Debt collectors in South Africa have been dealt a major blow, with the latest legislation demanding that any debt over three years old cannot be chased for collection.
This new law is placing tremendous stress on debt collectors and on call centres that collect debt for companies. Some are going to the wall – and more might follow.
This is according to Andrew van Niekerk, a director of Teleforge Communications, a specialised call centre solutions provider focused on providing customised software and hardware voice solutions to medium and large inbound and outbound call centres.
“The most compelling law that has come into play states that contractual and delictual debts extinguish after three years from when prescription starts. Any debts beyond this period cannot be pursued. This legislation is having a profound effect on debt collectors, and is pushing many close to the wall, or to the wall,” says Van Niekerk.
Companies are going to have to significantly change the way that they deal with debt as the legal environment in which they operate constantly keeps on getting more complicated. “In the good old days, companies used to buy debtor books. Now this is a huge risk, said van Niekerk, as companies need to ensure how many of the debts in the book they are buying are sitting beyond the three year limit”.
According to a press article in Business Report, for many years, Johannesburg-based law firm JM Attorneys has been collecting on alleged Health & Racquet Club debts. The operator of the franchise, LeisureNet, was liquidated in 2000, and its joint chief executives, Peter Gardener and Rodney Mitchell, were later convicted of fraud.
So the company doesn’t exist anymore, and clearly JM Attorneys, having “bought the debt book”, as they say in the industry, is collecting for its own account. Under the new law, this is illegal.
“This is one of the problems faced by debt collectors,” said van Niekerk, “buying debtors books is now a complicated matter. Buyers need to – literally -go through the book and check on the status of each and every debt they are buying. We recently had a client who bought a debtors book for R1.2 million, only to find that 80% of these debts had passed the three year time limit. So they effectively lost around R1 million.”
The new Prescription Act (PA) says that delictual debts are extinguished after three years from when prescription starts. Basically what this means is that debt collectors have to be smarter in the way they collect debt – and have to use every available resource and tool to maximize the time they have available to collect the debt. In the past, debt collection agencies have been able to collect on debt that was 10 or more years old, or resell debt to other institutions.
But due to the recent amendment act this will no longer be allowed.
This means, in order to stay to alive, debt collection agencies will have to embrace new technology wholeheartedly and include things like advanced debt collection management software, progressive and predictive dialers, automated email and SMS communications and automated voice messaging (AVM) to ensure that the absolute maximum exposure to the debtor is achieved.
Teleforge, said van Niekerk, offers several solutions to assist debt collection agencies to achieve their goals as fast as possible and currently offers progressive, predictive and AVM solutions, as well as a host of reporting software that shows their customers exactly what their agents are doing right through the day. When all of these tools are used in conjunction with proper management software, debt collection agencies will be able to collect on most outstanding debt before it prescribes, says Van Niekerk.
Three acts of law have a major effect on the way debt collectors may collect debt.
The first one – The Prescription Act 68 of 1969. What does prescription mean?
• The Prescription Act 68 of 1969 (“PA”) says it means a debt (for example payment of money) is extinguished after the lapse (passing) of a time period.
• South Africa has different laws which specify time periods, for example the PA says contractual and delictual debts extinguish after 3 years from when prescription starts.
• Prescription may be delayed or interrupted.
What are the consequences of an extinguished debt?
• The debtor is not liable to the creditor for a debt after the time period has lapsed.
• The creditor may not institute legal action against the debtor for a debt.
When does prescription start?
• As soon as the debt is due (a debt is due once the creditor can identify the debtor and the facts from which the debt arises).
• If the debtor prevents the creditor from gaining knowledge of the debt (excluding debts arising from agreements) prescription runs from when the creditor has knowledge of the existence of the debt.
When will prescription be delayed?
• Prescription will be delayed if two facts exist.
• Firstly, one of the following impediments must exist, when the:
o creditor is a minor, insane, or under curatorship;
o debtor is outside the Republic of South Africa;
o creditor and the debtor are married to each other;
o creditor and the debtor are partners and the debt arose from a partnership agreement;
o debtor is a member of the governing body of the juristic person (who is the creditor);
o debt is the object of a dispute in arbitration; or
o executor of a deceased estate has not yet been appointed.
• Secondly, the impediment must stop within 1 year before the date of prescription should have been completed in order for prescription to be delayed and 1 year added on. For example: a debt is due on 1 January 2008. The period of prescription is 3 years. Prescription should be completed by 1 January 2011. On 1 January 2009 (after prescription has run for 1 year) the debtor:
o leaves South Africa for 6 months (he returns 1 July 2009). Prescription will be completed on 1 January 2011 (the debtor’s absence from the Republic exceeds a year before prescription is due to be completed) (option A); or
o leaves South Africa for 18 months (he returns 1 July 2010). Prescription will be completed on 1 July 2011 (the debtor’s absence from the Republic was less than a year before prescription was due to be completed, so 1 year of prescription is given to the debtor from the date the impediment stops) (option B).
When is prescription interrupted?
• The running of prescription is interrupted by:
o acknowledgment of liability by the debtor; or
o a service of a process on the debtor, where the creditor claims payment of the debt (for example, a letter of demand or summons).
The second law that was recently announced and will be promulgated shortly by President Zuma
Act No. 4 of 2013. Protection of Personal Information Act (POPI), 2013.
POPI refers to South Africa’s Protection of Personal Information Bill which seeks to regulate the Processing of Personal Information.
POPI promotes transparency with regard to what information is collected and how it is to be processed. This openness is likely to increase customer confidence in the organisation.
POPI compliance involves capturing the minimum required data, ensuring accuracy, and removing data that is no longer required. These measures are likely to improve the overall reliability of the organisation databases.
Compliance demands identifying Personal Information and taking reasonable measures to protect the data. This will likely reduce the risk of data breaches and the associated public relations and legal ramifications for the organisation.
Non-compliance with the Act could expose the Responsible Party to a penalty of a fine and / or imprisonment of up to 12 months. In certain cases the penalty for non-compliance could be a fine and / or imprisonment of up 10 years. Section 99
The third one: The National Credit Amendment Act of 2014
The NC Amendments Act refers to the Prescription Act without changing the Prescription Act. The follow additions have been added to the prescription act:
sec126B.(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.
The NC Amendments Act, as one of the objectives, classifies certain actions as “prohibitive conduct” in terms of the NCA and subjects the credit provider to an administrative fine of maximum R 100,000 or 10% of the yearly turnover of the credit provider.