The Protections and Pitfalls of Prescription
National Credit Act section 126B
By: Craig Thompson
In South Africa, debt collection can sometimes feel like an endless pursuit. However, Section 126B of the National Credit Act (NCA) aims to protect consumers from the abuse of prescription laws, ensuring that expired debts cannot be reactivated or collected. This is particularly important for consumers who may not be fully aware of their rights regarding debt prescription. Let’s break down what Section 126B entails and how it benefits consumers.
What is Prescription of Debt?
Prescription refers to the expiration of the period during which a creditor can legally enforce a debt. Once this period has passed, the debt is considered "prescribed," meaning that the creditor can no longer pursue the debtor legally for repayment. The Prescription Act of 1969 governs the time limits for prescription, which typically varies for different types of debt. For most debts, the prescription period is three years.
Section 126B addresses how prescription applies specifically to consumer credit agreements and aims to ensure that debts that have expired under the Prescription Act cannot be revived or collected by creditors, protecting consumers from financial harassment.
Section 126B reads as follows:
Application of prescription on debt,—(1) (a) No person may sell a debt under a credit agreement to which this Act applies and that has been extinguished by prescription under the Prescription Act, 1969 (Act No. 68 of 1969).
(b) No person may continue the collection of, or reactivate a debt under a credit agreement to which this Act applies—
1. (i) which debt has been extinguished by prescription under the Prescription Act, 1969 (Act No. 68 of 1969); and
2. (ii) where the consumer raises the defence of prescription, or would reasonably have raised the defence of prescription had the consumer been aware of such a defence, in response to a demand, whether as part of legal proceedings or otherwise.
Key Provisions of Section 126B
1. Debt Extinguished by Prescription
Section 126B stipulates that a debt under a credit agreement, which has expired due to prescription, cannot be sold to a third party. In simpler terms, if a debt is considered prescribed, the creditor—or any debt buyer—can no longer pursue the debtor for payment.
2. Collection and Reactivation of Prescribed Debts
One of the primary protections of Section 126B is that no one can continue to collect or attempt to reactivate a prescribed debt. This includes any legal proceedings or informal attempts to collect payments, such as sending a demand letter. If the consumer raises the defence of prescription, the creditor must cease any attempts to collect the debt, regardless of whether the consumer was previously aware of this legal right.
Even if a consumer wasn’t initially aware of their right to raise the defence of prescription, they are still protected. This provision ensures that consumers are shielded from potential exploitation, even if they didn't know they had a valid legal defence.
3. Consumer Awareness and Action
The consumer has the right to raise the defence of prescription if they’re being pursued for a debt that has expired. In the case of Kaknis v. Absa Bank Limited & Another, the court ruled that consumers can raise this defence at any point in the legal proceedings. Importantly, if the consumer wasn’t aware of the prescription defence, they must demonstrate that they would have reasonably raised it had they known about it.
However, if the debtor knowingly ignores this defence and continues making payments toward a prescribed debt, the defence of prescription will not be valid. By continuing to pay on a debt that has prescribed, the consumer can be seen as "validating" the debt, and the prescription defence can be dismissed.
How Prescription Periods Work for Different Types of Debt
The Prescription Act sets out specific time periods for various types of debt. These time periods dictate how long creditors have to enforce payment before the debt is extinguished. Here are some common prescription periods:
Prescription Periods
30 Years
Debt secured by a mortgage bond or judgment delivered by a court.
6 Years
Debt related to a negotiable instrument (e.g., a cheque or promissory note).
3 Years
Debt arising from delict or contract (most common debts).
30 Years
Ownership of land or other property after uninterrupted possession for 30 years.
5 Years
Claims for compensation for injuries sustained from driving a motor vehicle.
120 Days
Claims for compensation in respect of loss or damage (bodily injury) from the driving of a motor vehicle.
*Note: Prescription periods vary depending on the nature of the debt. Government debts, such as tax or levies, may also have different periods of prescription (for example, 30 years for debts related to taxes).
When Prescription Can Be Interrupted
There are situations in which the prescription period can be interrupted, meaning the clock resets. Some common reasons for interruption include:
Acknowledgment of Debt: If a debtor makes a partial payment or acknowledges the debt, the prescription period may reset.
Legal Action: If the creditor initiates legal action (e.g., serving a summons), the prescription period may be interrupted.
Protection Against Abusive Practices
Section 126B of the NCA was introduced to protect consumers from the abusive practice of debt collectors reactivating prescribed debts. In the past, creditors or debt collectors may have tried to trick consumers into making payments on debts that were already expired, which would effectively "revive" the debt. By making consumers aware of their rights and ensuring they cannot be harassed for prescribed debts, the law helps prevent such exploitation.
What Happens If You Raise the Prescription Defence?
If a consumer raises the prescription defence in response to a debt claim, the creditor is legally obligated to stop pursuing the debt. If a debt collector or creditor continues to demand payment after the prescription period has expired, they are in violation of the law.
Consumers should be aware that prescription is a powerful tool to fight back against expired debts, and they should not feel pressured to make payments on debts that are no longer legally enforceable. If a consumer has any doubts or concerns, consulting a legal expert can help clarify their rights.
Conclusion: A Key Protection for Consumers
Section 126B of the NCA serves as a critical protection for consumers, ensuring that debts that have expired through prescription cannot be collected or revived by creditors. It helps shield consumers from manipulation by unscrupulous debt collectors and credit providers, allowing them to assert their rights when faced with attempts to collect debts that are no longer enforceable. Ultimately, this section reinforces the importance of consumer rights and provides a vital safeguard in the ever-evolving world of credit agreements and debt collection.