Have you got old debt? You could be off the hook

The Prescription Act is a quirky piece of law. Faced with a demand to pay a debt that’s been dormant for more than three years, a consumer can play the prescription card and refuse to pay it.

According to the act, most debts prescribe after three years if no payment or acknowledgment of the debt is made in that time, and no summons has been issued by the credit provider or debt collector.

Home loans, and all forms of government debt — including TV licences and municipal rates — only prescribe after 30 years.

But the act does not preclude companies from contacting alleged debtors and demanding payment from them. If they make a payment or agree to pay, that cancels their prescription defence.

So only those consumers who knew about prescription benefited from this protection, which was designed to prevent collectors chasing old debts, inflated with years of interest and costs.

Then, eight years ago, consumers got some help with this — the National Credit Act (NCA) was amended to state that no person could sell, collect or reactivate a debt that 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 loans, credit card accounts, store accounts and the like — which accounts for most debts in South Africa.

Some debt collectors who trade these old, prescribed debts are known to make their targets “aware” of their prescription defence by including in their correspondence a link to the Prescription Act or some other vague reference to prescription.

Matome Piet Malesa did know about prescription. When he got a call from DMC Debt Management on July 8 2021 demanding payment of an outstanding R3,146 on his Woolworths account, he told them the debt had prescribed.

And it had, just — his last payment was on July 4 2018.

On its website, East London-based DMC describes itself as “a market-leading South African debt collection company", and provides a long list of its clients, including most large banks and retail groups. It’s motto: “Simple, fair, trusted.”

Two days after that DMC call, Malesa accessed his credit report and discovered that he’d been “blacklisted” by the debt-collecting firm without notification. That’s a contravention of the National Credit Act, which states that a person has the right to be advised by a credit provider before any prescribed adverse information concerning them is reported to a credit bureau.

And that’s not all. DMC claimed that Malesa had last made payment on his Woolies account on July 31 2018. That payment would have cancelled his prescription defence.

DMC also claimed that on July 20 2021, Malesa had a phone conversation with a DMC agent, and thus interrupted the running of prescription, allegedly because he “expressly or tacitly” acknowledged liability.

The firm failed to provide Malesa with a recording of the alleged conversation between himself and its call centre agent; nor did the company produce a statement of account showing the payment they alleged he made on July 31, 2018.  

Malesa first lodged a complaint against DMC with the Credit Ombud in August 2021, which advised him to take his case to the National Credit Regulator and the Council for Debt Collectors (CDC).

He followed that advice and, as a result of his CDC complaint, DMC agreed to remove Malesa’s “blacklisting” shortly before Christmas that year.

In March 2022, Malesa received a letter from the regulator advising him that it was closing his file because DMC had accepted his defence of prescription and had written off that R3,146 balance. The dispute was therefore over, the regulator told him.

Only it wasn’t. DMC later re-loaded his “blacklisting” with the credit bureaus. It's an offence in terms of the NCA to list a prescribed debt.

Given all of that, Malesa’s list of allegations against DMC was long:

• Trying to collect a prescribed debt;

• Not notifiying Malesa prior to blacklisting him;

• Wrongful blacklisting;

• Failure to provide requested documentary proof; and

• Re-loading the blacklisting; all of which are contraventions on the NCA.

Malesa’s pursuit of justice finally led him to the National Consumer Tribunal, which heard the matter late last year and handed down judgment in January. He represented himself with the help of an interpreter.

Tribunal members heard the matter on a default basis, meaning DMC failed to respond to Malesa’s application — sent via registered mail to its business address — did not oppose it by serving an answering affidavit, and failed to take part in the tribunal hearing.

The tribunal found that DMC had indeed contravened the NCA in multiple respects, and that such contravention was “prohibitive conduct".

“DMC must immediately take the necessary steps to ensure its adverse listing of Malesa, as a result of the Woolworths account, is removed by all credit bureaus.”

Clearly, the debt-collecting industry is no fan of prescription — collecting old, padded debt is a very lucrative business, and no doubt many consumers are paying unnecessarily because they don’t know their rights.

Last July, ombud for banking services Reana Steyn warned consumers that some banks were continuing to hound their clients to pay old, prescribed debts, despite the practice being illegal.

“In about a third of cases which her office had handled between January 2021 and July 2022, banks were found guilty of engaging in the illegal practice, Steyn said.

Asked this week to provide updated stats, Steyn said since January 2022, her office had opened 418 cases relating to prescribed debt — 340 in 2022 and 78 so far this year.

Just over 20% of last year's cases were settled in favour of consumers and 17% of them this year, so far. In that time, banks had been ordered to repay a total of just under R330,000 to consumers.

“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,” Steyn said.

“The majority of the public is left paying for debts that have prescribed and are therefore legally no longer collectable by creditors.”

What a colossal shame. That spend should be reducing their current debts instead.

* Contact Knowler for advice with your consumer issues via e-mail: consumer@knowler.co.za  or on Twitter: @wendyknowler