed debt is about to implode.
I’ve devoted much column space in the past to informing consumers about the law of prescription and how it can help them when faced with demands from debt collectors.
That’s because while it’s not illegal for collectors to chase old, prescribed debt, it’s up to the consumer to raise prescription as a defence. If they don’t – because they’ve never heard of it – and they acknowledge the debt, at that point they are obliged to pay up.
With years worth of interest and costs added to the original debt, the amount can be significant. But in a major boon for consumers, it will soon be illegal for prescribed debts to be sold or collected.
In terms of the Prescription Act, a debt is considered to be prescribed, meaning it is “extinguished” and you are not legally obliged to pay it, if, in the previous three years, you haven’t made a payment, acknowledged the debt in any way (such as promising to pay) or been summonsed.
Home loans and state-related debt such as TV licences, rates and taxes only prescribe after 30 years.
A massive industry has grown out of loan books full of prescribed debts – many dating back 10 years or more – being traded by the collections industry, which hounds consumers to pay up, and consumers, who have mostly never heard of prescription and cave in to the pressure, agreeing to pay a very old, much-inflated debt.
But the National Credit Amendment Act makes both the selling and the collection of prescribed debt illegal. And credit providers will be compelled to inform consumers when they sell their debts on to another company. At last.
It has been adopted by the National Assembly, but has still to be signed into law to become effective. Of course, the Association of Debt Collectors, which represents 78 percent of formal debt collectors, is not at all happy about the prohibition, arguing that it is unconstitutional; that the prohibition will result in an immediate loss of employment for several thousand unskilled employees; and that credit providers will be forced to be more “aggressive” in chasing debts, flooding the courts with summonses which would lead to emoluments attachment orders and the attachment of assets.
Meanwhile, it is probably safe to say that the collections industry will be using this gap between the adoption of the amendment bill by Parliament, and it becoming effective, to get as many consumers to agree to pay old, potentially prescribed debts as possible.