The Credit Ombud’s latest annual report has drawn attention to the problems and misunderstandings that typically result in complaints to the office.
The total “savings” for consumers because of the ombud’s intervention was R3.85 million, which was 47% higher than in 2021, according to the office’s annual report for 2022.
The office opened 3 645 new disputes over the year, and the case management team closed 3 643 disputes. The average number of days to close a case improved from 44 to 33 days.
Sixty-four percent of disputes that related to credit providers other than banks were settled in favour of consumers. Most (42%) of these disputes were about statements of account, followed by fraud (10%), and contractual disputes (9%).
Consumers also complained about reckless lending, surrender of goods, credit reports, double listings by credit providers or bureaus, garnishee orders, non-compliance with regulations, prescription of debt, credit insurance, and outdated credit information.
Prescription of debt
Many consumers are unaware that creditors are prohibited from collecting prescribed debts that fall under the National Credit Act (NCA). Prescription means a debt has expired and is therefore not recoverable.
Credit agreements that typically fall under the NCA are overdraft facilities, mortgage loans, personal loans, credit card debt, and vehicle finance agreements.
Generally, contractual and civil debts will be extinguished if not paid or acknowledged as being owed to the creditor by the debtor for three years from the date when the payment was due. There are exceptions to the three-year rule. For example, a bank’s claim for the repayment of a monetary debt based on a court judgment, as well as claims for debts secured by mortgage bonds, prescribe after 30 years and not three years.
According to the Prescription Act, the running of prescription is interrupted if, during the three years after the payment was due, one of the following happened:
- The debtor admitted, verbally or in writing, to owing the debt;
- The debtor made a payment towards the debt; or
- The creditor issued and served a summons on the debtor.
The Credit Ombud’s report provides the following case study in debt prescription.
The consumer’s account went into arrears, and she decided to surrender the vehicle to settle the account. The consumer signed a voluntary surrender application in December 2019. She contacted the credit provider in February 2020 to make an offer for the remaining balance, but the offer was rejected as too low.
The credit provider issued a summons in December 2022, two months before the debt would have prescribed in February 2023.
The consumer claimed that the last time she acknowledged the debt was in December 2019, and she therefore expected to be absolved of the outstanding debt on the grounds of prescription.
A recording of the phone call in February 2020 was retrieved, which proved she acknowledged that she owed the money and offered to settle the outstanding balance. Her claim of prescription was rejected, and she was held liable for the outstanding balance.
The lessons for consumers are: (a) assume that phone calls with credit providers are recorded; and (b) prescription is interrupted if you, in any way, accept or acknowledge that you owe the provider money.
In duplum rule
The in duplum rule halts the running of interest on a debt once the interest is equal to the outstanding capital debt. In short, once the amount the debtor owes to the creditor doubled, interest stops accruing. Section 103(5) of the NCA extends the in duplum rule to include, in addition to interest, the initiation fees, service fees, cost of credit insurance, administration charges, and collection costs.
The application of this section can become when it is applied to a revolving credit facility.
The ombud’s investigation into a consumer’s complaint found that despite the date of first default, the interest charges, service fees and value-added services on the account were allowed to accrue for years, which resulted in the outstanding balance exceeding the threshold in terms of section 103(5).
The consumer claimed he did not use the services from the date of default and was under the impression that these services were stopped due to non-payment. The credit provider conceded that there were charges that were levied erroneously and credited the account accordingly. As a gesture of goodwill, the remaining balance was written off and the account was closed.
Late debit orders
Consumers seldom understand the consequences of a late debit order until it affects their credit record, or they find that the agreement term has exceeded the original term agreed to. The NCA provides that interest accrues daily and compounds monthly, which means that for every day that an instalment remains unpaid, further interest charges will accrue on the outstanding balance.
The credit agreement becomes the basis upon which these disputes are resolved as it clearly sets out the intentions of the parties at the time of contracting.
In a case that came before the ombud, the debit order processed on the first of every month returned unpaid for a few months until the consumer contacted the credit provider to request a change to the debit order date.
It was found that the consumer was reversing the debit order deduction for those months and then paying the instalment in cash a week later. The consumer disputed the date, claiming the agreed date was the seventh of each month, whereas while the agreement showed that the agreed date was the first. The consumer argued that the account could not be in default because he settled the outstanding instalment within the month it was due.
What the consumer failed to consider was that once the payment is missed, this would be reflected as a non-payment on his credit profile, and arrear interest would accrue, which would increase the total cost of credit payable. The credit provider agreed to change the debit order date, but the payment profile history of the account was to remain to reflect the actual sequence of payment.
Fraud
Fraud is rampant is all sectors and industries. Many consumers are left without recourse in these instances, with no funds or legal assistance. The Credit Ombud is a vital mechanism in the dispute process because it allows consumer to have a voice.
A consumer picked up that purchases were made on her account between November 2021 and December 2021 of which she had no recollection. There were no receipts or evidence to show that the consumer made the purchases. What supported the consumer’s submissions was that these purchases were made at places at which the consumer would not normally shop.
After a long investigation, the credit provider conceded that it would be unfair to hold the consumer liable for these purchases. The credit provider reversed the transactions and credited the consumer’s account accordingly.
Reckless lending
The NCA obliges the credit provider and the consumer to be fair and honest when concluding a credit agreement. It is credit provider’s responsibility to assess key aspects of a consumer’s ability to service the repayment of the loan. It is the consumer’s responsibility to be truthful when providing information to the credit provider to conclude the affordability assessment.
In one case, the consumer claimed that the credit provider failed to discharge its obligation to consider all his expenses at the time of application and as a result the loan was granted recklessly.
The ombud’s investigation found that the credit provider’s assessment included all the information that it could reasonably obtain at the time, and the credit provider did discharge its obligation in terms of the NCA. The agreement was successfully serviced by the consumer for 18 months; there was no sign of negative or adverse data on the credit report used at the time of assessment; and there was sufficient disposable income to service the monthly instalments.
The consumer could not show that any further expenses were disclosed, nor were any further expenses apparent from the bank statement provided at the time of application. It was decided that the loan agreement was not granted recklessly, and the consumer remained liable for the outstanding balances due.
Accurate listing of credit information
The NCA requires that credit information is reflected accurately and states the current outstanding balances due. The accuracy of this information is vital to enable a credit provider to discharge its obligation to conduct a proper affordability assessment.
A consumer settled an account directly with a debt collector, who was tasked with collecting on the account that was handed over after being in arrears for six months. For some reason, this settlement was not communicated to the credit provider in time, and it updated the account to paid-up and closed six months after the actual settlement date.
As a result of the Credit Ombud’s intervention, the payment profile was corrected to reflect the actual date of settlement and closure.
