Debt collection practitioners – the biggest threat to debt collection practices

February 1st, 2013

By Peter Rafferty

The old joke goes that 95% of lawyers give the other 5% a bad name.

Although this may hold true in many scenarios, this desperate and angry note deals with the 5% of unscrupulous lawyers employing overbilling techniques whereby debtors in the debt collection industry are overcharged on a large scale.

It is with utter disgust that I read article upon article about lawyers and debt recovery agents who overcharge debtors by raising fees that they are not entitled to or who do not apply the relevant caps established by law, simply to make extra money.

Make no mistake, such actions are illegal and must be dealt with in the harshest possible manner. Every time a lawyer or a debt collector overcharges a debtor or charges interest or fees in excess of the established caps, that lawyer or debt collector strengthens the case for the government to regulate the industry further.

In this way, the 5% of irresponsible, untrustworthy and dishonest lawyers and debt collectors who make use of such illegal overbilling methods will determine the way our industry will be dealt with in future.

I am personally not ready for the bad 5% to determine the future of the good 95%.

I have only one message for the 5% who change the meaning of words in legislation to suit themselves while they are really trying to exploit people: ‘Get out of our industry’.

By now, if there is any lawyer in South Africa who does not know the difference in application between the workings of s 103 of the National Credit Act 34 of 2005 (NCA) and the old common law in duplum rule, that lawyer should not be practising law. Yet we find case upon case where lawyers do not apply the mechanisms of s 103 or (in cases where the NCA does not apply to a specific cause of action) the in duplum rule.

They simply disregard it because they can collect more from a debtor who does not complain, which means that they can charge more fees. This is criminal.

Then we also find ‘smart’ lawyers (who are obviously smarter than the rest of us) who believe that fee caps established by s 103 of the NCA do not apply to lawyers’ fees and only apply to fees charged by creditors and debt collectors.

It takes a quick look at what happened in the personal injury space to recognise that lawyers who exploit people put the entire system in jeopardy.

In my opinion, there is little doubt of the Road Accident Fund’s inability to perform the administrative functions entrusted to it, but this did not ultimately cause the collapse of the personal injury arena (and along with it numerous legal practices). Instead, in my opinion, it was the fact that too many lawyers were dishonest and were exploiting their clients and the system for purposes of self-enrichment.

In short, dishonest lawyers destroyed the personal injury practices of many other lawyers. (The worst thing is that these dishonest lawyers are so dishonest that they even hide the truth from themselves. They blame everyone from the government to the junior clerk in the Road Accident Fund’s office for the demise of that industry, but not themselves.)

The question is whether we, the participants in the debt recovery arena, are going to allow this to happen again. Are the good lawyers going to stand by while the bad 5% of lawyers continue to exploit debtors from whom they are collecting debt? If so, we will have only ourselves to blame when the government decides to regulate things differently.

Recently the Minister of Finance and the Banking Association of South Africa jointly stated that they were committed to fighting illegal debt recovery practices (‘Joint statement by the Minister of Finance and the chairperson of the Banking Association of South Africa’, accessed 29-11-2012).

This is honourable, but the motivation for this has a lot to do with those lawyers and debt collectors who overcharge debtors. The banking association, representing all the banks, has agreed that banks will instruct their collection panels to cease making use of garnishee orders and will restrict the use of debit orders.

Legal practitioners have a duty to ensure that they respect the rule of law and that their colleagues do the same. It is not good enough to turn a blind eye when a practitioner sees a colleague destroying our industry, whether it is done in ignorance or for self-enrichment.

We need to preserve what we have. If you want to be the master of your universe, you need to be one of the good lawyers. If you are one of the lawyers who has gone over to ‘the dark side’, you need to re-evaluate the damage you are causing to the rest of us.

Peter Rafferty BProc (Unisa) PEC (SBC) is an attorney at Raffertys Incorporated in Centurion.

This article was first published in De Rebus in 2013 (Jan/Feb) DR 66.