Understanding Prescribed Debt
Prescribed debts are generally contractual and civil debts that should be extinguished or written off after a period – typically three years – from the date when the payment was due.
However, this happens under stringent circumstances.
Regarding debt already prescribed, creditors, such as banks, are prohibited from attempting to recover those funds. The National Credit Act (NCA) protects consumers from this, but only if they are aware of their rights.
Many indebted South Africans do not understand how the laws work and are therefore left paying for debts that have been prescribed and are thus legally uncollectible by creditors.
Meanwhile, OBS (Ombudsman) cases show that banks have been guilty of collecting on a prescribed debt illegally.
Between January 2021 and July 2022, the OBS received and investigated 193 complaints alleging bank collections on prescribed debts.
While most of these cases were still decided in favour of the banks, many in 2021 and 2022 have found that the banks in question were unlawfully collecting or attempting to collect on prescribed debts.
According to the OBS, more than R1 million has been written off or repaid to consumers as a result.
What the law requires
The passing of a prescribed period can extinguish a debtor’s obligation to pay off a specific debt under South African law; specifically, the Prescription Act read with the National Credit Act.
The Prescription Act specifies the period after which an obligation expires (typically three years) and the circumstances under which this period may be delayed or interrupted.
Exceptions to the prescription period for certain debts include, but are not limited to, a bank’s claim for monetary debt repayment based on a court order or claims for debts secured by mortgaged bonds. In these scenarios, debt is prescribed after 30 years.
Although the general rule is that a debt prescribes after a period of three years from the date of it falling due for payment, section 11(b) of the Prescription Act provides a prescription period of fifteen years in respect of debts owed to the State.
Moreover, in terms of section 14 of the Prescription Act, prescription is typically interrupted by the service of legal processes on a debtor (such as the issuing of summons) or by a tacit or express acknowledgement of the debt by the debtor.
The periods of prescription of debts shall be the following:
- Thirty years in respect of –
- Any debt secured by mortgage bond;
- Any judgement debt;
- Any debt in relation of any taxation imposed or levied by or under any law;
- Any debt owed to the State in respect of any share of the profits, royalties or any similar consideration payable in respect of the right to mine minerals or other substances;
- Fifteen years in respect of any debt owed to the State and arising out of an advance or load of money or a sale or lease of land by the State to the debtor, unless a longer period applies in respect of the debt in question in terms of paragraph (a)
- Six years in respect of a debt arising from a bill of exchange or other negotiable instrument or from a notarial contract, unless a longer period applies in respect of the debt in question in terms of paragraph (a) or (b)
- Save where an Act of Parliament provides otherwise, three years in respect of any other debt
The legal side
The legality of collecting a prescribed debt is determined by whether or not it falls under the National Credit Act.
The following are some examples of NCA debt:
-Overdraft protection;
-Loans for home improvement;
-Loans for individuals;
-credit card debt
-Vehicle financing contracts
Creditors can still demand payment or call consumers to get them to acknowledge a prescribed debt for agreements that fall outside of the National Credit Act.
Did you know that once a consumer admits to owing the debt – even if they have not made payment – they will be unable to use prescription as a defence in court? However, they can still use prescription if it is interrupted by acknowledgement of debt and will run from the acknowledgement date for three years.
Consumers are not required to be aware of this law because banks and other creditors are prohibited by law from collecting or selling debt that has been prescribed.
When is a prescription broken?
The Prescription Act states that the running of a prescription is halted if any of the following events occur within three years of the payment being due:
-The debtor admits to owing the debt, either verbally or in writing;
-The debtor pays off their debt; or
-A summons is issued and successfully served on the debtor by the creditor
Prescription laws exist to protect consumers from creditors pursuing legally prescribed debt and should not be interpreted as encouraging consumers to default on their obligations.
The OBS warned that in cases where complaints were dismissed in favour of the banks, the debt had accrued significant amounts of interest and was far greater than the amounts initially owed. Meanwhile, the complainants had to pay legal fees and other expenses related to unpaid bills.
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