By David Mohale
In the recent Constitutional Court judgment of Nkata v FirstRand Bank Limited and Others (The Socio-Economic Rights Institute of South Africa as Amicus Curiae) (CC) (unreported case no CCT73/2015, 21-4-2016) (Moseneke DCJ), the provisions of s 129 of the National Credit Act 34 of 2005 (NCA) were, once again, put under scrutiny.
My comments and views on the matter are as follows:
Section 3 of the NCA stipulates that the purpose of the Act is to ‘promote and advance the social and economic welfare of South Africans, promote a fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market and industry, and to protect consumers, by –
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(d) promoting equity in the credit market by balancing the respective rights and responsibilities of credit providers and consumers;
(e) addressing and correcting imbalances in negotiating power between consumers and credit providers by –
…
(iii) providing consumers with protection from … unfair or fraudulent conduct by credit providers …;
…
(i) providing for a consistent and harmonised system of debt restructuring, enforcement and judgment, which places priority on the eventual satisfaction of all responsible consumer obligations under credit agreements.’
Section 129 debacle
Section 129 of the NCA serves three purposes:
- It brings to the attention of the consumer the default status of his or her credit agreement.
- Provides the consumer with an opportunity to rectify the default status of the credit agreement in order to avoid legal action being instituted on the credit agreement or to regain repossession of the asset subject to the credit agreement.
- It is the only gateway for a credit provider to be able to institute legal action against a consumer who is in default under a credit agreement.
In this matter, the credit provider instituted legal action prematurely due to the improper service of the s 129 notices issued. Before legal action can commence, the provisions of s 129(1) should be complied with (in conjunction with the provisions of s 168, which deals with the manner of serving documents).
The credit provider sent the s 129 notices to an incorrect address leading to the consumer’s attention not been drawn to the default status of her credit agreement. Thus the consumer was unable to exercise her rights as provided by s 129.
Secondly, the credit provider relied on the erroneously served s 129 notice to institute legal action and obtain default judgment. The default judgment is void as the provisions of s 129(1) were not complied with. The legality of the default judgment is also questionable as it was granted by the Registrar and not the court. Due to the above, the legal costs incurred by the credit provider should have been borne by the credit provider as legal action was instituted prematurely.
The consumer entered into a settlement agreement with the credit provider before the property was sold on public auction. She settled the arrears on the account. By arrears I am referring to ‘all amounts that are overdue, together with the credit providers’ permitted default charges and reasonable costs of enforcing the agreement up to the time of re-instatement’ as stipulated in s 129(3).
It is the responsibility of the credit provider to bring to the attention of the consumer the arrears applicable on the account. Most credit providers will debit such arrears on the consumers’ account, clearly stipulating what the arrear charges are. The consumer then brings his or her account up to date by paying the required monthly instalment together with the arrears amount.
In this matter the consumer settled the arrears on the account.
As the property was not sold before the consumer settled the arrears on the account, thus the provisions of s 129(4) were not yet effective to preclude the consumer from reinstating the credit agreement.
After settling the arrears applicable on the account, the credit provider had to rescind the ‘default judgment’. If then the consumer falls into arrears again, the credit provider will need to issue a new s 129 notice in order to be able to commence with legal action as the effect of the previous s 129 notice has been nullified by the account being brought up to date.
In my view, the credit provider’s omission to agree to the rescission of the ‘default judgment’ even after the account was brought up to date is in conflict with the provisions of subss 3(d) and 3(i) of the Act.
Acceleration clauses in credit agreements
The inclusion of acceleration clauses in credit agreements defeats the purpose of the NCA as stipulated in s 3(i).
Acceleration clauses, if effected, will lead consumers to become over-indebted and being unable to satisfy all their credit obligations in a consistent and harmonised manner. An acceleration clause, when effected, will urge the consumer to neglect their other credit obligations in order to repay the full balance on the affected credit agreement.
Did the settlement agreement or re-instatement of the credit agreement constitute an amendment of the initial credit agreement entered into?
The settlement agreement entered into by the parties was a temporary mechanism to urge the consumer to settle the arrears applicable on the account. After the account was brought up to date the settlement agreement falls away and the consumer may revert to paying the initial agreed on monthly instalment. Thus a settlement agreement does not suffice to be categorised as an alteration or amendment to the original credit agreement as it is only a temporary measure.
If for other purposes the settlement agreement was to be considered as an alteration of the credit agreement, the credit provider should have then complied with the provisions of s 117(1).
The reinstatement of a credit agreement by operation of s 129(3) also does not alter the original credit agreement as there are no changes made to the credit agreement.
On reinstatement of a credit agreement, the original terms and conditions resume, unless there is a reduction of the consumer’s liabilities or change to the repayment terms (instalment or period). Alterations to credit agreements are only effective if agreed on by both parties or except in circumstances permitted by ss 118 to 120 of the NCA. Circumstances stipulated in ss 118 to 120 did not occur in the Nkata matter, thus no alteration of the initial credit agreement occurred.
David Mohale Dip Labour Law LLB (UL) is an advocate at Credit 2 Debt Solutions in Johannesburg.
This article was first published in De Rebus in 2016 (July) DR 23.
