This article was first published in the 1st quarter 2018 edition of Personal Finance magazine.
Not many consumers know that most debts expire, or prescribe, after three years, and they can free themselves of this debt provided that they don’t interrupt prescription by acknowledging the debt or making payments towards the debt during the three-year period.
The National Credit Act (NCA) prohibits the collection of and the sale of prescribed debt (see below). However, the office of the Credit Ombud says that most consumers are unaware of the further provisions of the Prescription Act, which governs the prescription of debt, and their rights under this Act.
Phillip Nortjie, a debt counsellor, says: “The law states that if a credit provider does not issue a summons and serve it on you at the correct domicilium address, or obtain judgment against you within three years of you defaulting on payment of an account, you can rely on the defence of prescription by stating that the claim has lapsed or expired. In other words, if no payments were made, no promises to pay were made, or you did not admit that the debt existed during the three-year period, prescription sets in.”
The Credit Ombud, Nicky Lala-Mohan, says that if, after a debt has prescribed, the credit provider attempts to collect the debt from you, the onus is on you to “claim the defence of prescription”. Credit providers are legally entitled to collect a debt, even after the debt owing has technically prescribed, provided that the debtor has not raised the defence of prescription.
You also need to be aware that not all debt prescribes after three years. Retail debt relating to credit cards, personal loans, gym contracts, cellphone accounts, electricity accounts and school fees, prescribes after three years. However, debt relating to home loans, money due to the South African Revenue Service, municipal rates and TV licences prescribes after 30 years.
Lala-Mohan says in some instances consumers unwittingly interrupt prescription by acknowledging the debt or making a minimal payment towards the debt.
Despite the law having been in effect for years now, he says his office still receives complaints from consumers who are asked to pay for debt that has prescribed.
The following section was inserted in the NCA after section 126A:
Section 126B: Application of prescription of debt.
(1) (a) No person may sell a debt under a credit agreement to which this Act applies and that has been extinguished by prescription under the Prescription Act, 1969 (Act No. 68 of 1969).
(b) No person may continue the collection of, or re-activate a debt under a credit agreement to which this Act applies –
(i) which debt has been extinguished by prescription under the Prescription Act, 1969 (Act No. 68 of 1969); and
(ii) 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, whether as part of legal proceedings or otherwise.’
What do to when contacted for debts that have prescribed
Contact the office of the Credit Ombud for free assistance. Phone 0861 66 28 37, visit www.creditombud.org.za, email [email protected] or send an SMS to 44786 and they will call you.
CREDIT OMBUD CASE STUDIES
Ms R entered into a loan agreement in 2013 with a credit provider for R10 000. She received a loan of only R7 000. Shortly thereafter, she contacted the credit provider to query why she had not received the full amount of the loan, but her query was not dealt with. Ms R did not make any payments, as she was of the view that the dispute over the amount of the loan remained unresolved. She raised prescription with the credit provider and for being listed as a bad payer with the credit bureau. Ms R requested the Credit Ombud’s assistance in resolving the issues around prescription of the debt and an update of her credit profile. The outstanding balance had spiralled to R20 020.
The Credit Ombud wrote to the credit provider, who refuted the prescription claim, saying that Ms R had, in fact, acknowledged the debt telephonically. The credit provider also pointed out that Ms R raised the defence of prescription prematurely with their call centre, just before referring her complaint to the ombud’s office, which, they alleged, further interrupted prescription.
The ombud requested recordings of the telephone calls from the credit provider, as the alleged acknowledgement was in dispute. However, these were not forthcoming.
The ombud escalated the matter to the credit provider’s senior management and presented legal arguments as well as prescription case law in support of the prescription claim.
As a result of the Credit Ombud’s intervention, the credit provider agreed to withdraw the claim and close its file. The outstanding balance of R20 020 was written off Ms R’s account. An instruction was sent by the credit provider to the credit bureau to update her credit profile.
Mr B disputed data relating to three bank accounts adversely listed on his credit record. The total amount reflected on his profile for these accounts was R152 290. Mr B pointed out that the accounts had prescribed, yet they remained on his credit record. The Credit Ombud investigated, resulting in the credit provider confirming that the three accounts had indeed prescribed. Mr B’s profile was updated.