The Prescribed Debt Amendment
When the National Credit Act was amended in March 2015 to prohibit the collection of prescribed debt, we all breathed a sigh of relief.
The amendment was not introduced as a way for people to shirk their debt commitments. But rather because it’s not fair to be contacted by a debt collector out of the blue, demanding payment for an ancient debt. What collectors do is they buy old written-off debts and add years of interest and penalty fees to them. Then they phone you up and demand payment.
Previously, the Prescription Act did not prohibit collectors from trying to get people to pay off prescribed debt. A prescribed debt is a debt that has been dormant for three or more years. You have not made any payments, acknowledged or received any summons relating to the debt.
On the other hand, home loans and student loans only prescribe after 30 years.
If you were not aware of debt prescription, did not raise it as a defence, and agreed to pay up, your hands were tied and you had to cough up for the old debt, interest and penalty fees included.
Accordingly, it was not in the best interest of the booming debt collection industry to make consumers aware of prescription, as millions were to be made from those in the dark.
There was reason to be excited about this section of the National Credit Amendment Act, as it meant we were protected from having to pay prescribed debt, and not just those of us who were aware of it.
Open to Interpretation
Demands for payment of prescribed debt should be a thing of the past. But, the truth is the demands have not stopped since the implementation of the amendment.
And those of us who do question collectors about why they are demanding payment for a prescribed debt are told that ‘it’s complicated’ and instructed to come into their offices to discuss the matter – offices that are often hundreds of kilometres away.
The fact of the matter is the amendment remains open to interpretation, according to the Credit Ombud. Collectors have found a loophole in the rule that a prescribed debt cannot be collected “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”.
Collectors argue that the amendment does not protect consumers who were aware of or made aware of the defence of prescription.
“So, where the credit provider can prove that the consumer was aware of the existence of the defence, or was made aware of the defence of prescription and did not raise the defence of prescription, the reactivation and continued collection of prescribed debts is not prohibited.”
The Demands Continue
Accordingly, many collectors continue to demand payment for prescribed debt, by adding a paragraph or two.
Some collectors will send you an SMS, referring you to their website to acquaint yourself with prescribed debt. And if you don’t get clued up and then agree to make a payment, you lose the prescription defence – based on this interpretation.
The National Credit Regulator (NCR) disagrees with this interpretation.
“Whether the consumer knows about the prescription defence or not, the debt has prescribed and there should be no collection or re- activation of it,” said an NCR spokesman.
Any collector attempting to collect prescribed debt is “circumventing the application of this provision and misleading consumers,” he explained.
Clearly this amendment and its interpretations need to be challenged in a court of law. Low-income households spend as much as 77% of their income on servicing debt. How many of us are still servicing old, inflated debt that should have prescribed years ago?
If you suspect that you are paying a prescribed debt, which you are not legally obliged to pay, get in touch with us today for immediate assistance.