The debt collection scam
For many people, this kind of harassment is happening on a daily basis. Well, hang in there, because there is a way to handle this. This out-of-control debt, triggered by reckless lending by the banks and a weakening economy, is affecting more and more South Africans.
I do not purport to be a legal practitioner and anything stipulated herein should not be construed as legal advice but more of a guide for people to educate themselves about their rights.
The National Credit Regulator and Banking Ombud are hopeless at reigning in the banks and their fraudulent behaviour. They are tasked with providing those suffering from crippling debt a mechanism against unscrupulous attorneys and debt collectors. The intention of the National Credit Act is to provide relief for those in financial distress by affording them an opportunity to go under debt review. There are many who argue that going this route is fatal, as it prolongs the debt trap, but the intention is laudable. I suggest anyone in this position takes a good, hard look before appointing a debt counsellor, but this is not the focus of this article.
What if I were to a highlight aspects of the National Credit Act and the Banks Act which may offer reprieve from debt collectors and demands made on you by legal firms for defaulted loans? This is something you will never hear form the legal industry, law societies, regulators or debt counsellors as they all feast off the debt collection business.
I previously conducted extensive research into securitisation and sale of debts by the banks. More recently I have been looking at another aspect of banking. As a result I have uncovered further fraudulent activity being perpetrated on a mass scale collectively by the major banks, debt collectors and legal firms across the country.
It is no secret that the major banks are selling debt to debt collection firms and legal firms. A clear and coherent determination should be made here, however, to differentiate this practice from securitisation.
In a securitisation scheme the bank bundles loans together and sells this package to the Special Purpose Vehicle for the purpose of trading this debt on the JSE (see links to articles below).
This article covers a different kind of debt, such as credit cards, overdraft facilities, revolving credit facilities and so on. Normally, these debts do not form part of securitisation schemes and are therefore reflected on the banks’ books as assets.
Bank are in the business of loaning out money at interest, but unfortunately, due to banking laws, they are required to maintain a certain level of liquid cash in the bank in order to issue more loans (in terms of the Basel banking principles and rules). As such to loan out more at interest you have to retrieve some levels of cash from what you lent out before to enhance the baseline cash liquidity requirements.
Realising the cost of implementing legal action against thousands of defaulting borrowers on small loans would not be worth the cost. Instead, they sell off these “bad” loan packages to debt collection and legal firms. The banks sell off the debt at a discount to the face value so as to leave something in the pot for the debt collectors and legal firms. The collection agencies often buy this debt for 20% or 30% of the fae value. The truth is that much of this debt is prescribed (and therefore not collectible in law), but these firms will attempt to trick you into acknowledging that the debt is still alive, when it isn’t. It could be that a lot of the old debt you are paying off every month is prescribed, yet you continue paying due to the threats of black-listing on the credit bureaus, or worse, potential legal action.
By selling off its toxic debt to legal firms and collection agencies, the banks are receiving some cash back which allows them to rinse and repeat the whole process of reckless lending.
You are likely scratching your head now and asking…well…how does this subject help me?
How collection agencies side-step the law
The local debt collector and legal firms who are contacting a borrower making demands are often committing fraud on mass proportions:
1) they are making demands claiming to act on behalf of the banks/lender as the legal creditor when in fact the bank/lender is no longer the legal creditor as they have sold the loan to the firm in question. The banks no longer have locus standi to make claims against borrowers if they sold the debt and any debt collector or legal firm who attests that the bank is the legal creditor when they are not is acting fraudulently
2) these firms are untruthful in their correspondence and dealings with defaulting borrowers
3) these firms are actively re-packaging and selling debt through multiple transactions to other players in the market and are not notifying borrowers on the chain of ownership on said debts which is a strict requirement of NCA of 2000
4) In many instances there may not even be approval from the borrower in the credit agreement for said sale by bank and/or collection firms as per requirements of the NCA of 2000
Threats and intimidation are necessary to the fraudulent collection of debt
Collecting firms are aware of the legal grey area in which they are operating and are aware of contravention of multiple credit, financial and banking regulations and as such simply avoid divulging any of the matters highlighted above. They are also aware of the cost of taking matters to court so they use the tactic of intimidating and harassing borrowers for money until they recover on the debt they bought for cheap. It’s lucrative business.
Their staff are carefully trained in the tactics of intimidation and threats. Mention to them that they are breaking the law by attempting to recover prescribed debt, and they will go silent. Tell them the bank is engaged in reckless lending and hang up the phone. Or have some fun with them – ask them for their names and details so you can file a criminal complaint. Start harassing back. It is also safe to assume that most of these debt collectors are on some sort of incentive to meet targets or quota scheme initiatives to meet collection targets.
You may have some reprieve or escape from the debt based on these critical analysis points:
a) You entered into a credit agreement with the principal lender and if they choose to sell your loan without adhering to credit regulations, they are taking this risk on themselves. You now have a loan for which you no longer have any formal credit agreement in place with any legal entity. They failed to notify you that the loan has been sold or ceded, which could be grounds to have the loan agreement declared null and void
b) In many instances the debt may be long past the date of prescription and if you have not acknowledged the debt applicable under stipulated lengths of time for prescription. For most loans (except mortgage debt) this is three years after the date of first default. In simple terms, if three years have elapsed since you first defaulted on the debt, the law says it is prescribed and you are under no obligation to pay (even if in the meantime to tried to catch up on some payments). The solution is to simple stop paying and invite them to bring legal action if they so choose. The courts will back you up on this.
c) All letters of demand issued under false pretenses and false claims of representation are effectively fraudulent and therefore unenforceable if they are determined to be factually inaccurate.
d) They will likely not issue you a section 129 notice which is legally required before any legal claims are issued against you because this is a legal document which requires factual attestation and divulgence of the true legal creditor.
An example of a notorious entity engaging in this type of behaviour are MBD INC Attorneys which has come under the spotlight in recent years for dubious debt collection activities. This type of behaviour seems ot be the norm for the industry as a whole.
Questions to ask the debt collector
Prior to acknowledging any debt owed, I suggest you pose the following questions to the debt collector:
1. Please can you indicate if you purchased the debt from the bank/lender or if you are their appointed legal mandate to collect the monies?
2. If you are their appointed legal mandate please can you provide me original scanned copy of the legal mandate and agreement including date of effect?
3. If you are running debt collection services as a contractor could you please provide me your debt collector’s registration number?
4. You have cited the credit bureau and credit laws in your demand which pertains to the National Credit Act (NCA) and other laws. Are you aware then that under the same NCA it indicates that lenders are required to notify the borrower of any cessions and/or sale of their credit agreement and it also stipulates that the borrower must provide consent?
5. Are you aware that making claims in for monies owed to a creditor who is not the legal creditor is perjury and amounts to an intent to commit fraud in our court system?
6. Please can you declare formally in writing that the debt is owed to XXXXXXX, the original lender as the true legal creditor?
7. Can you please provide me with an original copy of the initial credit agreement with the principal lender?
8. On what date did debt agreement default?
9. Please supply a formal copy of the certificate of balance for the outstanding debt, with the principal lender's legal and credit provider.
The collecting firms can blatantly lie or avoid these matters altogether and/or may provide you with fictitious or fraudulent documents to try and maintain the facade of the bank/lender maintaining legal claim against you for monies owed. However, everything provided would be scrutinised with a fine tooth comb and a healthy and reasonable degree of suspicion. Furthermore, issuing false statements and documents by these collecting firms is a risky practice which sets them up for establishing prima facie evidence against them indicating fraudulent activities.
Only through scrutiny by the general public will we ever these, frankly criminal, enterprises be brought to heel as the regulators do not have any interest in actually regulating these entities.
Please note though that while this activity is occurring in the industry without a doubt, you should be mindful that there are many instances where the collecting firm is legally acting as the mandated agent appointed by the original bank/lender and their legal position should be determined and respected if all above board. As a borrower, you should then consider your rights and other options available to you.
Previous article by Jack Darier: Busted! Joburg man catches Standard Bank out over securitisation denial
Email Jack at firstname.lastname@example.org.
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