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Tuesday Nov 22, 2011

What your rights are with 'prescribed debt'

Is a debt collector hounding you via letter, e-mail or SMS to pay a very old debt you can barely recall? If so, you need to get clued up on the term "prescribed debt".

In short, according to the Prescription Act, if in the past three years you have not made any payment towards settling a debt, acknowledged owing the debt in any way - including over the phone, agreed to pay it or been summonsed in respect of it, it has prescribed, and you can raise this as a defence when asked to pay it.

This excludes mortgage debt, taxes and any staterelated debt such as a television licence.

But here's the thing: it is perfectly legal for a debt collector or attorney to demand payment from a debtor for a prescribed debt, and if you succumb to the pressure and pay it, you can't raise the defence of prescription afterwards.

In other words, if you don't realise the debt you're being asked to pay has prescribed, and you pay it, you lose.

The idea was to compel creditors and their collecting agents to collect money owed to them within a defined period, to protect consumers from unscrupulous creditors and/or collectors who intentionally delay the recovery of their debt so that it accumulates massive amounts of interest and costs.

Of course, the debt-collecting industry argues that the act was never designed to give people an excuse not to pay their debts, as this would be morally wrong.

There is some merit in that argument, of course, but what's also morally wrong is for a collector to contact a consumer many years after an alleged default and demand that they pay a sum which they refuse to substantiate.

A firm notorious for doing just this is JM Attorneys of Randburg, which continues to hound former Health & Racquet Club members for payment of subscriptions allegedly owed to the group, which went into liquidation about 10 years ago.

Many debt collectors go into "pay up" overdrive in November and December, presumably hoping to snare a share of their targets' end-ofyear bonuses.

I've heard from three former Health & Racquet Club members in recent weeks, all of whom have received fresh demands from JM Attorneys on behalf of the "client".

Dylan Mcgarry was 16 in 1999 when he was given a limited free membership to H&R as a thank you for recruiting other members.

He was under-age at the time and could therefore not have signed a legal contract. Even if he had done so, and then failed to pay, that debt would have prescribed many years ago.

Still, JM Attorneys is demanding payment, based on a contract which is, in fact, a "physical activity and readiness questionnaire" which McGarry was asked to sign.

Now 29, he received a letter from the firm, dated October 17, headed "Negative Impact on your Future Job".

It reads: "Did you know that if you are listed with the major credit bureaus, your chances of getting employment in the future will be affected?

"You are making this difficult for yourself if you do not pay your Health & Racquet Club debt on or before 31 October, 2011."

His mother, Kathy Bennett, told Consumerwatch the first letter from JM Attorneys came on ominously bright red paper, in January last year, followed by another four since.

"And they are adding R37.34 to the alleged debt for the cost of every letter," Bennett said. The latest sum being demanded is a few cents less than R2 000.

"To receive that first red letter was horrifying, firstly that it was so long ago, and especially knowing that there was no debt in the first place."

The implied threat of blacklisting had rattled both of them, Bennett said, "as Dylan has studied and worked extremely hard at getting his PHD, on scholarships".

In another case, Michael Maphutse of Joburg paid his H&R debit order for 24 months, despite visiting the Watermeyer branch just twice, and never heard from the club after that. Then the company liquidated.

His first demand for payment from JM Attorneys came in 2006, and his most recent communication was via SMS on November 4.

Despite asking for a copy of his H&R contract and proof of arrears in two e-mails in 2006, he did not get a response.

Then this month he received a fax putting the burden of proof on him - he was asked to provide a host of documents as proof of the cancelled contract, acceptance of such cancellation, an affidavit and more in order to prove his claim not to owe any money.

I wrote to JM Attorneys' managing director, Gert Visser, setting out these two cases, plus a third, and asking, among other things, why the Mcgarry file had not been closed given that no contract existed in the first place, and why the firm continued to pursue consumers for payment when they had raised prescription as a defence, and the firm was unable to prove that this was not a valid defence.

I was asked for reference numbers for all three cases but Visser began his written response by saying that "we" would not comment on each case "as there are attorney/ client confidentiality requirements that we must not violate".

"The law of prescription wasÂ… never designed to provide a mechanism to attempt to evade liability and we are really not sure why you are suggesting that merely after an elapse of time somebody may attempt to evade payments of debt and why you seem to suggest that this is proper behaviour when we surely all know that a person must honour their obligations," Visser said.

He said that any threat of "blacklisting" was contrary to company policies "and we absolutely do not do so".

"It may be your understanding was incorrect and that you inadvertently thought that we might give adverse information to credit bureaus," he said.

Well, yes, when Mcgarry got that letter last month, headed "Negative Impact on your Future Job", followed by the words "Did you know that if you are listed with the major credit bureaus, your chances of getting employment in the future will be affected?", he might have "inadvertently" thought the firm was threatening to have his credit record "blacklisted".

Incidentally, according to the Credit Ombud, prescribed debt may not be listed on a person's credit record.

I'm not suggesting people should avoid paying their debt. But this is precisely the sort of "very old debt" scenario the Prescription Act was designed to protect consumers from.

In any event, the onus is on the person demanding the money to prove that it is owed, and to substantiate the amount being demanded, which has not happened in these cases.

I'd encourage consumers to use their bonuses to settle their current outstanding debts before spending it.

Wendy Knowler

Pretoria News


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