We are all aware how consumer debt has risen in the past several years, especially for the lower paid and poorer sections of the community. As employers, you no doubt have staff who seem to be perennially in debt.
A recent amendment to the National Credit Act has outlawed attempts by debt collectors to trade in or attempt to get consumers to pay prescribed debt.
A debt prescribes if, for three years (note: three years is the prescription period for most commercial debt but there are different prescription periods for taxes due, judgments, mortgage bonds etc.):
- No payment is made;
- The debtor has not acknowledged that a debt is owed;
- The creditor has not summonsed the debtor.
What has been happening is that debt collectors have been “harassing” consumers for prescribed debt. This includes not just the original amount owed but also interest due and the debt collector’s fees.
A debtor is entitled to raise prescription as a defence (if the debt has prescribed), in which case, the debt collector is not entitled to pursue the matter. However, until now the onus has been on the debtor to know his or her rights.
The trend of debtors being “harassed” has been exacerbated by companies selling their debt claims to other collection agencies who have been extremely aggressive in their collection practices.
The new amendment provisions
Debtors must no longer raise the defence of prescription themselves. It is now illegal for debt collection entities to collect prescribed debt. It is also prohibited to sell prescribed debts to other debt collection agencies. In addition, debt collection firms are obliged to inform debtors if they sell their existing debts.
This will prevent many of the unfair practices of debt collection businesses.
Employers, ensure your employees are aware of changes to the National Credit Act and understand that they do not have to pay prescribed debt.
This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your business consultant for specific and detailed advice.