Prescribed debt: a confusing and contentious issue
Can a debt collector contact you and demand you pay a debt that has prescribed?
The answer to that has never been more complicated or contentious in South Africa.
Your debt is considered to be prescribed, in terms of the Prescription Act if, in the previous three years, you have not made any payment towards settling it, acknowledged owing the money in any way or agreed to pay it, or been summonsed in respect of it.
Most, but not all, debts prescribe in three years. A 30-year prescription period applies to mortgage bonds, any debt arising as a result of a judgment, and any state-related debt, including traffic fines and TV licences.
The collection of prescribed debts is a massive source of revenue for the debt-collection industry, much of it having been written off by the credit providers and sold to collectors for a few cents in the rand.
They then inflate the original debt with interest and costs and attempt to collect from debtors for their own account.
The Prescription Act's intention was to give consumers some protection against collectors hounding them to pay those old, inflated debts, but it does not preclude collectors from attempting to do so.
It requires the consumer to know about prescription, and raise this as a defence in the face of a demand for payment.
If they don't, they are fair game: acknowledgement of a prescribed debt - including a promise to pay in future - cancels the defence of prescription, and the consumer is then obliged to pay the amount demanded.
Then came the bombshell of March 13 2015.
The number of years after which debt is considered to be prescribed if you have not made any payment towards settling the debt, acknowledged owing the money in any way, agreed to pay it or been summonsed in respect of it
The National Credit Act was amended by what is referred to by the industry as section 126B - to state that no person could sell, collect or reactivate a debt which had been "extinguished" by the Prescription Act, or "where the defence of prescription is raised, or would have reasonably been raised, had the consumer been aware of such a defence".
This applies only to credit agreement-related debt - car and home loans, credit card accounts, store accounts and the like - which account for the majority of debts in South Africa.
That threw the debt-collecting industry into crisis, as they could no longer contact consumers in the hope that they didn't know about prescription and therefore would agree to pay that old debt.
The amendment protects consumers from being made to pay a prescribed debt, whether they know about the Prescription Act or not. Or does it?
A Supreme Court of Appeal decision a little over a year ago threw the industry into turmoil yet again.
The matter began more than a decade ago: between 2006 and 2008, Pantelis Kaknis entered into instalment sale agreements with Absa and Man Financial Services for two luxury cars, a bakkie, three trucks, three trailers, a jet ski and four quad bikes, totalling R3.4-million, but defaulted on the repayments.
In October 2014, when the debts had long prescribed - but five months before section 126B came into effect - Kaknis signed an acknowledgement of debt with both credit providers, but defaulted again.
When Absa and Man Financial Services issued summons and applied for summary judgment, Kaknis argued before the High Court in Port Elizabeth that their claims had prescribed, relying on the NCA's section 126B.
He said he was unaware at the time that he could rely on prescription as a defence, and that had he been aware of that, he would not have entered into the agreement.
The provisions of the NCA only apply to debts falling under credit agreementsAndries Cornelius
CEO of the Council for Debt Collectors
The court dismissed his defence and held that 126B did not apply retrospectively.
The SCA agreed - albeit not unanimously - with the findings of the High Court and the appeal was dismissed.
Legal opinion on the interpretation of the Kaknis case varies.
Most legal commentators say it means section 126B doesn't apply to any credit agreement taken out before March 2015.
"Numerous applications by credit providers for judgment [against debtors] have been rejected by magistrates based on their incorrect interpretation of section 126B," Marius Jonker, the CEO of the Association of Debt Recovery Agents, says in the organisation's newsletter.
"This applies to both debts which prescribed before and after the enactment of section 126B.
"Prescribed debt may be collected since the enactment of section 126B in March 2015 - if the consumer was aware of the defence of prescription," Jonker says.
"If they were made aware, the debt is revived and enforceable afresh, and the consumer cannot raise the defence of prescription before the acknowledgement of debt itself prescribes again."
That could explain why many debt collectors make mention of the Prescription Act, usually without explaining its significance, when approaching a consumer with a demand to pay a debt which has prescribed.
"Unfortunately prescription is a rather complex issue," Andries Cornelius, CEO of the Council for Debt Collectors, says.
"Obviously this judgment forced the National Credit Regulator to request an amendment to its act, which is currently being debated by the trade and industry parliamentary portfolio committee.
"The provisions of the NCA only apply to debts falling under credit agreements. For all other debts the provisions of the old Prescription Act apply."
The NCA amendment being sought criminalises the selling or collection of a debt which has prescribed.
Meanwhile, the NCR continues to offer "informal" help to consumers who complain of being hounded to pay prescribed debts.