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Wednesday, August 17, 2022

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Ombudsman warns you to be on lookout for banks illegally going after prescribed debts

The law forbidding creditors from collecting on prescribed debts, which falls under the National Credit Act.

The law forbidding creditors from collecting on prescribed debts, which falls under the National Credit Act.

Published Jul 28, 2022

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The Ombudsman for Banking Services (OBS) yesterday issued a warning to South African bank customers that it was still receiving, investigating and resolving complaints from bank customers relating to prescribed debts.

In some cases, banks have been found guilty of engaging in this illegal practice, it said.

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Reana Steyn, the Ombudsman for Banking Services (OBS), confirmed that, between January last year and July this year, the OBS received and investigated a total of 193 complaints relating to allegations of collections on prescribed debts by banks. An amount in excess of R1 million was written off or repaid to complainants.

A total of 118 complaints were received last year. In about 33 percent of these cases, the banks in question were found to have been unlawfully collecting or attempting to collect on prescribed debts by the OBS.

“In 2022, the OBS has to date received 75 of these matters. In 29 percent of these cases, banks have again been found to have transgressed the Prescription Act as well as the NCA,” Steyn said.

Last week, R216 197, the outstanding balance, was written off in one case and the complainant was also refunded the R3 200 which he paid towards the prescribed debt, she said.

The law forbids creditors from collecting on prescribed debts, which falls under the National Credit Act.

Steyn said, unfortunately, in many instances, the protection afforded by the law was beneficial only to consumers who knew about the legal principle as well as the Ombud’s office.

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“The majority of the public is left paying for debts that have prescribed and are therefore legally no longer collectable by creditors,” Steyn said.

However, there were exceptions where the prescription period for certain contractual and civil debts, was longer.

“For example, a bank’s claim for the repayment of a monetary debt based on a court judgment, as well as claims for debts secured by mortgaged bonds, only prescribe after 30 years and not three years”, Steyn cautioned.

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The legality of the collection depended on whether the debt fell within the ambit of the NCA or not. In other words, whether the debt relates to a credit agreement and fell within the definition of a credit agreement as described in the NCA. Examples include overdraft facilities, mortgage loans, personal loans or credit card debt and vehicle finance agreements.

The protections afforded to consumers by the NCA are not applicable to all agreements and as such, it was still legal for creditors to demand payment or call consumers to get them to acknowledge a prescribed debt and even sue on a prescribed debt, for agreements falling outside the NCA.

“It is important for consumers to be aware of the fact that once they have acknowledged owing the debt, even if they have not made payment, they will not be able to successfully raise the defence of prescription in Court should they be sued by creditors on prescribed debts,” Steyn said.

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“If you are a bank customer and none of the above happened, and you receive a letter of demand from the bank or its lawyers for payment of a debt you believe has prescribed in law, you should raise prescription. If they continue to demand payment or take any other steps to collect the debt, you should log a complaint with the OBS,” Steyn advised.

While banks claimed that they have policies and systems in place to ensure that they do not breach the law and collect on prescribed debts, the OBS still regularly received these kinds of complaints from bank customers.

She reminded consumers that, in the majority of the cases, the OBS found in favour of the banks. The debts in matters where the OBS found in favour of the bank had not prescribed and the outstanding balances had drastically increased from the original debt or balance due to the arrears as well as the additional legal fees in cases where legal action were instituted by banks to recover the amounts legitimately owed to them.

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