Your bank may be going after debt that is no longer owed
THE LAW forbidding creditors from collecting on prescribed debts which fall under the National Credit Act 34 of 2005 (NCA) is well-known, established, and adhered to—or so everyone would think. 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.
However, despite the legal requirements and the guaranteed protection they off-er consumers, the Ombudsman for Banking Services (OBS) is 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.
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 prescribed, and are therefore legally no longer collectable by creditors.
Letter of the law
In South Africa, the Prescription Act 68 of 1969, read together with Section 126B of the NCA, 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 in that 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.
However, there are exceptions where the prescription period for certain contractual and civil debts, is 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 3 years.
Is it legal or illegal for creditors to collect on a prescribed debt?
The answer to this question depends on whether the debt falls within the ambit of the NCA or not. In other words, whether the debt relates to a credit agreement and fall 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 is still legal for creditors to demand payment, 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.
Under the protection afforded to consumers by the NCA, the banks and other creditors are prohibited from collecting or selling a debt that has prescribed. 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 bureau profiles updated to reflect the correct state of affairs.
When is prescription Interrupted?
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 prescription. If they continue to demand payment or take any other steps to collect the debt, you should log a complaint with the OBS.
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 OBS still regularly receives these kinds of complaints from bank customers.
OBS statistics on collection of prescribed debts by banks
Between January 2021 and July 2022, 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 in 2021. In about 33% of these cases, the banks in question were found to have been unlawfully collecting or at-tempting to collect on prescribed debts by the OBS.
In 2022, the OBS has (to date) received 75 of these matters. In 29% of these cases, banks have again been found to have transgressed the Prescription Act as well as the NCA.
As recently as mid-July 2022, an amount of R216 197 (the outstanding balance) was written off in one case—and the complainant was also refunded R3 200 which they had paid towards the prescribed debt.
Knowledge is power
The OBS encourages all South Africans to take the time to read up on, or be informed of, the laws governing the agreements they enter into with creditors. It is imperative that consumers know and understand their rights. They should also be aware of the free professional assistance offered by different organisations such as the OBS.
However, it is important to understand that the information presented in this article is not aimed at encouraging people from reneging on their debts. Consumers are reminded 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.
Reana Steyn is the Ombudsman for Banking Services.
Contacting the Ombudsman for Banking Services
OBS Call Centre: 0860 800 900
WhatsApp: +27 66 473 0157
Office address: Ground Floor, 34-36 Fricker Road, Illovo, Johannesburg
Online complaints: https://www.obssa.co.za/resolving-complaints/make-a-complaint/
Download complaint form: https://www.obssa.co.za/wp-content/uploads/2018/04/Application-for-Assistance-form-FINAL.pdf