Johannesburg – For many indebted South Africans, who have had their
cars and houses seized by banks, a landmark high court ruling has come
too late.
The court has dealt credit providers a stunning blow
this week, ruling that they could not terminate a debt review process
once a debt counsellor referred it to a magistrate’s court.
If a registered debt counsellor determines that you are over-indebted, your creditors cannot take any action against you while a new repayment plan is being worked out.
The counsellor has to put together such a plan (usually instalments are reduced and the payment time extended) and obtain approval from your creditors.
If creditors do not agree, the counsellor will ask the magistrate’s court to approve the plan.
The National Credit Act states that the debt counsellor should refer your debt review application to the magistrate's court within 60 business days. However, due to workload pressures on these courts, debt review matters may take months to be heard or finalised by the courts.
Some financial institutions then started to terminate debt reviews before the magistrate’s court had ruled on a repayment plan.They would then apply to the high court to obtain judgment against consumers and start to seize assets.
According
to recent research by the Debt Counsellors’ Association of South
Africa, thousands of debt reviews have been terminated in this way.
“The
banks have, until now, been acting with seeming impunity," says Alan
Manshon, a registered debt counsellor with debt advisory and financial
education group The Money Clinic. “The prevalence of these terminations
is incredibly high.”
Banks were opposing the debt review court applications and then issuing termination notices before taking action in the high court.
“In essence, they were ensuring that it was financially impossible for the consumer to defend their action.”
But this looks set to change.
The case before the high court involved Wesbank, which claimed it was entitled to terminate the debt review process of a customer called Deon Papier because 60 days had lapsed from the day he approached a debt counsellor to restructure his debt.
This was despite the debt counsellor having lodged an application for debt review before a magistrate’s court, and Papier making regular payments to his creditors.
The high court ruled in the Wesbank case that credit providers could not terminate the debt review process while an application was pending at the magistrate’s court.
The judgment is a victory for over-indebted consumers who have approached a debt counsellor for relief, says Robyn Hersch, an independent debt management consultant at Debt Comm.
“Provided the debt counsellor has complied with the 60-day requirement (to lodge the case with the magistrate’s court) as laid down by the National Credit Act, the over-indebted consumer will receive the protections afforded to him by the act - namely the suspension of legal proceedings.”
However, the ruling comes too late for many.
In some cases, judgments have already been obtained from the high court and these consumers are now faced with forced sales of their property, says Manshon.
“It may be too late to remedy these matters for consumers whose properties have already been sold. In other cases where judgment has already been granted, consumers would have to apply to the high court for a rescission of judgment. This can be a very costly exercise.”
In his experience, many credit providers have seemingly been trying to thwart the debt review process since the implementation of the National Credit Act,
He cites a recent example of a bank which extended a home loan at a fixed rate of 19.40% - more than double the current prime rate - to one of his clients. On a bond of R185 000 over 20 years, this consumer's monthly instalment on the bond is currently R3 056 whereas at the current prime rate, his instalment would have been R1 664 per month.
As part of a debt review process, Manshon proposed the bank lower the interest rate to the prime lending rate – but the bank refused.
However, some credit providers have made significant strides in cooperating with the debt review process.
SA Home Loans has introduced escalating instalments, which allows the consumer to regain financial control without exposing the institution to excessive risk.
Standard Bank and Absa voluntarily withdrew a number of terminations in an effort to assist their clients, he said.
- Fin24