Section 85 of the NCA – a lifeline for debtors

April 1st, 2012
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By Ronél de Klerk

A string of recent judgments regarding debt review as envisaged in the National Credit Act 34 of 2005 (NCA) has rocked the proverbial boat for consumers, debt counsellors and attorneys. These judgments include Nedbank Ltd and Others v The National Credit Regulator and Another (Juselius) 2011 (3) SA 581 (SCA) and Collett v FirstRand Bank Ltd 2011 (4) SA 508 (SCA).

Not only did the court in the Collett case find that a credit provider may terminate the debt review process at any time after expiry of the 60-day period provided for in s 86(10) in the event of the consumer being in default of the credit agreement, but the court in the Juselius case found that a notice sent in terms of s 129(1) to a consumer by the credit provider constitutes the first step in legal proceedings and the relevant credit agreement must be excluded from the debt review process altogether. The combined practical effect of these two judgments is that more credit agreements are being excluded from the debt review process than ever before.

The well-known counter (used by practitioners on behalf of the consumer) for terminations in terms of s 86(10) is an application for reinstatement in terms of s 86(11) and the lesser known (but just as effective, I submit) counter for exclusions by way of s 129(1) notice is s 85(a), which forms the subject matter of this article.

Notice in terms of s 129(1) and s 86(2)

Sections 129 and 86 of the NCA are interlinked. Section 129(1) provides:

‘If the consumer is in default under a credit agreement, the credit provider –

(a) may draw the default to the notice of the consumer in writing and propose that the consumer refer the credit agreement to a debt counsellor, alternative dispute resolution agent, consumer court or ombud with jurisdiction, with the intent that the parties resolve any dispute under the agreement or develop and agree on a plan to bring the payments under the agreement up to date; and

(b)       subject to section 130(2), may not commence any legal proceedings to enforce the agreement before –

(i)         first providing notice to the consumer, as contemplated in paragraph (a), or in section 86(10), as the case may be; and

(ii)        meeting any further requirements set out in section 130.’

Section 86(2) provides:

‘An application in terms of this section may not be made in respect of, and does not apply to, a particular credit agreement if, at the time of that application, the credit provider under that credit agreement has proceeded to take the steps contemplated in section 129 to enforce that agreement.’

It became practice for credit providers to issue notices in terms of s 129(1) as a kind of ‘pre-litigation’ step similar to a letter of demand in collection matters. The question before the court in Juselius was whether such a s 129(1) notice constitutes ‘the steps’ as contemplated in s 86(2) and, as such, should be excluded from the debt review application to court. Credit providers reasoned that once they delivered a notice in terms of s 129(1) to the consumer, and the consumer subsequently in reaction to that notice applies to be placed under debt review, the relevant account of the credit provider cannot be included in the debt review process.

In Juselius the court, in consideration of the issue, referred to the contrary argument made by A Boraine and S Renke on behalf of the consumer that it would be nonsensical to refer a consumer to a debt counsellor only to exclude such an agreement from the debt review process when a consumer indeed acts on the notice received from the credit provider in terms of s 129(1) (A Boraine and S Renke ‘Some practical and comparative aspects of the cancellation of instalment agreements in terms of the National Credit Act 34 of 2005’ (part 2) (2008) 1 De Jure at 9 fn 186).

In para 14 the court found that: ‘While it is a “step” prior to the commencement of legal proceedings it is also the first “step” the credit provider “has proceeded to take … to enforce that agreement” (s 86 (2)). It does not exclude a debt review save in so far as it relates to the particular credit agreement under consideration. Nor does it exclude a general debt review pursuant to ss 83 and 85.’ The court concluded that in the event that a notice in terms of s 129(1) had been delivered, such an account must be excluded from debt review in terms of s 86(2) (my emphasis). The court in Collett agreed with this finding in para 9: ‘In terms of section 86(2), an application for debt review concerning a particular credit agreement may not be made if the credit provider has “proceeded to take the steps contemplated in section 129 to enforce that agreement”.’

The exclusion of a credit agreement in terms of s 86(2) subsequent to a notice in terms of s 129(1) is not to be confused with a termination notice in terms of s 86(10) by a credit provider. In the latter event the debt review process has already commenced and the credit provider subsequently wants to terminate it. A notice in terms of s 129(1) excludes a credit provider (in respect of the specific credit agreement to which the notice relates) from the debt review process altogether and such a credit agreement will never form part of the payment-restructuring proposal.

In practice, this has the effect of credit providers sending out notices in terms of s 129(1) as soon as an over-indebted consumer defaults on his payments in terms of the original credit agreement precluding the inclusion of these accounts from the debt review process. As a result, the over-indebted consumer in dire need of the relief that the NCA parsimoniously holds finds debt counselling to be long on promises but short on delivery.

Section 85(a)

Section 85(a) of the NCA provides that, despite any provision of law, in any court proceedings in which a credit agreement is being considered, if it is alleged that the consumer under a credit agreement is over-indebted, the court may refer the matter directly to a debt counsellor with a request that the debt counsellor evaluate the consumer’s circumstances and make a recommendation to the court in terms of s 86(7).

Section 85 may offer a glimmer of hope in instances where the credit agreement is excluded from the debt review process by way of s 129(1) notice. It stands that a s 129 notice is the first step the credit provider has taken to enforce a credit agreement (Juselius at para 14). The debt counsellor and consumer therefore have the relief in s 85(a) at their disposal on good cause shown. The court has expressed the possibility of the use of s 85 to include accounts excluded by way of a s 129(1) notice (Juselius at para 11). I submit that given the following circumstances –

  • a consumer approaches a debt counsellor to be declared over-indebted as envisaged in s 86(1) of the NCA and requests him to make a determination of his financial position in terms of ss 86(6) and 86(7)(c); and
  • the consumer approaches the debt counsellor in response to a notice in terms of s 129(1);

the debt counsellor and/or consumer may make a formal application to court in terms of s 85(a) for an order to refer the credit agreement back to the debt counsellor for determination of the consumer’s circumstances in terms of s 86(7) (and consequently stay the litigious steps taken by the credit provider to enforce the agreement).

The next question that arises is: Which court may be approached for such an order? The NCA makes frequent reference to the magistrate’s court and, in other places, simply to ‘the court’. In Standard Bank of SA Ltd v Panayiotts 2009 (3) SA 363 (W) the court held that the distinction is clearly deliberate and the expression ‘court’ in s 85 would therefore not be limited to the magistrate’s court. The debt counsellor/consumer can at his election bring an application in terms of s 85 in either the magistrate’s court or the High Court. It is, however, only a magistrate’s court that can hear an application for debt review and make orders relating thereto, being statutorily exclusively entrusted with the task (s 86(7)(c) of the NCA and Panayiotts at para 16). The court in Panayiotts further held that s 85(a) requires the debt counsellor to make a recommendation ‘to the court’, which is not limited to the magistrate’s court and, in context, is clearly a reference to the court that referred the matter to the debt counsellor. Accordingly, if the High Court refers the matter directly to a debt counsellor, the recommendation in turn would be made to the High Court.

I further submit that the debt counsellor should be cited as the first applicant, the consumer as the second applicant and the credit provider as the respondent.

The notice of motion should contain the following prayers:

  • That the first applicant be granted leave to join the proceedings as an interested party and to assist the court in making a finding.
  • That the applicants be granted leave in terms of s 85(a) of Act 34 of 2005 to bring the application.
  • That the respondent be prohibited from exercising or enforcing by litigation or other judicial process any right or security under the relevant credit agreement in terms of s 88(3) of Act 34 of 2005 pending the first applicant’s finding in terms of s 86(7) read with s 79.
  • That the matter is referred to the first applicant to evaluate the second applicant’s financial position and circumstances, and make a recommendation to the court in terms of s 86(7).

Such an application should contain the averment that the consumer appears to be prima facie over-indebted and should contain evidence to that effect (Panayiotts at para 24).

Possibly a return date may be set for the debt counsellor to bring his finding to the court. The credit provider is not without recourse in the event that the debt counsellor or consumer does not act bona fide in the process or in the event of a debt counsellor dragging his feet to bring his finding in terms of s 86(7) before court (non-compliance with the NCA and tardy enrolment of matters by debt counsellors being major complaints from credit providers regarding the debt review process (see National Credit Regulator Debt Review Task Team report (2010) at 6). The credit provider still has s 86(11) as a means of termination if the debt counsellor does not bring the debt review application to court within 60 days from the consumer’s application to the debt counsellor (assuming that the consumer is already in default of the credit agreement, hence the s 129 notice being sent out in the first place).

How this is to be received by the courts and credit providers remains to be seen. For now, s 85 appears to be a lifeline in murky waters.

Ronél de Klerk LLB (Unisa) is an attorney at Smuts De Klerk Inc in Cape Town.

This article was first published in De Rebus in 2012 (April) DR 34.

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