Are you over-charging or charging fees that are not allowed?
In the same way as a plumber knows what he charges for a call-out fee or for a replacement of a tap, every debt collector should know what they are entitled to charge for the services they deliver.
One difference between a debt collector and a plumber, however, is that the debt collector has to adhere to the prescriptions of specific fee structures that have been prescribed by law. It is well known that a debt collector is only entitled to charge fees that are prescribed by the Debt Collectors Act. The debt collector, and the creditor for that matter, has no discretion whatsoever as to whether they may charge anything else besides the prescribed fees. Every debt collector in South Africa is expected to abide by the code of conduct and the prescribed tariffs.
It is therefore shocking and amazing to see that many debt collection agencies do not follow the rules regarding what may be charged and what is off limits.
In the same way, the National Credit Act provides very strict instructions on how to calculate interest and where the accumulation of interest and fees should be prevented or halted … i.e. the old In Duplum Rule (now Section 103 of the NCA).
The question raised in this article, is whether your software system sticks to the rules or not. Does it allow you to contravene the law or does it prevent you from accidentally doing so? Does it accommodate you breaking the law, silently looking the other way when you do? Does that make your software vendor equally guilty of breaking the law, or do we accept that it is OK for a vendor to knowingly allow an illegal activity to continue? That would make the vendor equal to a security guard at Edgars assisting a shoplifter in exiting a store with stolen items.
This article looks at three different fees often charged by debt collectors to a debtors account while they are not entitled thereto. They are SMS fees, tracing fees and contingency fees.
SMS: The charges for SMS messages have been outlawed in the past in the rather famous judgment of Judge Southwood in the CreditWorx vs the Council for Debt Collectors. The Judge went to great pains to explain that the legislator did not provide therefore and thus, irrespective of how unfair it seems, it is not to be charged. At best, the collector can charge up to a maximum of R15 plus Vat per matter therefore under the category of other disbursements not specifically provided for (item 3 of Annexure B). Your client (i.e. the Creditor) has no say whatsoever about this. The creditor cannot instruct you to charge SMS costs (if the total cost per matter would exceed the amount provided for in item 3) either. Would you follow your clients instructions if they told you to blatantly break the law? During the very recent history the legislator has allowed the charging for SMS messages … but only to a point. Right now, a Debt Collector may not charge for more that 10 SMS messages per month.
Tracing fees: The same argument goes for the charging of a tracing fee. We all understand that a tracing fee is an inherent part of our industry and no one can dispute that being prevented from charging a tracing company’s bill for tracing the debtor to the debtors account seems fundamentally unfair. However, like having to pay a TV license fee (that also seems unfair if you don’t use the service), it is the law, and charging such tracing fees to the debtors account used to contrave the Debt Collectors Act and was therefore illegal. Once again, you could only debit an amount not exceeding R15 plus Vat under item 3 of Annexure B. Now, the legislator has included a fee for credit bureau searches, which is also subject to a maximum.
Receipt Fees: The next fee is the contingency fee that you charge and here, many debt collectors remain in the dark as to the mechanics thereof. The Debt Collectors Act specifically provides that a debt collector MAY NEVER charge more than 10% plus Vat of the amount received from the debtor as a collection commission (the Act refers to a receipt fee). Why then do so many debt collectors negotiate a higher percentage with their clients AND CHARGE THAT TO THE DEBTOR’s ACCOUNT?
It is perfectly in order to negotiate a higher percentage with your client but the client will have to pick up the difference. It is standard operating practice in our industry to negotiate higher rates and it is also standard procedures to charge it to the Creditor (correctly), but there are a number of creditors who instruct the debt collectors to recover that from the debtor; and a number of debt collectors who simply believe that they are entitled thereto … just because their client said so.
Your reputation is on the line and you should decide whether your actions are in line with the legislation or not. If it isn’t, you should understand that you are taking the risk and, even if there is little chance of being caught, you should reconcile yourself with the fact that you are breaking the law. In addition, your software vendor should know that his supplied solution is assisting you in breaking the law. Is that what we want for our industry?
Let us protect the reputation of our industry and get things right.