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Thread: DEBT REARRANGEMENT PROCESS

  1. #31
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    Repossession of goods in context with the National Credit Act

    The current economic climate has resulted in a proliferation of "cash strapped" consumers. Accordingly the purchase of a vehicle is very rarely a cash transaction. The obvious alternative is an instalment sale agreement, whereby the vehicle is paid off over a period of time.

    As a credit agreement, an instalment sale agreement is subject to regulation by the National Credit Act 34 of 2005 (NCA). The terms of the agreement are generally standard, providing for repayment of the capital plus interest, provided that upon the consumer's default, the credit provider is entitled to cancel the agreement and repossess and sell the vehicle in order to defray the outstanding balance owed by the consumer.

    With credit agreements such as instalment sale agreements now being regulated by the NCA, the consumer is protected from abusive credit providers by a number legislative provisions providing for a plethora of consumer rights.

    But what happens when these protective provisions have the effect of unilaterally altering the terms of a credit agreement to the consumer's detriment?

    This was the very issue before the court in the matter of ABSA Bank Limited vs Pieter de Villiers and the Magistrate for the District of Simonstown (Case No 15692/07). The matter involved an application by a credit provider to repossess a vehicle purchased on instalment sale.

    The court was charged with determining whether the provisions of the NCA entitled the credit provider (applicant) upon default by the consumer to apply for a final order authorising attachment of the vehicle, without requiring the credit provider to first issue summons for cancellation of the agreement.

    In terms of the common law principles of law of contract, restitution, which in the context of the aforementioned matter constituted repossession of the vehicle, is the normal result flowing from the cancellation of a contract, and accordingly a credit provider seeking to repossess a vehicle upon default would be required to claim and successfully obtain cancellation of the agreement prior to attachment of the vehicle.

    The applicant argued that the provisions of the NCA which deal with "Debt procedures in a court", "Repossession of goods" and "Surrender of goods", automatically entitle a credit provider to obtain a final order of attachment of the goods upon default of the consumer, whereafter the credit provider is obliged to realise the goods in accordance with the provisions of the NCA, and that the aforementioned provisions accordingly had the effect of introducing a procedure at variance with the common law.

    In terms of the established principles of statutory interpretation, an intention on the part of the legislature to change the common law must be clearly expressed in the relevant legislation. Apart from the fact that such an intention had not been clearly stated, the court found that the applicant's interpretation of the provisions of the NCA upon which it had relied were foreign to the principles of our common law and inconsistent with the declared aim of the legislature, namely "to provide for a consistent and harmonised system of debt enforcement in which the consumer's rights are protected".

    In coming to the aforementioned conclusion the court examined the effect that such an interpretation would have on the consumer. In a nutshell, the effect would be that credit providers would no longer be required to prove that the consumer had breached his obligations before repossessing the asset.

    In addition, the credit provider would be placed in final and permanent possession of the asset while the consumer would remain liable to pay the monthly instalments until such time as the vehicle had been realised, which realistically may take some time.

    The applicant has made application for leave to appeal the decision to the SCA. The effect of the decision on appeal may be far reaching. By upholding the appeal, credit providers offering credit on instalment sale will be able to reap the benefit of saving the time and legal costs associated with issuing summons for cancellation of the credit agreements, while the consumer will be left in the untenable position of being dispossessed of the asset purchased, while remaining liable to make monthly payments until the asset is sold, something which is completely left in the hands of the credit provider.

  2. #32
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    Consumers and ss 129 and 86(10) of the National Credit Act

    Sybrandt Stadler

    In terms of the National Credit Act 34 of 2005 (the NCA) a party wanting to enforce a credit agreement must comply with additional procedures before he can approach the court to institute the action or be entitled to a judgment. The additional procedures referred to are contained in ss 129(1) and 86(10). Although ss 129(1) and 86(10) have the same outcome in mind, the sections and the notices in respect thereof are used in different circumstances relating to the position of the consumer.

    Section 129(1) reads as follows:

    ‘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’ (my italics).
    From a reading of the first part of s 129(1) it seems as if the credit provider wanting to enforce the credit agreement, may, if he wishes, refer the consumer to the content of s 129 before he can proceed to take the steps contemplated. This, however, is not the case if reference is made to the content of subs 129(1)(b). The s 129 notice is therefore peremptory and is a jurisdictional fact that the credit provider must prove to continue with the enforcement of the relevant agreement.

    The s 129(1) notice, however, should be used only before the consumer applied for debt review in terms of s 86 of the NCA. This becomes evident when notice is taken of s 129(2):

    ‘Subsection (1) [of section 129] does not apply to a credit agreement that is subject to a debt restructuring order, or to proceedings in a court that could result in such an order.’

    The purpose of the s 129(1) notice is not only to indicate to the consumer that his payments in respect of a credit agreement are in arrears, but also to inform the consumer of rights afforded to him as set out by the NCA. The consumer should be informed of his additional rights because of the fact that s 3 of the Act has protection of consumers as one of the most important goals which have to be reached.

    An argument on behalf of credit providers is that, as soon as the s 129(1) notice has been sent the agreement should be excluded from any possible debt review applications made by the consumer. This is an incorrect deduction, since the s 129(1) notice indicates to the consumer that he may apply to a debt counselor and have that agreement’s payment terms re-arranged. If he – after receiving the s 129(1) notice – does so apply, that agreement should therefore be included in the debt review application.

    In further understanding s 129 reference must be made to section 130(1):

    ‘Subject to subsection (2), a credit provider may approach the court for an order to enforce a credit agreement only if, at that time, the consumer is in default and has been in default under that agreement for at least 20 business days and –

    (a)

    at least 10 business days have elapsed since the credit provider delivered a notice to the consumer as contemplated in section 86(9), or section 129(1), as the case may be;
    (b)

    in the case of a notice contemplated in section 129(1), the consumer has –
    (i)
    not responded to that notice; or
    (ii)
    responded to the notice by rejecting the credit provider’s proposals; and
    (c)

    in the case of an instalment agreement, secured loan, or lease, the consumer has not surrendered the relevant property to the credit provider as contemplated in section 127.’
    Can it be argued that, after the s 129(1) notice has been sent or after the ten days have expired, the relevant agreement is now excluded from the debt-review application? The answer must be in the negative. The credit provider may, after ten days, proceed to enforce the agreement but if he does not do so the consumer may still apply to a debt counselor, even if it is done outside the ten days stated in the s 129(1) notice.

    In a yet unreported judgment in First Rand Bank Limited v SD Olivier (SEC) (unreported case no 2369/07; 8-5-2008) Erasmus J stated that this approach would be more acceptable.* He states in para 18 of the judgment:

    ‘The NCA, in section 129(1) read with Part C of Chapter 4, would encourage a consumer to approach a debt counselor before the credit provider approaches the court in terms of sections 129 and 130. The reasons for promoting that approach are obvious. It is clearly desirable that parties through the intercession of a debt counselor attempt to develop and agree on a plan to bring the payments under that agreement up to date. And it is further desirable that this be done before the court is burdened with debt.’

    This approach is further supported by the NCA in ss 130(3) and 88(3) wherein it is stated that a court may not determine a matter if it is before a debt counselor; and a credit provider may also not enforce any right under a credit agreement if that credit provider received a notice contemplated in s 86(4)(b)(i) or a form 17.1.

    It would seem therefore that, after a s 129(1) notice has been sent, the credit provider must issue and serve a summons before the consumer applies for debt review (see Van Loggerenberg, Dicker & Malan ‘Aspects of Debt Review under the National Credit Act’ 2008 Jan/Feb DR 40). The fact that the consumer did not apply within ten days after the s 129(1) notice has been received does not mean that he is barred from doing so in terms of s 86(2). The reason for that is that no ‘steps contemplated’ have as yet been taken.

    If the consumer has already applied for debt review, the credit provider wishing to continue must issue a notice in terms of s 86(10) if the 60 days has lapsed and no further action in terms of the debt review has been taken. The NCA indicates quite clearly that the credit provider may continue only after either a s 129(1) or s 86(10) notice has been sent in terms of the Act. No automatic termination of the debt review process, therefore, is contemplated by the NCA and if the s 86(10) notice is not issued the debt review is still of force and effect. The credit provider must allege this in the summons and this is a fact that needs to be proved should the matter proceed to trial. If this cannot be proved, the credit provider did not comply with s 130(3) and the action instituted is therefore a nullity.

    * Note that this decision was criticised in Standard Bank of SA Ltd v SK Panayiotts (W) (unreported case no 146/08, 6-2-2009)(Masipa J) – Editor.

    Sybrandt Stadler BA LLB (NWU) is an attorney in Krugersdorp.

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