In most instances, a person gets credit from another party intending to pay off their loan or debt as soon as possible. It is not the desire of any human being to remain financially indebted to another for very long periods. However, harsh circumstances may follow a debtor, rendering them unable to settle their debt as agreed. In such cases, the debtor files an acknowledgment of debt.
Acknowledgment of debt that is often abbreviated as AOD is a document where a debtor admits their liability to a particular creditor. The acknowledgment of debt form is available online for all members of the public. In the document, the debtor specifies the amount they owe and outlines their intention to settle this debt. Typically, the paper shows a legally binding agreement on the signatory. The terms and conditions therein often protect the creditor from losing their money.
Why should you get an AOD?
From the acknowledgment of debt template, it is apparent that the document is often made by creditors to get a quick judgment against debtors. It eliminates the need for a lengthy trial process since it provides all the facts surrounding the borrowing and lending agreement. When the decision is made, the creditor may use their judicial order to collect the debtor’s property that is worth their debt if this is in the AOD. The debtor must, therefore, always read and understand the terms of the AOD before signing it.
Is Acknowledgment of debt regulated by the National Credit Act?
Unfortunately, there is no straightforward response to this question that is frequently asked. The National Credit Act fails to mention AODs explicitly. Nonetheless, it is necessary to know that an acknowledgment of debt can be categorised as a credit transaction within the requirements of the National Credit Act. This is because it contains deferral of payment that usually comes with a certain amount of interest or fees.
If the acknowledgment of debt letter shows that the transaction is not simple and straightforward, the National Credit Act may not apply. Examples of complicated loan situation where the act is not valid are a debt that is shared among many family members or a shareholder loan to the company.
In situations where a juridical person is a debtor with a net asset value or yearly turnovers that equal or exceed R1 million, the AOD is exempt from the National Credit Act. This provision is made without regard for the presence or absence of deferral of payments or any interests being levied.
Where the debtor in the AOD is a juridical person with a net value or yearly turnover that does not surpass R1 million, and the document shows a credit agreement of over R250,000, the National Credit Act is invalid. If the juridical person has signed an acknowledgment of debt form of an amount less than R250,000 and their net value or annual turnover is below R1 million, the rules in the National Credit Act apply.
Does the National Credit Act regulate AOD? The correct response is that the validity and application of the act to the AOD is based on the facts, nature, and characteristics of the person who enters into an AOD as a debtor. Before entering into an AOD, therefore, both the creditor and the debtor should analyse their transaction to understand their obligations as well as their rights.
In circumstances where the act is applicable in the AOD, the creditor may face some adverse implications. They may be subjected to thorough credit assessment, the interest rate may be capped, and the compliance with pre-enforcement processes may cause unforeseen challenges when taking action against the debtor. All these possibilities lead to time wastage as well as monetary losses.
National Credit Act consumer rights
This South African act was established to ensure that consumers have access to fair and non-biased credit and to ensure that creditors can recollect their monies without strain. The statute provides for the following rights of the consumer:
- Right to apply for a loan
- Right of protection against bias and prejudice when credit is being granted
- Right of information as to why credit has not been issued, if the consumer asks.
- Right to retain a copy of the credit agreement
- Right to get a credit agreement that utilises uncomplicated and straightforward language
- Right to have all personal data and financial records remain confidential
- Right to be aware of all costs, fees, total instalments, interest rates and any other details related to the credit agreement
- Right to decline any increases to the consumer’s credit limit
- Right to apply for debt counselling if the credit becomes overwhelming
- Freedom to decide on whether or not to be alerted about the creditor’s services and products via email, mail, SMS, telephone calls or campaigns.
Does the creditor have any rights?
All debt collectors and creditors can attest to the fact that recovering debt can be a tedious and overpowering process. There are debt collection rights that make the process smoother. According to the National Credit Act, a debt is prescribed if the consumer defaults on their loan repayment for three years and does not sign an AOD. This scenario can be avoided if the creditor conducts affordability assessments before issuing a loan. The creditor should be registered with the Council for Debt Collectors as is stipulated in the National Debt Collection Act.
The debt collector should follow these rules when collecting their debt:
- They must not intimidate or make counterfeit and misleading representations such as counterfeit legal files.
- They must not misrepresent or misconstrue their identity when relating to the debtor.
- They must not fabricate and spread untrue information about the consumer or threaten their creditworthiness.
If a creditor or debt collector disregards these rules, they violate the code of conduct and may face serious consequences. Credit collectors should formulate a strategy, based on the law for collecting the amount owed.
When a law becomes overpowering due to unique circumstances, an acknowledgment of debt form should be signed. Depending on the terms and conditions, the National Credit Act may or may not regulate the AOD. Regardless of other factors, all debtors must always be ready, willing, and able to repay any loans they take.