Amendments to the National Credit Act making it illegal to collect prescribed debt has contributed to the big drop in civil summonses and judgments for debt, James O’Haughey, CFO of Intelligent Debt Management Group, told Fin24 in a studio interview.
“The National Credit Regulator has been quite active in the industry,” he says.
The latest figures from Stats SA showed that the total number of civil summonses issued for debt decreased by 13.4% in the first quarter of 2016 compared with the first quarter of 2015.
The largest contributions to the 13,4% drop were civil summonses relating to money lent (contributing -7.6 percentage points); ‘other’ debts (contributing -3.1 percentage points); and services (contributing -1.3 percentage points).
The total number of civil judgments recorded for debt fell by 11.2% and the total value of the judgments slipped by 5,8%.
O’Haughey expect these figures to continue to fall as the selling and the collection of prescribed debts resulting from credit agreements are prohibited by The National Credit Act.
What exactly is prescribed debt? According to the Prescription Act 68 of 1969, section 10 (1), debt is prescribed if:
* You have not acknowledged the debt in the past three consecutive years, either in writing or verbally;
* You have not made any payment towards the outstanding amount, nor have you promised to pay; and
* The creditor has not summonsed you for this debt within three consecutive years.
A home loan (bond), municipal accounts, monies owed to SARS and your TV licence cannot become prescribed debt.
The amendment last year brought relief to thousands of indebted consumers.
“It is now illegal to collect prescribed debt and that has had quite a big impact in terms of credit providers to collect through the courts.
“There has also been a lot more education in terms of consumers, which has led to credit providers not needing to collect through judgments,” says O’Haughey.
Although there has been a significant decline in civil summonses and judgments, he added that credit providers are using debt counselling as a method of debt collection.
“It is a very good process because we as debt counsellors look at all the debt of a consumer; and their financial situation so it is a very effective tool.”