ATTORNEYS vs DEBT COLLECTORS

debt-collection-spslaw

ATTORNEYS vs DEBT COLLECTORS

A lot of creditors are moving over to make use of Debt Collectors rather than attorneys. The reason is that the attorneys have to work in terms of the Rules of Court and the Debt Collectors do as they please.

This is, however, not the true situation. In a lot of instances the creditors are being misled by the debt collectors to the detriment of the creditors. An example of this is that Debt Collectors offer to collect the debt on behalf of a creditor on an agreement that the creditor receives 75% of each payment received by the Debt Collector. This is the only basis of the agreement and the creditors fall for it as they see that they might get paid a small amount on a monthly basis. What the creditors do not calculate is the bigger loss they suffer at the end of the collection process.

My first question is whether there is any manner in which a creditor can monitor payments actually received by the Debt Collector? If the Debt Collector states that this amount was received and here is your 75% then the creditor has to accept that as the true figure, whilst it may be that the Debt Collector has an extra set of accounts on which other payments are received, which are not disclosed. The Trust account of the Debt Collector is also supposedly audited but does the auditor know which money has to be in which account and for whose benefit the money was received?

The situation with collections done by attorneys differ somewhat to that of the Debt Collectors. The attorney is obliged to receive payments and appropriate it firstly towards costs, then interest and then capital. On a large number of handovers it is then clear that it will be a very lengthy process before the creditor starts seeing results. The attorney may recover from the debtor all the costs on a party and party scale and if the debtor wants to pay the debt off in instalments then the attorney may insist that the debtor pay the attorney and client costs.

Eventually the creditor receives payment of the capital amount plus the interest from the attorney with a complete statement of account indicating the amount collected, how much of it was for costs, interest and capital.

Most Debt Collectors do not report or pay the interest over to the creditors. They then take 25% of the capital, the interest on the account as well as the maximum fee of R814.00 per matter. They further issue summonses through attorneys in any event so the costs will automatically accumulate at the end of the matter. Regulation 11 states that the debt collector may not collect more than the capital amount in lieu of costs to a maximum of R814.00. If the Debt Collector then has an agreement with the creditor to pay only 75% of the capital to the creditor, is this agreement legal?

In my opinion it is not legal to enter into any agreement in conflict with an act or regulations. This would mean that the agreement is illegal. The act further states that the debt collector has to report in full to the creditor with regard to all the capital, interest and costs collected. How can a creditor then accept payment of 75% without a statement of account?

Some relevant sections of the act, if you consider making use of Debt Collectors:
Section 8 stipulates that a debt collector must be registered and according to the definition it means that every person employed at the Debt Collection Agency who works on debt collection must be registered.

Section 19 stipulates that the debt collector may not collect more than the capital, legal interest and costs to a maximum amount of R814.00. The Minister of Justice may change the amount of costs from time to time. There are other costs which they may collect, such as costs of a settlement statement requested by the debtor, copies and such.

To address the legality of the agreement between Debt Collectors and creditors again I wish to point out that if a body corporate hands debt over to the collectors for collection they must have the consent of members of the body corporate to make the agreement legal. The reason for this is that the body corporate is giving away 25% of its book debt which falls under the ownership of the body corporate which exists of all its members.

The same situation arises with schools. May a Government School give away 25% and the interest on its book debt to a debt collector without having the authority of the parents? Keep in mind that the Governing Body of a school is representative of the parents of the students. Is the decision to give away 25% and interest made by a Governing Body of a school to the benefit or the detriment of the rest of the parents and all the students? Another question is that, if it is a Government School, do the school fees not fall under ownership of the State under management by the Governing Body?