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Under Pressure: These are the debts you don’t have to pay the bank back

Reana Steyn, the Ombudsman for Banking Services in South Africa has warned banks to stop the illegal activity of demanding and collecting debt in disregard of the National Credit Act on prescription. Photo: Ombudsman for Banking Services

Reana Steyn, the Ombudsman for Banking Services in South Africa has warned banks to stop the illegal activity of demanding and collecting debt in disregard of the National Credit Act on prescription. Photo: Ombudsman for Banking Services

Published Jul 28, 2022

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Pretoria - Some banks in South Africa continue to demand and collect payments on prescribed debts despite the law forbidding creditors from collecting on prescribed debts which falls under the National Credit Act 34 of 2005.

Prescription is a legal principle defining the extinguishing of debt, or the obligation to pay outstanding debt, after a stipulated period of time.

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Reana Steyn, the Ombudsman for Banking Services, said the aim of this law is to safeguard consumers against unfair and exploitative practices by creditors and has been in effect for a number of years.

The Ombudsman for Banking Services in South Africa has warned banks to stop the illegal activity of demanding and collecting debt in disregard of the National Credit Act on prescription. Photo: Ombudsman for Banking Services

Steyn said despite the legal requirements and the guaranteed protection the Ombudsman for Banking Services offers consumers, the watchdog was inundated with complaints from customers of different banks relating to prescribed debts. In some instances, Steyn said banks have been found guilty of engaging in this “illegal practice”.

“Unfortunately, in many instances, the protection afforded by the law is beneficial only to consumers who know about the legal principle as well as the ombud’s office. The majority of the public is left paying for debts that have been prescribed and are therefore legally no longer collectable by creditors,” says Steyn.

In South Africa, the Prescription Act (68 of 1969), read with Section 126B of the National Credit Act, stipulates that a debtor’s liability to pay a specific debt to a creditor is extinguished as a result of the passing of a prescribed time period.

“The Prescription Act prescribes the time period after which a consumer’s obligations to pay a monetary debt to the creditor will be extinguished and the instances in which this period will be delayed or interrupted. The Prescription Act is clear. Generally, contractual and civil debts will be extinguished if not paid or acknowledged as being owed to the creditor by the debtor for a period of three years from the date when the payment was due,” says Steyn.

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

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“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,” said Steyn.

Is it legal or illegal for creditors to collect on a prescribed debt?

Steyn said the answer to this question depends on whether the debt falls within the ambit of the National Credit Act or not. In other words, whether the debt relates to a credit agreement and falls within the definition of a credit agreement as described in the National Credit Act. Examples include overdraft facilities, mortgage loans, personal loans or credit card debt and vehicle finance agreements.

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The protections afforded to consumers by the NCA are not applicable to all agreements, and as such, it is 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 a payment, they will not be able to successfully raise the defence of prescription in court should they be sued by creditors on prescribed debts,” said Steyn.

Under the protection afforded to consumers by the National Credit Act, the banks and other creditors are prohibited from collecting or selling a debt that has been prescribed.

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“Therefore, debtors no longer have to be aware of this law, and they do not have to raise the defence of prescription in order to be absolved from paying these debts and to have their credit bureaus' profiles updated to reflect the correct state of affairs,” says Steyn.

When is prescription interrupted?

Steyn said according to the Prescription Act, the running of prescription is interrupted if, during the three years after the payment was due, the following happened:

– The debtor admitted, verbally or in writing, to owing the debt;

– The debtor made a payment towards the debt; or

– The creditor issued and served a summons on the debtor.

“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 (the defence of) prescription. If they continue to demand payment or take any other steps to collect the debt, you should log a complaint with the Ombudsman for Banking Services,” Steyn advised.

Reana Steyn, the Ombudsman for Banking Services in South Africa has warned banks to stop the illegal activity of demanding and collecting debt in disregard of the National Credit Act on prescription. Photo: Ombudsman for Banking Services

She added that while banks claim that they have policies and systems in place to ensure that they do not breach the law and collect on prescribed debts, the Ombudsman for Banking Services still regularly receives these kinds of complaints from bank customers.

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