What to know when settling an account that is on your credit report

Where you do not dispute any information on your credit record and you want to repair your credit record by remedying any negative listing on it, the first step is to consider whether you are legally obliged to pay the account.

Accounts that you are not legally obliged to pay

You are not legally obliged to pay an account that has prescribed. An account is said to have prescribed if the credit provider has not taken judgment against you and you have not signed any acknowledgement of debt pertaining to the account in question. In addition, you must not have tendered any payment in the last three years towards the account. If all of the aforementioned criteria are met, then the account is deemed to have prescribed in law and, as such, you are not legally obliged to repay the account.

CAUTION: You must scrutinise any debt you are called upon to pay to see whether you are in fact legally obliged to repay the debt. Generally, if a creditor does not start civil proceedings to recover a debt within three years from the date of your last payment, you may have a complete defence against the claim. This complete defence is known as the defence of prescription and it is important to remember that the courts will not enforce a debt that is deemed to have prescribed in terms of the Prescription Act 68 of 1969. If you sign an acknowledgement of debt relating to the debt in question, or you tender any payment towards the debt, then you will not be able to rely upon the defence of prescription as you will be deemed to have interrupted prescription and thus will be liable to repay the debt. If someone demands payment from you in respect of a debt that is older than three years, you must demand to see either proof of judgment, or evidence that you signed an acknowledgement of debt in the last three years.

If the above does not apply, and you are in fact legally obliged to pay the account, then you must consider whether you are in fact financially able to pay the account.

Obtaining the current outstanding amount

To obtain the current outstanding balance in respect of any account, you should contact the credit provider or the credit provider’s attorneys of record. Such details may often be included in your credit record or, if not, you can try and obtain the contact details from the credit bureaux.

CAUTION: Remember that the balance listed as outstanding on your credit report is not necessarily the current outstanding balance. The current outstanding balance is likely to be more if you have not made any payments towards the account since the date of listing. Included in the current outstanding balance will be interest, legal fees and charges.

Your right to obtain a statement detailing the settlement amount

A credit provider must deliver, without charge to the consumer, a statement of the amount required to settle a credit agreement. The credit provider is obliged to deliver the statement to you within five business days and the statement may be delivered orally or in person, or by telephone, or in writing, either to the consumer in person or by SMS, mail, fax or email or other form of electronic communication. (Section 113 of the National Credit Act)

CAUTION: The settlement amount detailed in the statement you receive is valid and binding for a period of five business’ days after the delivery of the statement to you. Further, a statement in respect of a credit facility is not binding to the extent of any credit to that account, or charge made to the account after the date on which the statement was prepared.

What to do when you dispute details on a statement of account

You have the right to dispute all or part of any credit or debit detailed in the statement of account that you receive. (Section 111 of the National Credit Act)

To dispute any debit or credit in the statement, you must deliver a written notice of your dispute to the credit provider. The credit provider must then give you a written notice explaining the disputed entry in reasonable detail or confirm that the statement was in error either in whole or part and set out the revised entry.

CAUTION: A credit provider may not begin enforcement proceedings on the basis of a default arising from the disputed entry until the credit provider has processed your notice of dispute and explained the disputed debit or credit in the statement given to you.

I am struggling to obtain a statement of account

If a statement is not delivered to you within five business’ days, you may apply to the National Consumer Tribunal for an order compelling the credit provider to provide the statement of account. The National Consumer Tribunal may also determine the amounts in relation to which the statement was sought and may make any appropriate order to correct the statement that gave rise to the dispute. (Sections 114 and 115 of the National Credit Act)

National Consumer Tribunal National Consumer Tribunal

• Tel: (012) 683-8140
• Fax: (012) 663-5693
• Email: Registry@thenct.org.za
• Website: www.thenct.org.za

Negotiating a reduced settlement amount

When you intend settling any account, it may be worth your while to look into whether the creditor will accept a reduced settlement amount as a final settlement of the account. Many creditors will accept a reduced amount as they at least receive a percentage of what you owe them.

When negotiating a reduced settlement amount, you must inform the creditor that you are having trouble paying the full outstanding amount that the creditor now claims, but that you are willing and able to pay a “lump sum” amount, provided they accept the amount as final settlement of the account. Further, you should advise the creditor that you do not have any other resources at your disposal and that the “lump sum” amount is all that you can afford.

Should the credit provider accept the reduced settlement amount, you should immediately ask for confirmation of their acceptance in writing. Without an agreement in writing, you may find that paying over the “lump sum” amount does not result in closure of the account, but that you have, in fact, still to pay the remaining balance in the future. For instance, if judgment has been taken in respect of an account that you settle, you will still have to make a rescission application to have the judgment listing removed from your credit record before the data retention period for that listing expires. In such an instance, the credit provider may refuse to consent to the rescission of the judgment where the account has been settled by way of a compromised or reduced settlement amount and may require that you pay the difference between the settlement amount you paid and the full amount that was outstanding at the time of your settlement of the account in question!

CAUTION: When settling an account in respect of which a judgment has been granted, you must obtain the credit provider’s undertaking that they will consent to the rescission of the judgment upon your paying a reduced settlement amount. Certain credit providers have a policy whereby they do not consent to the rescission of a judgment where the judgment relates to an account that has been settled by way of a reduced settlement amount.

The in duplum rule simplified

The in duplum rule is entrenched in our common law and provides that interest stops running when the upaid interest equals the outstanding capital. Section 103(5) of the National Credit Act takes the in duplum rule further in that it specifies that not only does interest stop running when the unpaid interest equals the outstanding capital, but that initiation fees, service fees, credit insurance, default administration charges and collection costs, as well as interest, should not exceed the unpaid balance of the principal debt under the credit agreement as at the time that the default occurs.

CAUTION: Before you settle any account, check to see whether the in duplum rule as entrenched in the National Credit Act has not been violated. In a nutshell, once you are in default with an account, you never have to pay back more than double the unpaid capital borrowed, even if interest and other charges have been added to the unpaid capital amount.