How to deal with debt collectors

A reader recently reached out with a harrowing story that goes like this: his home was about to be repossessed for a bank loan he says he never asked for nor received. When asked to provide proof, the bank supplied a loan agreement, but without his signature. There were witness signatures, but nowhere was our reader’s signature to be found.

This starts to smell like fraud. Or a terrible error on the bank’s part. But the consequences for the reader are horrifying.

The reader invited the bank to issue summons so he could challenge its evidence in court. The bank has yet to take the matter further. Yet the reader is being hounded by debt collectors and threatened with all sorts of legal action.

This is by no means an isolated instance. Lungelo Lethu Human Rights Foundation, which protects people against unlawful evictions, has documented several such instances of people with similar stories. Their houses were taken away for loans they never asked for nor received.

Independent legal specialist Leonard Benjamin provides a succinct checklist of do’s and don’ts when it comes to dealing with debt collectors.

“While I believe people must honour their debts, these debts must be valid and lawful, [but] in many instances I have seen, people are being hounded over unlawful debts. Creditors have an obligation, and the resources, to timeously pursue debtors who, for whatever reason, are unable to pay. Once the debt has prescribed there is no longer any legal or even moral obligation to honour the debt,” says Benjamin.

Prescribed (expired) debt isn’t payable

First, he says, understand the Prescription Act and the National Credit Act. In its simplest form, if a borrower defaults on a debt and three years has elapsed since the default, that debt is prescribed (expired) and therefore not recoverable. This applies to overdrafts, credit card and other debts (in the case of mortgage debt, the prescription period is 30 years). The bank can keep the debit ‘alive’ by issuing summons within the three years period.

Watch out for ‘prescription interruption’

Debt collectors will phone you up and try to get you to admit that you owe the money (also called ‘interrupting prescription’).

Debt collector: “Mrs Khumalo, I am calling you about that R5 000 loan you took out with Zama Stores. Do you remember taking out that loan?”

Mrs Khumalo: “Yes I do, but I have since lost my job and cannot pay.”

Right there she has admitted the debt and ‘interrupted’ prescription. There are a number of ways debt collectors will get you to interrupt prescription and keep the debt alive: you make payments subsequent to default; the bank or creditor issues summons; the creditor gets you to admit on the phone that you owe the money.

Here’s how Mrs Khumalo should handle it, says Benjamin.

Debt collector: “Mrs Khumalo, I am calling you about that R5 000 loan you took out with Zama Stores. Do you remember taking out that loan?”

Mrs Khumalo: “I don’t know who you are and if you want to communicate with me, please put it in writing. Goodbye.”

Even if you feel a moral obligation to pay an old debt, never agree to it on the phone. The lesson in all this is never to communicate with debt collectors on the phone. Benjamin says it is important to remember most of these ‘debts’ being claimed by debt collectors have actually been on-sold by the banks for cents in the rand, and lack the necessary documentation for legal enforceability.

Hence, the claim that “I am phoning on behalf of the bank” is often not true. The bank is out of the picture. The ‘debt’ has a new owner.

Many debt collectors illegal

Forensic accountant Andre Prakke adds that many debt collectors are acting outside the Debt Collectors Act, in which case any admissions made by the debtor are null and void. “Consumers need to ask from the outset if the debt collector is registered. It is an offence if they are not.

“One issue that I have come across lately is that those loan companies that have expired or prescribed debt offer new loans of a much smaller value on the condition that the previous loan be added to this one and it becomes a new loan. This will also include all their costs on the old loan and interest to that date. The public does not fully understand what they are agreeing to. When the two loans are combined, the borrower is a given new credit life policy as well, and the interest rate can be outrageous.

“The interest rate when taking these two combined is so outrageous and shocking. The debtor will probably never be able to repay it and this is where the situations arise where people started off with R10 000 and end up having to pay R100 000 as an example.”

Another trick

There’s another trick employed by banks and other creditors to stymy the legal rights of debtors: they bring cases before the high courts that properly belong in the magistrates’ courts (where litigation is much cheaper and expeditious). The reason they do this is that any writ of execution (to attach your property) issued in a magistrate’s court expires after 12 months and the bank must again approach the court if it fails to execute on the writ in this time period. High court writs do not expire, so the bank can sit on them for years without executing, and without having to approach the court a second time.

Because of the higher costs involved, bringing such cases to the high court is a denial of access to justice under the constitution. The Pretoria High Court recently told the banks to take their cases elsewhere, particularly for smaller money claims.

“I advise people that they must develop an extremely thick skin where these people [debt collectors] are concerned,” says Benjamin. “They will use every trick in the book to flout the law.”

Benjamin’s advice for how to deal with debt collectors:

• Use Truecaller or a similar app to block calls.
• If a debt collector manages to get through to you, insist on only dealing with them in writing.
• Deny, deny, deny. They are accusing you of owing money. They must prove. You don’t have to prove anything.
• Ask for copies of the agreement they rely on and a breakdown of the debt they are claiming.
• Refuse to discuss anything with them until they have answered your above request, in writing.
• Refuse to confirm your ID number.
• Check your credit record at least once a year (credit bureaus are obliged to provide you a free copy once a year). If you see a debt you think is prescribed, you must lodge a dispute and have it removed.

Benjamin says South Africans are paying billions of rands a year in unlawful or prescribed debt because they do not know their rights. “If you are aware the debt is prescribed, your proper response to a debt collector should be: ‘You are breaking the law by trying to recover prescribed debt.’ And put down the phone.

“It’s the same with garnishee orders (also called emolument attachment orders). These must be issued by a magistrate’s court close to where you live or work. Get a copy of your garnishee order and see where it was issued. If you work in Cape Town and it was issued in Hermanus, sorry, that’s an unlawful order. You don’t even have to go to court. You go to your employer and instruct them to stop paying. It’s that simple. If they don’t, get a lawyer to send them a letter.”

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