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Debt buying in SA

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Tweefo
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« on: June 07, 2016, 07:39:47 AM »

Last week Tonight's Debt episode https://www.youtube.com/watch?v=hxUAntt1z2c&feature=em-uploademail brought back some unpleasant memories for me. For a few years after I went bankrupt, I got similar calls.  In one case it went through 3 or 4  different firms before they stopped trying. Are unpaid debts ever "forgiven" here in SA?
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Mefiante
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« Reply #1 on: June 07, 2016, 08:31:43 AM »

Are unpaid debts ever "forgiven" here in SA?
Yes, they are, in most cases after three years.  But—and this is the critical factor—the debtor has not in any way acknowledged the alleged debt for that period.  With home loans the prescription period is 30 years.  The National Credit Act also includes the so-called “in duplum Rule” for defaulting debtors.  This provision mandates that a credit provider may at no point ever claim more than twice the original capital amount.  That is, the creditor must cease adding interest and administration fees once the total reaches twice the amount that was originally borrowed.

'Luthon64
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Faerie
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« Reply #2 on: June 07, 2016, 09:07:54 AM »

The laws have become tighter in last few years, I still received calls for 15 year old debt as late as last year (had a similar life experience as you).  They are no longer allowed to hound you as they used to and as Mefi sez, as long as you dont acknowledge the debt after the three year period, they can do squat, they will still try though, I just tell them they have the wrong number and eventually they remove the number off their systems or give up or whatever.

They do love to threaten you with your credit profile, but I've had them chucked off mine with a simple email to ITC/Experian citing prescribed debt who in turn then blacklist them against your profile and they cannot list you without your knowledge.

Its not a nice feeling though, remember my stress levels and blood pressure when the phone rang....
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BoogieMonster
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« Reply #3 on: June 07, 2016, 09:54:45 AM »

When I last moved, I somehow scored a landline number that had previously belonged to a defaulter. That was 5 years ago.

We get debt collection calls for that person to this day. For ex: 7am on a sunday morning when I'm still in sleepy-land the phone will ring, and of course if you point out the have the wrong number they climb down your throat for lying. I've become adept at hanging up on these morons.

Legally they can't, but oh hell do they try.

I'm a fan of John Oliver, and I have to say I was shocked that he could buy $15m dept off for just $60k. I really sometimes hate this morality shit that I have. However it got me thinking... I wonder how ethically you could go about, say, only collecting $120k off of the $60k. You'd think people would jump at the opportunity if you offered to clear their hospital debts at a huge discount. However being bad debt to start with, I question whether most of these people would be willing to even meet you 1/10th of the way. Would be a lucrative form of charity though... Sometimes the best outcomes are where everyone wins.
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Mefiante
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« Reply #4 on: June 07, 2016, 10:48:45 AM »

There are several debt collection companies in SA that specialise in buying up bad and/or written-off debt, typically in the retail space (Edgars, Woolworths, Joshua Doore, etc.) and unsecured lending space (African Bank, Capitec, Direct Axis, etc.) where individual debt amounts are relatively small.  The original credit providers in many cases don’t have the required infrastructure to collect from persistent and/or repeat defaulters.  There comes a point, after much effort has been expended on attempts to collect, when the likelihood of collecting on a particular debt becomes too low, and the associated collections costs too high, for pursuing the debt to be profitable.  At that point, the credit providers usually write the debt off so as to meet GAAP accounting standards, and offer on auction an ensemble of such debts incurred by similarly behaved debtors at roughly the same time in similar amounts (a so-called “book”).

The collection company that is interested in the book will usually do an evaluation exercise to determine a reasonable offer, based on debt history, debtor characteristics, nominal book value and its own success with similar books it chased down in the past.  The offer is normally in the range from 3% to 12% of the book’s nominal face value, so buying a book nominally worth $15m for $60k (i.e., 0.4%) is remarkably low.  The original credit provider will then award the book to the preferred bidder, usually the highest one.

As far as the morality of these practices goes, let’s rather not go there.  The stench is overwhelming—on both sides of the debate.

'Luthon64
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Tweefo
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« Reply #5 on: June 07, 2016, 11:19:26 AM »

I for one did not make the debt with the idea of not paying it back, but shit happens. My creditors lost a few million, so paying them back is never going to happen. But won't it be a little bit more fair to give the debtor the chance to match that reasonable offer?
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Mefiante
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« Reply #6 on: June 07, 2016, 11:59:28 AM »

But won't it be a little bit more fair to give the debtor the chance to match that reasonable offer?
On the face of it, that sounds like it would be a reasonable and compassionate thing to do.  The problem is that the debt collections agency that bought the book has its own personnel and infrastructure to pay and to maintain, as well as shareholders who expect profits and dividends, on top of the initial capital outlay for buying the book.  Moreover, if such an approach became standard practice, the default rate would skyrocket overnight once it became known that people merely need to wait long enough without paying their debts for those debts to shrink suddenly and substantially at some point.

Debt collection is a numbers game.  The more debts you own and pursue actively, the more likely it is that your forecasts and projections will be reliable.  Still, the debt collectors in many cases do attempt to negotiate a reduced settlement figure and payment plan with individual debtors in order to encourage payment.  Most famously, SANRAL did exactly that recently with historic e-Toll debt.  In that specific instance, it was a monumental failure mostly because the majority of people in the first place simply repudiate any and all alleged e-Toll obligations.

One of the trickiest aspects in this sordid game is the ability to distinguish between debtors’ unwillingness and their inability to pay.  For example, TV licences and municipal rates accounts are grudge debts and therefore are much more difficult to collect than, say, credit card debt.

The National Credit Act addresses the inability to pay to a minor extent through making provision for so-called “debt counselling” for stressed debtors and “debt review” for those who are over-indebted.  In SA, slow economic growth, reckless and corrupt government, and the huge upsurge in average national indebtedness (i.e., the ratio of total monthly debt instalment amount to disposable income) from just on 60% to almost 80% over the past 15 years, aggravate the situation significantly, and the outlook isn’t improving.  People just borrow more, on the probably erroneous premise that “tomorrow will be better.”

'Luthon64
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Tweefo
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« Reply #7 on: June 07, 2016, 13:39:06 PM »

Quote
People just borrow more, on the probably erroneous premise that “tomorrow will be better.”
True. Took me awhile, but I am now finally at the point of "if I can't pay cash, I can't afford it". I think one of the big drivers for inflation is the easy credit, it's supply and demand at the end that determines somethings price and easy credit  = more demand.
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Faerie
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« Reply #8 on: June 07, 2016, 14:07:45 PM »

In my case, I divorced all wrong and landed up with all the debt and the house was sold under value as well and I sat with that shortfall, in short, I financially crashed with an odd R200k total debt and earning something stupid like R5k a month.  I was fortunate enough (this was in the days before debt counselling was a thing) to come across an attorney who basically managed all these affairs for me and literally held them off my back by paying them 50c to a R1 a month for 5 years, after which (in those days) they couldnt claim any more from me. My credit record was never adverse and I could get back on my feet again, and it did take more than 5 years to do so.... Debt counselling is just another money making business and once you've registered with one, you are stuffed.  Rather make arrangements and pay as much as you can, if you make arrangements and keep to it, they cannot blacklist you.  They have to take any offer, if they dont then they cannot prosecute you further as you showed good intent and they declined. Had a case like that a while back in the papers, and the guy walked away. 

We wont speak about ethics and morals in this context, the lines are very blurred.

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BoogieMonster
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« Reply #9 on: June 07, 2016, 14:11:45 PM »

Quote
People just borrow more, on the probably erroneous premise that “tomorrow will be better.”
True. Took me awhile, but I am now finally at the point of "if I can't pay cash, I can't afford it". I think one of the big drivers for inflation is the easy credit, it's supply and demand at the end that determines somethings price and easy credit  = more demand.

I get an uneasy feeling when I think about owing a bank (or anyone) money. I have a very high degree of debt aversion. Maybe because a long time ago I sat and really "understood" compound interest? The only debt I have is my bond. I often pay off vehicles long before their due date, the teeny fleet I own, I own outright. Even the bond is paid for far in advance at this point. I see a bond as a necessary evil, the only reasonable way to get eventual home security.  The math on how much you save on compound interest for every R1 "spent" on outstanding debt is what I always find extremely compelling. And I must say, are the eventual payoffs very nice to have... when they eventually start becoming obvious (or every time the repo-rate increases). Most people however, happily auction their future for the present. They would say I defer "living" to the future.

I know it sounds like "look at Mr Moneybags over here", but the reason I got here is my thrift and unwillingness to take extra credit even when things were dire and I was shaving pennies every which way just to get to 0. For many years I worked hard and sacrificed many things to lay a foundation, even when it was painful and I really wanted that extra goody or two.

I think if I were a business person this would be frowned upon. I'd be "under leveraged" permanently. I can't say anyone taught me to be this way. Everyone who brought me up are pretty normal users of credit. A predecessor even went bankrupt and paid reduced installments until their death because of it. This seems to be a personal aversion only.

I've seriously had conversations about this with people I consider quite intelligent: Some people willingly and knowingly choose to "have fun now", and are even willing to struggle in their old age since then "it's all over anyway". I do see that they seemed to be having a bit more fun, but now I'm starting to pull ahead rather swiftly. I wonder the expense they suffer in stress and angst. I counter that it could be sacrificing 5 years of thrift now vs 20 of agony later. They are unmoved. Such are us humans.

Tweefo: Don't feel bad about it. It's not great but these things can often not be helped. It's this very realisation that makes me paranoid about it.
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Mefiante
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« Reply #10 on: June 07, 2016, 14:21:52 PM »

I think one of the big drivers for inflation is the easy credit, it's supply and demand at the end that determines somethings price and easy credit  = more demand.
Yup, and it gets worse.  What many people don’t realise until it is explicitly pointed out is that the vast majority of retailers have fundamentally changed the nature of their businesses over the past two or three decades.  They have changed from direct suppliers of goods or services to credit providers who facilitate the acquisition of those specific goods or services.  They pulled off this magic trick by offering customers those nifty store cards.

These cards are actually disguised traps.  From the consumer’s perspective, there’s the credit aspect where you can use the card to buy stuff and pay for it later and/or in instalments.  But the real advantage is to the retailer or chain.  First, they get to add some admin charges and interest if you don’t settle in short order.  Second, the card facilitates greater loyalty to the retailer or chain by capturing the card holder since the card can only be used at the retailer’s outlets.  Third, the card smooths the retailer’s revenue stream because a large portion of payments are made in known instalments, and so cash flow is less sporadic or seasonal.  In turn, this allows the retailer to relax his provisioning requirements, freeing up cash reserves for other endeavours such as expansion or advertising.

So, the next time you walk into Edgars intending to use your Edgars card to buy a pair of Levi’s, don’t think of Edgars as a clothes shop.  Think of it as a lender wearing an Edgars sign and exhibiting Edgars goods.



We wont speak about ethics and morals in this context, the lines are very blurred.
The nasty thing about all of this is that the National Credit Act and Consumer Protection Act were intended to curb a huge brace of scurrilous practices in the credit industry.  They have largely failed in this regard; in fact, the situation is considerably worse now.  One major reason may be that there was a lengthy period between when it was known these laws were coming and when they finally came into effect.  During this period credit providers of all shades extended credit to anyone who wanted it, and much of it quickly went bad, as was predictable.  Almost ten years later, we’re still seeing the effects of that debt bubble.



P.S.:  Ditto, BM.  We hate debt.  We hate it with a morbid and fanatical detestation, probably the way IS hates the US.  Our only debt is the last 12% of a home loan.  As you say, a home loan is a necessary evil because very few are fortunate enough to be able to save up that sort of sum.

'Luthon64
« Last Edit: June 07, 2016, 14:39:14 PM by Mefiante, Reason: Added prescribed postscript. » Logged
BoogieMonster
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« Reply #11 on: June 07, 2016, 14:39:03 PM »

So, the next time you walk into Edgars intending to use your Edgars card to buy a pair of Levi’s, don’t think of Edgars as a clothes shop.  Think of it as a lender wearing an Edgars sign and exhibiting Edgars goods.

I did temp work once for a low-end furniture dealer (although I think they're all like this in that segment) that actually ran as a loan-shark and furniture rental business. Every single branch had more collections staff than sales staff. Their vans would go out loaded with furniture and return loaded with different furniture. I think you could view their customers' homes as for-profit warehousing. It was that bad.

Seeing these poor (in both senses) people come in and buy stuff, was depressing once you understood the action of the mill.
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brianvds
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« Reply #12 on: June 08, 2016, 05:54:15 AM »

I get an uneasy feeling when I think about owing a bank (or anyone) money. I have a very high degree of debt aversion.

Same with me. I have never owed more than minimal amounts in my life. The most I ever owed was study debt: I studied through Unisa (way back when it was still an actual institute of learning), and would sometimes make use of their offer of paying half the fee later. By the middle of the year, I would have no debt left. And so, when I finally finished my degree, I had not a cent of study debt.

Never had a home loan to pay off, for the simple if slightly depressing treason that I have never earned remotely enough to afford to buy even a small apartment. I am definitely heading for impoverished old age, and not because I am running my finances irresponsibly. I just don't have much in the way of finances to run. :-)

I am very much of the school of thought that if I cannot pay cash for something, I cannot afford it. There may be a bazillion perfectly rational arguments as to why debt is sometimes a good thing, but I just don't like that particular sword to hang over my head.
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