Courts used against indebted

2011-02-22 12:56

BANKS are apparently making things difficult for indebted clients with their choice of courts.

Some banks issue debt summonses – which inform clients of a court appearance - from courts situated in Gauteng, even though the consumer lives, works and applied for the credit somewhere else, says Alan Manshon of the debt counselling agency The Money Clinic.

This makes it near impossible for the consumer to defend, allowing the banks to obtain judgment by default.
Manshon cited an example of a client who lives in Cape Town. Last year, Absa issued her with a court summons after she could not make the full instalments on a personal loan.

The loan was taken out in 2008 at a variable rate of 20.5% at the time, which because of interest rate cuts should be down to 17.5% currently. According to the loan contract, because she defaulted the interest rate can shoot up to the highest rate allowable by the National Credit Act (NCA) – 33.2%.

Absa issued a summons to charge this high rate - in the Johannesburg magistrate's court, 1 200km from where she lives. She would have had to travel all the way to Gauteng to defend herself.

In the past, credit agreements used to force consumers to consent to a court of the credit provider's choosing. 

But this changed with the adoption of the NCA, says Peter Setou, manager: education and strategy at the National Credit Regulator.

It is now illegal to ask consumers to consent to the jurisdiction of a court other than one in which they reside or work, or where the goods in question are normally kept.

"In a full bench decision in the North Gauteng High Court (in the matters of Nedbank versus Mateman & Another and Nedbank versus Stringer & Another) it was decided that the National Credit Act intended to outlaw 'forum shopping' in credit agreements," said Setou.

If a consumer is residing and employed in Boksburg and the goods are situated there, the credit provider must institute its claim in Boksburg's Magistrate's Court or the high court within the area of jurisdiction of Boksburg, says Setou.

Forum shopping not good form

A credit provider cannot elect to institute its claim in the Randburg Magistrate's Court or the Western Cape High Court, nor can a credit agreement contain a provision in which the consumer consents to any other jurisdiction.

Consumers are advised to report such incidents of forum shopping to the NCR, he adds.

Absa has denied that it is guilty of forum shopping.

Tshiwela Mhlantla, managing executive for Absa personal loans, says the bank strives to assign any disputes to the applicable court within the customer's magisterial jurisdiction as required by the NCA "in relation to the address information Absa has to its disposal". 

She says customers are also aware of the fact that they have to take responsibility and notify the bank of any change of physical address.

"Unless a customer does not update his or her physical address and contact details with the bank, it is extremely unlikely that any legal notices will be sent to an address outside the customer's residential or work jurisdiction."

FNB, Standard Bank Group [JSE:SBK] and Nedbank Group [JSE:NED] also say they stick to NCA regulations and won't forum shop.
A bigger problem, says André Snyman, CEO of SA's biggest debt counselling group Consumer Assist and vice-president of the Debt Counsellors Association of SA, is the fact that the banks remain partial to the high court when clients can't pay back their debts.

This is within the banks' rights – if a debt is more than R100 000, the creditor can decide whether to lodge a case with the high court or a magistrate's court. Most of these cases are related to the seizure of assets.

It is thought that the banks choose the high courts because they expect more favourable judgments and they know clients won't have the money to defend themselves in a high court., It is expensive for a client to defend a high court case, with the cost of an advocate running upwards of R15 000 a day.

Snyman thinks this should be addressed by the authorities.

Regardless of the amount involved, the matter can be brought before a magistrate's court and a credit provider is not obliged to bring a matter to the high court if a high amount is involved, says Setou.

However, if he sues in the high court on a claim that could have been brought before the magistrate's court, the credit provider runs the risk of only being awarded costs on the magistrate's court scale, he warns.

 - Fin24

  • elrica - 2011-02-23 09:33

    I love thius aricle. am in a similar scenario with Nedbank especially. I have not received a summons or nagging calls as I had already made ararngements to pay the loan. they involved two attorneys to sue me, sent a garnishee to my work to decuct the money. on top of it I have a judgement against my name and listed on ITC. The banks claim they don't have money yet we as long term clients are being handed over for a measly R1600. come on Nedbank. there are many others where you made arrangements and when you call to continue this way as your financial situation has not improved, then you're being referred to attorneys who would tell you, not sure you you are listed and why you being handed over to us. so are they going to get it right, soon.

  • Ian - 2011-02-23 10:57

    The new NCA is fantastic. Many people grumble that Homeloans, Car finance etc. are not being granted, but based on the Net earnings of those individuals they are the same ones who would have defaulted on homeloans and car finance had the Banks still been so generous in their lending requirements. I am a firm believer in 'live within your means' and the problem in SA is sveryone wants the picket fence house and a new car every 2 years. I applaude the banks for not only protecting their Debtors book, but for making it easier for people who qualify to buy homes and cars that they can TRULY afford and not permitting them any longer to buy 'outside of their means' I hope the banks have learnt a lesson and will be responsible in lending money out.

  • Madelane - 2011-03-28 15:06

    Taking into account the financial meltdown that occurred with the resultant recession and despite the self satisfied remarks by some, there are thousands upon thousands of people who find themselves in financial straits. While I fully understand the banks predicament, there are those who just cannot pay but to use these underhand tactics merely underlines the ruthlessness of this industry especially in SA.

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