Attorneys vs Debt Collectors

The developing situation:

More and more creditors are using debt collectors rather than attorneys to collect debts owing to them by their debtors. This situation is not ideal for the creditors themselves, as this ends up actually costing the creditors more in the long run.

What is actually happening?

 

“Debt collectors operate as they please whilst attorneys are governed in terms of legislation and the rules of court”.

The above statement is the perception, but below are examples of how debt collectors may operate outside the law.

Consider this example;

A Debt Collector offers to collect a debt on your behalf by agreement that the creditor receives 80% of each payment received by the Debt Collector.

It is important to keep in mind that the Creditor cannot monitor how much is received by the Debt Collector. The Debt Collector may indicate that an amount of R50 000 was received for an owing debt of R60 000, they then take their 25% as per agreement and transfer over R37 500 to your account.

In actual fact however, the Debtor may actually have paid more than R50 000, but the Debt Collector may have further accounts in which money is received when collecting.

The Trust Account of the Debt Collector may be audited, however, the auditor will not know how much money is owing and on behalf of who the funds were received.

 

How do Attorneys do things differently?

 

Attorneys are obliged to receive payments and appropriate it firstly towards costs, then interest and then capital. Once the time then comes for the creditor to receive the money, the creditor may request a complete statement of account, indicating the amount collected and apportionment of the received funds to costs, interest and capital.

Most debt collectors do not pay over interest to the creditors, they take the maximum fee as well as their 25%.

 

Legally Speaking

The Act of relevance in this situation is the Debt Collectors Act 114 of 1998.

Section 8 stipulates that the debt collector must be registered. By definition in the Act, this means that every employee who works at the Debt Collection Agency must also be registered.

 For a body corporate who hands over debts to the collector, consent of the members of the body corporate is required to make the agreement legal. The reason being that 25% of its book debt is being given to the collector, book debt which in actual fact belongs to the members of the body corporate.

 

Final Word

It is important for more reasons than only those contained above to consider carefully if appointing an attorney or a debt collector is best for you as a creditor. Should you require the assistance of an attorney to collect debts from your debtors, please give us a call or email us so we may assist you in strategically collecting any funds owing to your organisation.