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DEBT COLLECTION LAW - FAQ's             Back to home page

 

Debt Collection is an important part of the economy of South Africa. Outstanding debt of debtors amounts to billions and the current non-payment rate has an effect on our economy. Interest rates in terms of unsecured and short-term debt may increase in the future due to the increase of debtors failing to honour their debt. 

  1. What is debt?
  2. When does a debt become due and payable by a debtor?
  3. When will a debtor be in default in terms of his duty or obligation to make payment/s?
  4. When may a Creditor start proceedings to collect the outstanding debt from a Debtor?
  5. Who may collect debt?
  6. What is a Default Judgement?
  7. Are there different collection processes which can used?
  8. How long will a Debtor’s default, judgment reflect on his/her credit report with the ITC or any other credit bureau?
  9. Does the new National Credit Act mean a debtor does not have to pay his debt?
  10. Is a debtor responsible for the credit granted if goods are surrender or repossessed?
  11. Are Attorneys or Debt collectors entitled to charge interest and how much can they charge?
  12. How much can a debt collector charge a debtor?
  13. After how many years does a debt prescribe?

 

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1. What is debt?

 

  • When parties enter into an express or implied agreement, whether orally or in writing, and one of the parties (the debtor) has a duty or an obligation to pay money back to the other (the creditor) in terms of monies lent and advanced, delivery of goods and/or services.
  • Debts owed by debtors to creditors may range from credit agreements (secured- and unsecured credit), gym contracts, school fees, doctors’ fees etc. In terms of credit agreements the debt usually include the capital, interest and the cost of credit, which is usually regulated by the National Credit Act, 34 of 2005 (‘NCA’), subject to when the agreement was entered into.

 

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2. When does a debt become due and payable by a debtor?

 

  • The due date for payment will be determined in terms of the specific agreement and if no specific due date was specified a reasonable time will apply, subject to the merits of the matter.
  • Once the debtor breach the provisions of the agreement by failing, neglecting and/or refusing to comply with his duty or obligation in term of the repayment of the money to the creditor, the debtor the debt will become due and payable subject to the provisions of the agreement and the applicable legislation.

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3. When will a debtor be in default in terms of his duty or obligation to make payment/s?

 

  • Once the debtor has failed/neglected and/or refused to make payment in terms of the agreement the debtor will be in default. Notice of such default must be given to the debtor by the creditor.
  • In terms of a credit agreement, once a debtor is in default and has been in default for more than 20 (twenty) business days a creditor is required to give written Notice to the debtor of such default before taking legal action. The Notice must propose to the consumer to within 10 (ten) days bring the arrears up to date; to make a repayment arrangements, alternatively to refer the credit agreement to a debt counsellor, alternative dispute resolution agent, consumer court or ombud with jurisdiction with the intent that the parties resolve any dispute under the agreement. In the event in which the debtor fail to respond to the proposals by the creditor or rejects such the creditor may proceed with legal action after the expiry of the 10 (ten) day notice period.

 

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4. When may a Creditor start proceedings to collect the outstanding debt from a Debtor?

 

  • This will depend on the agreement’s provisions and also the applicable law.
  • In terms of a credit agreement, as per the above.

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5. Who may collect debt?

 

  • Creditor provider;
  • Cessionary of Book Debt;
  • Debt Collector registered with the Debt Collectors Council;
  • Attorneys registered with the Law Society of South Africa.

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6. What is a Default Judgement?

 

Default Judgement is a judgement entered against a party who had failed to defend a claim that has been brought by another party. There are four instances where default judgement may be entered into:

 

  • The defendant has not served and filed a notice of intention to defend.
  • The defendant failed to serve and file a notice of intention to defend timeously.
  • The defendant failed to file a plea.
  • The defendant entered a defective entry of intention to defend.

 

The following are the most important for any action:

 

  • Locus standi – right to institute action.
  • Cause of action – have a proper claim.
  • Jurisdiction – either where the defendant resides or consented to.

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7. Are there different collection processes which can used?

 

Yes, however creditors may decide which collection process they wish to use, subject to the relevant legislation applicable in each individual matter.

Soft Collections

  • No legal action is taken at this point in an attempt to collect the debt in an amicable manner and debtors are advised to make such arrangements and make the necessary payments in terms thereof or to settle the accounts at this point in time to prevent legal action. Further that in the event in which the debtor fail, neglect and/or refuse to make arrangements it will result in legal collection costs being incurred by the creditor and the debtor’s credit record being affected negatively.
  • Soft Collections usually entail a call centre agent contacting the debtor to make repayment arrangements or discussing and negotiating the payment of a settlement depending on the creditor’s instructions.
  • Payments in terms of the repayment arrangement can be agreed upon by making use of either a debit order or a ‘promise to pay’, also known as a PTP. In terms of the debit order the debtor will authorize a specified weekly/monthly deduction on a set date from his/her bank account until such time as the account is paid in full, thus less administration for the debtor to make sure that the payments is made, as such is done automatically. A PTP arrangement is when a debtor promises to make specified weekly/monthly deposits towards the account on a set date, the debtor needs to administer the deposit each month.
  • Settlement quotations provided will be due and payable within a set period depending on the provisions of the settlement.
  • In the event in which the debtor fail, neglect and/or refuse to make the agreed payments the creditor may proceed with legal action, subject to the relevant legislation applicable.

Hard Collections (legal):

  • There is no obligation on a creditor to first attempt to obtain a repayment arrangements and payment via the Soft Collection process, the creditor may wish to proceed with
  • Hard/Legal Collections immediately.
  • Most creditors have their own internal debt collection departments and send out Letters of Demand prior to handing over accounts to attorneys or debt collectors. These creditors as a result attempt to make repayment arrangements etc prior to handing over the account for collection to attorneys or debt collectors. In some instances their attempts are unsuccessful and as a result require the more formal Hard/Legal Collections process to be followed to collect the outstanding debt and as a result hand the account over to attorneys or debt collectors.
  • Upon handover most attorneys and debt collectors proceed to send out Letters of Demand and in terms of credit agreements also a Notice in terms of the NCA. The debtor may bring the arrears up to date, make a repayment arrangements or refer the credit agreement to a debt counsellor, alternative dispute resolution agent, consumer court or ombud with jurisdiction with the intent that the parties resolve any dispute under the agreement within the notice period set out in the Letter of Demand and/or the Notice in terms of the NCA.
  • The creditor may issue a summons for the full outstanding debt. In the event in which the debtor fails to serve and file a Notice of Intention to Defend within the notice period the creditor may proceed to apply for Default Judgment. Should default judgment be obtained the creditor may proceed to execute the judgment by applying to court for the issue of a Warrant of Execution against the debtor’s movable property. The Sheriff of the Court will be instructed to execute the Warrant of Execution and may attach and sell the debtor’s goods on auction in order to obtain money to pay the creditor in order to satisfy the judgment debt and the debtor may also be subpoenaed to appear in court in terms of section 65A of the Magistrate’s Court Act, 32 of 1944 (‘MCA’) for a financial enquiry.
  • In the event in which the debtor wishes to make repayment arrangements upon receipt of the Letter of Demand or a Summons the debtor may admit liability in terms of the debt and undertake to pay the debt, interest, legal costs, -disbursements and collection commission in instalments in terms of section 57 of the MCA until such time as the debt is paid in full. Further agree that in the event in which the debtor defaults in terms of the offer to pay back the debt in instalments that the creditor shall be entitled to apply for judgment for the amount of the outstanding balance of the debt for which the admitted liability together with interest, legal costs, -disbursements, collection commission to be paid in instalments in accordance to the debtor’s offer until such time as the judgment debt is paid in full. This judgment will have the same effect of a judgment by default as mentioned above.
  • In the event in which the debtor wishes to consent in writing to judgment, upon receipt of a Letter of Demand or a Summons, in favour of the creditor for the debt, interest, legal costs, -disbursements, and collection commission for payments of same in instalments in terms of section 58 of the MCA the creditor may immediately proceed to apply for the judgment for the amount of the outstanding balance of the debt for which the admitted liability together with interest, legal- costs, -disbursements, collection commission to be paid in instalments in accordance to the debtor’s offer until such time as the judgment debt is paid in full.
  • A debtor may also consent to an emoluments attachment order, whereby his employer is ordered by the court to deduct monthly instalments from his salary and pay such over to the creditor, based on any of the judgments obtained above.
  • If a debtor decided to defend the claims as indicated in the summons and serves and file a Notice of Intention to Defend the matter will be adjudicated in the ordinary course of culminating in a judgment that is either in favour of or against the debtor. If such a judgment is granted against the debtor the abovementioned Warrant of Execution process will be followed and the debtor may also be subpoenaed to appear in court. If the debtor fails to appear in court after receiving personal service of the notice to appear in court a warrant for the debtor’s arrest may be issued by the court.

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8. How long will a Debtor’s default, judgment reflect on his/her credit report with the ITC or any other credit bureau?

 

  • The Department of Trade and Industry published the once-off Removal of Adverse Consumer Information and Information Relating to Paid Up Judgments Regulations, 2014 ('the credit information amnesty') which came into effect the 1st of April 2014. All Credit Bureaus were required to remove the following information within 2 (two) months of the effective date:

a) All adverse credit information of consumer behaviour such as “delinquent”, “default,” and “slowing paying information.”;

b) All adverse credit information of enforcement action taken by the credit provider such as “handed over to collections” or “write-off.”;

c) All adverse credit information contained within the payment profile of a consumer.;

d) All paid up judgments where the consumer has settled the capital amount. This does not mean that the debtor is no longer liable for the debt outstanding as at 1 April 2014 in terms of (a) to (c) hereunder.

  • From the 1st of June 2014 credit bureaus must within 7 (seven) days after receiving proof of payment, remove paid up judgments from debtor’s credit records, upon verification by the creditor that the account is in fact paid in full. The credit bureau which initiates the removal of a paid up judgments will notify all other NCR registered credit bureaus who are then required to remove the same information within 3 (three days of notification)
  • All new Adverse status codes which have occurred after 1 April 2014 may be recorded with the credit bureaus. Such information will reflect on the debtor’s credit profile for a maximum period displayed in the Regulations of the NCA.

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9. Does the new National Credit Act mean a debtor does not have to pay his debt?

 

No unfortunately not. The NCA merely regulates the credit industry better, the advancing of credit and the collection of any outstanding debt in terms thereof etc. The debtor’s duty or obligation remains in conjunction with the relevant provisions of the NCA and other applicable legislation.

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10. Is a debtor responsible for the credit granted if goods are surrender or repossessed?

 

A debtor is still liable for the balance owing and not recovered from the sale in execution of the repossessed goods on auction.

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11. Are Attorneys or Debt collectors entitled to charge interest and how much can they charge?

 

The interest charged is in accordance to the initial agreement between the creditor and debtor payable to the creditor, thus the specified contractual interest rate per annum. If the parties agreed that interest would be charged in their agreement, but failed to specify the interest rate the mora interest rate will be applicable in terms of the Prescribed Rate of Interest Act, 44 of 1975 which may change from time to time.

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12. How much can a debt collector charge a debtor?

 

  • Debt Collectors costs are prescribed by the Debt Collectors Act, 114 of 1998
  • Attorneys costs are regulated by, but not limited to, the MCA and the NCA where applicable.

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13. After how many years does a debt prescribe?

 

  • The Prescription Act, Act 68 of 1969 explains the precise forms of prescription together with the period of time applicable to each form.
  • Prescription in terms of Credit Agreements are governed by the above legislation read together with the provisions of the NCA, where applicable.
  • Under the Prescription of Debt Act, a debt prescribes (falls away) after three years in most instances if the creditor has made no attempt at that time to communicate with or retrieve the debt from the debtor. However if you are a debtor, don’t assume that simply because the creditor has not communicated with you for three years your debt has prescribed. You may have changed your address or other contact details and not informed the creditor, or the creditor may have resorted to other means such as obtaining a judgement against you to retrieve the debt.

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