Two thirds of account disputes settled in favour of consumers – Credit Ombud

For a relatively small office, the Credit Ombud had to wade through more than 30 000 enquiries and 3 645 disputes in 2022.

The Ombud’s annual report for 2022, released on Tuesday, shows consumers are becoming better informed about their financial rights, and this explains in part why two thirds of account disputes were settled in their favour last year.

A total of R3.4 million was recovered for consumers.

Account disputes represented for 42% of all disputes, with fraud and contractual disputes accounting for 10% and 9% respectively.

Some of the categories that probably should get more attention – such as debt prescription – don’t rank highly among consumer concerns, probably because they do not know how this works.

Debt prescription

In its simplest form, if a borrower defaults on a debt and three years has elapsed since the default, that debt is prescribed (expired) and therefore not recoverable.

This applies to overdrafts, credit card and other debts (although in the case of mortgage debt or court judgment debt the prescription period is 30 years).

However, the credit provider can keep the debt ‘alive’ by issuing summons or getting you to acknowledge the debt via phone call within the three-year period after default.

The Credit Ombud provides the following case study in debt prescription.

A consumer purchased a vehicle and ran into financial troubles in 2019, deciding at that point she could no longer service the monthly payments and surrendered the vehicle. In February 2020, she contacted the credit provider to make an offer to settle the remaining balance on her account, but this was rejected as too low. The credit provider issued summons in December 2022, two months shy of the debt prescribing (which would have been February 2023).

The consumer claimed that the last time she acknowledged the debt was in December 2019, and therefore expected to be absolved of the outstanding debt on the grounds of prescription. A call recording was retrieved from February 2020 and, sure enough, it shows that she acknowledged that she owed the money. Her claim of prescription was rejected and she was held liable for the outstanding balance.

The lesson here for those invoking prescription is never to discuss debts with anyone on the phone or, at the least, do not acknowledge the debt. Those calls are being recorded and will be used against you later. Rather demand all communication be put in writing.

Inaccurate credit bureau listing

Another case study highlighted by the ombud relates to an inaccurate listing by a credit bureau, which can be fatal for those seeking to rehabilitate their credit standing and apply for new credit.

The consumer in this case settled an outstanding account that was six months in arrears with a debt collector.

“For some or other reason, this settlement was not communicated to the credit provider in time, who updated the account to paid-up and closed six months after the actual settlement date,” reads the Credit Ombud report.

“With our intervention, the payment profile was corrected to reflect the actual date of settlement and closure.”

A rule worth knowing about

Another category that deserves more consumer awareness is the in duplum rule written into the National Credit Act (NCA).

In 2019, the Cape High Court heard a case brought by Stellenbosch University’s Law Clinic and Summit Financial Partners seeking a declaratory order confirming the NCA’s so-called statutory in duplum (‘double’) rule – meaning a borrower may not be charged more than double the amount of the loan outstanding at the time of default – including all costs associated with the collection of the outstanding amount as well as legal fees. The court found in favour of the Law Clinic and Summit Financial Partners.

Read: Court decision opens the way for consumers to get billions in fees back

Of the disputes settled in favour of the consumer by the Credit Ombud in 2022, just 1% related to in duplum disputes. This suggests relatively little consumer awareness about this often abused legal concept.

Fraud

In another case study highlighted by the ombud, a consumer picked up that there were purchases made on her account between November 2021 and December 2021 that she had no recollection of. There were no receipts or evidence available to prove the consumer’s claims, though it was established that the purchases were made at locations she would not normally frequent.

“After a lengthly investigation, the credit provider conceded that it would be unfair to hold the consumer liable for these purchases. The credit provider reversed these transactions and credited the account accordingly,” says the Credit Ombud report.

There were also a fair number of contractual disputes logged with the ombud, some of which become tricky when revolving credit facilities are serviced a day or two late and interest is charged for each late day.

There was also one claim of reckless lending, a difficult charge to press when the consumer takes out a loan and proves they are able to service that loan.

Circumstances change, jobs are lost and income declines, in which case servicing the debt becomes more difficult.

In one case, the ombud was asked to adjudicate such a claim of reckless lending, where the consumer argued that the credit provider failed to discharge its obligation to take into account all expenses at the time of application. This, despite the consumer servicing the loan for 18 months. It was decided that the loan was not granted recklessly and the consumer was liable for the outstanding balance.

Lee Soobrathi, head of case management and dispute resolution at the Credit Ombud, says the ombud seldom if ever has to make a ruling. Matters are routinely resolved when the disputants are gathered around a table to thrash it out and come to a settlement. In this respect, the ombud is doing what it set out to achieve.