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Debt timebomb: Relief coming for consumers

Cape Town – Consumers who are neck deep in debt are set for another windfall, with legislation in place to make it illegal to collect debt that is more than three years old

South Africans with paid-up default judgments against their names at credit bureaux had their adverse records cleared on April 1 and now they are set for more relief.

However, for this to happen, the National Credit Amendment Act, which was adopted by the National Assembly in February, has to be signed into law first.

Tougher new measures

The act will see tougher new measures governing credit providers, including a uniform affordability test for prospective lenders.

It will also outlaw the collection of debt that is more than three years old. This is known in legal terms as “prescribed” debt.

Debt Rescue CEO Neil Roets explained that in terms of the present Prescription Act, a debt is considered to be prescribed if a consumer, in the previous three years, has not:

  • made a payment
  • at no stage signed an acknowledgement of debt document
  • admitted that the debt is outstanding
  • been summonsed
  • promised to pay the debt

Hounding consumers for debts

“By making use of blatantly unethical methods to get indebted consumers to acknowledge that they still owe the money, debt collectors hound consumers for debts which have now ballooned to many times the original sum because of interest that sometimes stretches back a decade or more.”

He said the new act, once signed by the president, would put an immediate stop to the process that has grown into a huge industry where banks and micro lenders sell off prescribed debt to specialised debt collection firms at a discount.

Often these companies threaten consumers with penalties, letters, midnight phone calls and e-mails.

Debt as a commodity

Roets said under the new legislation, this will be outlawed and prescribed debt will no longer be a tradable commodity.

The Association of Debt Collectors, which represents 78% of formal debt collectors, warned that the act will force credit providers to be more aggressive to collect debt.

Deputy Credit Ombud Reana Steyn pointed out that there is a likelihood that consumes could face a flood of judgements to ensure that debts are collected before they prescribe.

“This could lead to garnishee orders and the attachment of property on a far greater scale than we are seeing at the moment.”

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