Consumer Credit by the numbers – is it getting better?

Consumer Credit by the numbers – is it getting better?

South African consumers are buckling down and their management of household debt has shown improvement.Starting with collection of outstanding debt, where a clear improvement in consumer behavior is evident. The total number of civil judgments recorded for debt decreased by 16% in the first quarter of 2017 compared with the first quarter of 2016, according to Stats SA data released on 18th May 2017. The total value of judgments dropped 12%. And, the number of summonses issued for civil debt increased by a mere 2% during the same period.

Encouragingly, the trend shows that since 2013, the total number of civil judgments for debt have steadily decreased from above 30 thousand per month, to below 20 thousand per month. Summonses issued to obtain judgment for the collection of debt have also been sliding from slightly above 60 thousand to just more than 50 thousand, since 2013.

The latest Transunion consumer credit index appears to support the assertion that household debt reduction is a reality. As a credit bureau, Transunion receives real time data from creditors and other financial services providers on consumer payment patterns. This data is used to compile the index. It measures aggregate consumer loan repayment records, the use of revolving consumer credit facilities as an indicator of distressed borrowing, estimated household cash flow as a means of determining financial pressure/relief, and the relative cost of servicing outstanding debt. These aspects are then combined into a single indicator of credit health.

If the indicator is above 50, the consumer data is positive. Below 50 it is negative. The latest Transunion Consumer Credit Index indicates that the number of accounts in arrears by three months or more, have decreased at the fastest pace since 2015. The first three months of 2017, 5.7% fewer accounts were in default by this measure than in the same period last year.

Meanwhile, the use of revolving credit facilities as an indicator of distressed borrowing, increased by just 1%. And limits on these facilities showed an even slighter rise, according to the report. There is limited new borrowing and lending in the unsecured credit market, yet at the same time, Household cash flow was down 1% in the same comparative period.

The authors of the index report state “Given challenging economic and labour market conditions over the past year, better loan repayment behaviour may be driven by tighter lending standards among major credit providers, more cautious borrowing, and deleveraging.” To deleverage is to reduce total debt outstanding in one’s estate.

Evidence of this deliberate effort by households to bring down debt comes from SA Reserve Bank data, released earlier in May. It indicates that from January to end of April, households spent roughly 73% of their disposable income to service debt. Last year over the same period it was over 75%. In 2008 it was 88%.

The effect can be seen in inflation figures. According to official statistics released mid-May, there has been a slower increase in consumer prices in April. Consumer inflation rose by 5.3% in April, compared to 6.1% in March. The inflation rate had been above 6% since January 2016. It dipped very briefly below 6% in the second part of the year, but also only for one month.

Another statistical release in May from Stats SA revealed the estimated number of insolvencies decreased by over 17% in the first quarter of 2017 compared with the first quarter of 2016. This is largely due to a more than 24% reduction during March 2017, compared to March 2016.

Number of Insolvencies as taken directly from Stats SA

The trend of fewer bankruptcies is also evident in the corporate space.

 

Number of Liquidations as taken directly from Stats SA

 

Government moots debt forgiveness for consumers

Government moots debt forgiveness for consumers

The Department of Trade and Industry has suggested to Parliament that the National Credit Act should be changed to allow the Minister of Trade and Industry to announce debt relief measures for those who cannot afford to pay their debt .

Parliament’s Portfolio Committee on Trade an Industry first mooted the idea of debt forgiveness in March this year, when the National Credit Regulator presented its report on the local credit market.

According to Fin24.co.za, a discussion document was then presented to Parliament on 16th May by MacDonald Netshitenzhe, of the consumer and corporate division of the DTI, the National Credit Act currently makes no provision for the minister of trade and industry to provide any debt relief in specific circumstances. The discussion document recommended the development of criteria under which retrenched consumers among others may qualify for debt relief.

It could be a matter of months before any details emerge on what these debt relief measures should be, how the debt relief measures should be put into place and who they should apply to. It may only be for retrenched consumers, victims of unlawful deductions or those who fall prey to reckless lending. This sounds palatable.

However, the very idea of creditors being forced by law to simply write off debt, because consumers’ circumstances have changed, raises alarm bells. Banks will effectively be forced to start forecasting the likelihood of a person losing their job, which is impractical to say the least.

Banks and lenders may be tempted to reign in the granting of credit. However, Section 60 gives every consumer the right to apply for credit and the exclusion of particular groups from accessing credit, simply on the basis of income received would be a contravention of this right. The exclusion would only be justifiable if the person cannot in fact afford the credit, at the time of assessment. A speculative projection of how the applicant’s circumstances may change, could be challenged.

Creditors may then be forced to raise the threshold of what they deem affordable, as “affordability testing” as prescribed by the NCA, will not be enough to mitigate against the risk that the government may force the lender to write off the debt if the consumer’s circumstances change. Thus, the creditors must pay for something they have no control over.

Further, if an irresponsible consumer borrows, he or she may not have an intention to honour the debt and think they can simply rely on the debt relief measures to get away with non-payment. Those who do conduct their finances responsibly, may also have a case that they are being discriminated against for being responsible.

Discussions will continue, as various stakeholders have aired their views that there is no need for a debt relief mechanism. The Banking Association of South Africa for instance, told the Portfolio Committee on Trade and Industry that it does not support a debt forgiveness program. Head of the Banking Association, Cas Coovadia said it would undermine the banking system’s foundational principles of efficiently and legally lending money to borrowers and to collect the repayments for these loans. Non-adherence to this principle, “will increase the risk carried by depositors and savers, will impose a cost on society and will limit credit providers’ ability to extend credit,” said Coovadia.

Over-indebted consumers have access to debt counselling and consumers have access to regulatory structures that can offer relief in instances where reckless lending has taken place, or a consumer may be subjected to unfair credit practices. Coovadia told MP’s that a distinction must be made between debt forgiveness and debt relief.

The National Credit Act provides for debt relief through debt review, which allows consumers to continue making repayments at lower instalments in order to cope with their debt without being subjected to legal action by creditors.

It is arguable that debt review has not worked for many and so perhaps it might be conceivable that making debt counselling more effective, and even have the mechanism adjusted in a manner that it can more effectively cater for lower-income earners, would be sufficient.

Further regulation itself may also need to become more effective. Long delays and a lack of efficiencies to deal with consumer complaints, has resulted in a loss of credibility for some regulatory institutions.

Our law also provides for alternative debt relief measures, for example the Insolvency Act of 1936, allows one to apply for voluntary surrender of one’s estate. Sequestration provides quick relief and enables the consumer to “get their house in order”, while they remain listed on the credit bureaux as being insolvent. After four years, the consumer is most likely to have improved financially and will have learned to cope largely without credit at their disposal. He or she can then apply to court for rehabilitation and start afresh.

Sequestration may not be suitable if the consumer does not want to lose his or her house or car, but they can then opt for debt settlement negotiation, or for reduced instalments outside of the debt review mechanism.

Debt review always results in the consumer spending many more years to repay their debt, than would have been the case if they paid normally. This is often a gripe for most who undergo debt review. However, debt review can also be cancelled, once the consumer is back on his or feet and financial circumstances have improved.

The effect of Rougier v Nedbank on the termination of Debt Review

The effect of Rougier v Nedbank

The National Credit Act 34 of 2005 essentially gives a consumer the right to apply to a debt counsellor for debt review if he is of the opinion that he is over-indebted. This right is entrenched in section 86(1) and gives a consumer an opportunity for debt rearrangement. The aforesaid cannot be deprived or limited by the debt counsellor.

In Rougier v Nedbank Ltd 27333/2010 (South Gauteng High Court) the consumer applied for debt review in terms of section 86(1) of the National Credit Act. However, the debt counsellor subsequently withdrew the consumer’s debt review application apparently due to the consumer’s lack of cooperation. The presiding judge in the aforesaid case, namely Justice Nobanda noted that in terms of section 86(6) of the National Credit Act, the debt counsellor , after accepting the consumer’s debt review application must determine:

Whether the consumer appears to be over-indebted and
If the consumer seeks a declaration of reckless credit, whether any of the consumer’s agreements appear to be reckless.

In determining the above, it was held that section 86(7) provides for only 3 possible findings which include:

The consumer is not over-indebted and the debt review application is rejected;
The consumer is not over-indebted but might experience difficulties in paying his debts and the debt counsellor recommends a voluntary debt re-arrangement plan between the consumer and the credit provider;
The consumer is over-indebted and the debt counsellor may issue a proposal to the Magistrates Court recommending certain orders to be granted.

Justice Nobanda pointed out that the debt counsellor fulfils a statutory function and thus, the above are in fact the debt cousellors statutory duties. Further, it was noted that the debt counsellor’s powers in dealing with a section 86(1) application are limited and are as set out above. In addition, the court pointed out that there is no provision in the National Credit Act that empowers the debt counsellor to “withdraw” the debt review instituted by the consumer in terms of the provisions of section 86(1) and when the debt counsellor purports to do so, the debt counsellor acts ultra vires.

The above case is significant in that it clearly defines and reiterates the provisions in the National Credit Act that deal with the consumer’s right to apply for debt review and the corresponding duties of the debt counsellor in upholding the consumer’s right. This case does not look at the consumer’s right to exit debt review or the grounds or terms thereof on which a consumer can exit or terminate the debt review process, but rather the debt counsellor’s “right” to terminate the debt review application once the consumer has applied for debt review and the debt counsellor is yet to make a finding in terms of section 86(7).

Data-retention periods for credit bureau information

Data-retention periods for credit bureau information

The National Credit Act prescribes the maximum periods for which consumer credit information may be recorded on the consumer’s credit record. Regulation 17(1) of the National Credit Act sets the maximum periods for the retention of credit bureau information as follows:

Categories of consumer credit information Description Maximum period
1. Details and results of disputed lodged by consumers Number and nature of complaints lodged and whether complaint was rejected. No information may be displayed on complaints that were upheld. 6 months
2. Enquiries Number of enquiries made on a consumer’s record, including the name of the entity/person who made the enquiry and a contact person if available 1 year
3. Payment profile Factual information pertaining to the payment profile of the consumer 5 years
4. Adverse classifications of consumer behaviour Subjective classifications of consumer behaviour 1 year or within fourteen business days after settlement by the consumer
5. Adverse classifications of enforcement action Classification related to enforcement action taken by the credit provider 1 years or within fourteen business days after settlement by the consumer
6. Debt restructuring As per section 86 of the Act, an order given by the Court or Tribunal Within the period prescribed in section 71(1) of the Act or until a clearance certificate is issued
7. Civil-court judgments Civil-court judgments including default judgment The earlier of 5 years or until the judgment is rescinded by a court or abandoned by the credit provider in terms of section 86 of the Magistrates’ Courts Act 32 of 1944 or within the period prescribed in section 71A of the Act
8. Administration orders As per the court order 5 years
9. Sequestration order As per the court order 5 years or until the rehabilitation order is granted
10. Rehabilitation Order As per the court order 5 years
11. Maintenance judgments in terms of the Maintenance Act 99 of 1998 As per the court judgment Until the judgment is rescinded by court

Adverse classifications of consumer behaviour are subjective and include such classifications as “delinquent”, “default”, “slow paying”, “absconded” or “not contactable”. Adverse classifications of enforcement action are classifications related to enforcement action taken by the credit provider, including such classifications as “legal action” or “write-off”. “Payment profile refers to the consumer’s payment history in respect of a particular transaction.”

What to look out for when shopping for credit

What to look out for when shopping for credit

The noun “credit” is strictly defined in the National Credit Act 34 of 2005 as “a deferral of payment of money owed to a person, or a promise to defer such a payment” or “a promise to advance or pay money to or at the direction of another person”. A credit provider is required to display their registration certificate that confirms that the credit provider is registered with the National Credit Regulator (NCR) to extend credit and this registration certificate also displays the credit provider’s unique registration number. The aforesaid registration certificate is issued annually by the NCR.

When shopping for credit, consumers must note the following:
The NCRCP number (that is, the National Credit Regulator’s registration number that is allocated to a credit provider) and the credit provider’s registration certificate that must be displayed at/or the credit provider’s place of business.

Since the commencement of the National Credit Amendment Act 19 of 2014 on the 13 March 2015, any person who provided credit where the total principal debt owed to that credit provider under all outstanding agreements, other than incidental credit agreements, exceeded the prescribed threshold of R500 000.00, had to apply to be registered to be registered as a credit provider before extending credit to a consumer.

However, on 11 May 2016, the Minister of Trade and Industry, Dr Rob Davies, determined a new threshold of NIL (0) for the purpose of determining whether or not a credit provider is required to be registered with the National Credit Regulator (NCR) in terms of the National Credit Act (NCA). The implication of this new threshold is that as from the 11 May 2016, any person or entity that is involved in the provision of credit is now required to register irrespective of the principal debt that is owed to the credit provider. Whether or not a credit provider is duly registered can be verified with the National Credit Regulator either online, www.ncr.org.za, or telephonically on 0860 627 627.

The right to a Pre-agreement Disclosure Statement and Quotation
Before a credit agreement is concluded, the consumer must be given a pre-agreement disclosure statement and a quotation in a paper form or in a printable electronic form. The quotation is valid for 5 business days. During this time the consumer may consider whether or not he should enter into the proposed credit agreement. At any time before the expiry of the 5 day’ period, the consumer can hold the credit provider to the terms and conditions as disclosed in the pre-agreement statement and quotation.
Any unlawful provisions and clauses.
When you read the credit agreement, look out for the following clauses, which are unlawful:
– A clause or provision in the credit agreement that has the general purpose or effect of defeating the purposes or polices of the NCA (the purposes and policies of the NCA are set out in section 3 of the NCA);
– A provision that deceives or has the effect of deceiving the consumer;
– A provision that directly or indirectly purports to waive or deprive a consumer of a right set out in the NCA. The rights of consumers are largely set out in Part A of Chapter 4 of the NCA, namely sections 60 – 69. However, sections 60 – 66 are not the only provisions in the NCA that grants consumers certain rights as consumers’ rights are generally speaking spread throughout the NCA. It is unfortunately impracticable to list the entire spectrum of consumer rights as contained in the NCA save to mention a few of the most important ones, over and above those contained in sections 60 – 66 namely:
• the right to be issued with a clearance certificate (section 71);
• the right to rescind (cancel) a lease or an instalment agreement entered into at any location other than the registered business premises of the credit provider within five business days after the agreement was signed by the consumer (Regulation 37);
• the right to apply for debt review Section 86(1) read with regulation 24.;
• the right to terminate or settle a credit agreement without notice to the credit provider by paying the settlement amount Section 122(1) read with section 125.
• the right to prepay any amount owed to a credit provider under a credit agreement Section 126(1);
• the right to surrender the goods (held under an instalment agreement, secured loan or lease) to a credit provider so that the goods can be resold by the credit provider in order to settle the consumer’s account Section 127.;
• the right to participate in a hearing before the National Consumer Tribunal. Section 143 read with section 61.
The total “Cost of Credit”.
In terms of section 101 of the NCA, a credit agreement must not require payment by the consumer of any money or other consideration, except –
• the principal debt;
• an initiation fee (the permissible amount is prescribed in the NCA)*
• a service fee (the permissible amount is prescribed in the NCA);
• interest (the applicable maximum interest rates are also prescribed in the NCA)**;
• cost of any credit insurance (the consumer has the right to waive any credit insurance that the credit provider proposes and substitute a policy of the consumer’s own choice);
• default administration charges;
• collection costs.

*The maximum initiation fees that are allowed (Regulation 42)
Type of agreement Maximum initiation fee
Mortgage agreements R1 000 per credit agreement, plus 10% of the amount of the agreement in excess of R10 000. May never exceed R5 000.
Credit facilities R150 per credit agreement, plus 10% of the amount in excess of R1 000. May never exceed R1 000.
Unsecured credit transactions R150 per credit agreement, plus 10% of the amount of the agreement in excess of R1 000. May never exceed R1 000.
Developmental credit agreements for the development of a small business R250 per credit agreement, plus 10% of the amount of the agreement in excess of R1 000. May never exceed R2 500.
For low income housing (unsecured) R500 per credit agreement, plus 10% of the amount of the agreement in excess of R1 000. May never exceed R2 500.
Short-term credit transactions R150 per credit agreement, plus, 10% of the amount of the agreement in excess of R1 000. May never exceed R1 000.
Other credit agreements R150 per credit agreement, plus, 10% of the amount of the agreement in excess of R1 000. May never exceed R1 000.
Incidental credit agreements No initiation fee can be levied.

**The maximum prescribed interest rates are as follows (Regulation 42)
Type of agreement Maximum interest rate
Mortgage agreements RR + 12% per year
Credit facilities RR + 14% per year
Unsecured credit transactions RR + 21% per year
Developmental credit agreements RR + 27% per year
Short-term credit transactions 5% per month on the first loan and 3% per month on subsequent loans within a calendar year
Other credit agreements RR + 17% per year
Incidental credit agreements 2% per month

Steps that the credit provider can take to assess a consumer’s credit application.
When a consumer applies for credit, the credit provider concerned is obliged to take reasonable steps to assess the following:
The consumer’s general understanding and appreciation of the risks, costs, rights and obligations of the proposed credit under the credit agreement;
the consumer’s debt repayment history, for example, the consumer’s credit profile as held by any of the credit bureaux such as TransUnion (previously ITC) or Experian. However, the credit provider may not require the consumer to obtain or request a credit report in connection with any credit application, as this the credit provider can obtain the said credit report upon receipt of the consumer’s consent to do so;
the consumer’s existing financial means, prospects and obligations; and
where the consumer has a commercial purpose for applying for that credit agreement, whether there is a reasonable basis to conclude that the commercial purpose will be successful.

Property Auctioned for Debt? You have rights to fair treatment!

Property Auctioned for Debt? You have rights to fair treatment!

Joe was diagnosed with heart disease and had to reduce his working hours, with the resultant effect that his monthly income decreased. As a result, Joe tried to negotiate with his bank to try and save the house he had bought just a few years ago, the said house having been purchased in terms of a credit agreement, concluded with a bank. However, the property was subsequently auctioned by the bank and the auction price did not cover the outstanding debt due to the bank.

Joe knows that reasonably he could have expected a shortfall on the bond after it was auctioned. He wanted to do the right thing and pay the shortfall. However, his efforts to determine the details of the shortfall were in vain as the bank in question failed to provide this information. Hence, Joe was shocked when three months after the property was auctioned, he found an account listed on his credit report, that he did not open. He did not recognise the account number. The account listing was in respect of the property that had been auctioned by the bank. When he made further enquiries with the bank, he was advised that the account listing is a ‘debt recovery account’ in respect of the shortfall that arose when the property was auctioned. Further, the shortfall amount appeared to be the same amount as the initial bond amount.

In terms of our law, namely the National Credit Act 34 of 2005, the ‘debt recovery account’ listing on Joe’s credit reports can simply be removed on the basis that Joe did in fact not open the said account. The onus would then be on the bank to prove otherwise.

Regarding the shortfall amount and the extent of Joe’s liability regarding same, Joe would be entitled to the following information, in terms of section 131, read with section 127(5)(b) of the National Credit Act 34 of 2005:
1. The settlement value of the agreement immediately before the sale;
2. The gross amount realised on the sale;
3. The net proceeds of the sale after deducting the credit provider’s permitted default charges and,
4. The amount credited or debited to the consumer’s account.

Any credit provider that sells property, as a result of the consumer’s financial inability to honour the repayment obligations in terms of a credit agreement, or where the property is sold by the credit provider pursuant to the consumer’s voluntary surrender of the property, must provide the consumer with the abovementioned detail and information. This enables the consumer to determine whether the property was sold as soon as practicable for the best price reasonably obtainable.

Further, where this information is not provided or the information provided indicates that the property may not have been sold for the best price, reasonably obtainable, the consumer can may apply to the National Consumer Tribunal to review the disputed sale. If the National Consumer Tribunal is not satisfied that the credit provider sold the goods as soon as reasonably practicable or for the best price reasonably obtainable, the National Consumer Tribunal can order that the credit provider pays the consumer an additional amount exceeding the net proceeds of the sale.

Trapped in administration? Cancel it or write it off!

Trapped in administration? Cancel it or write it off!

An administration order is granted in terms of the Magistrates’ Court Act 32 of 1944 where the consumers debt is less than R50 000.00. An administrator is then appointed to collect a monthly amount that is distributed amongst the consumers’ creditors as detailed in the administration order.

Administrators can add new creditors to the list of those already included in the administration order, after the administration order is granted. This may result in the total debt exceeding the R50 000.00 threshold and a growing list of creditors to be paid, together with the accumulated interest charges levied on the debt.

Consumers can apply to court to rescind or cancel an administration order, even if the debt under administration is not fully paid. The most common instance when this can be done, is when the consumer’s financial circumstances have improved to the point where the consumer is no longer over-indebted and can pay the affected creditors a substantially larger amount than what the administration order demands. Other instances when an administration order can also be cancelled are, if “good cause” can be demonstrated to the court. Examples of good cause include:

(a) change in financial circumstances, for instance, you earn more today or have less debt;
(b) the creditors are not being paid timeously. For instance, the administrator is making payments to the creditors on a trimonthly basis whereas the debtor can make payments directly to the creditors on a monthly basis
(c) the administrator is not duly performing their duties as an administrator or the administrator’s charges are in dispute

If the cancellation of the administration order is not possible on any of the above grounds, the consumer may want to consider sequestration in order to terminate and cancel the administration process. Sequestration would be a suitable option where the consumer cannot in fact afford the monthly amount required in terms of the administration order.

Take the case of John Doe. John Doe has a nett income of R6 000.00, excluding a monthly deduction of R850 for an emolument attachment order that goes toward his administration. His living expenses are R5 300.00. This leaves a surplus of R600.00 is less than his monthly administration of R850.00. Clearly, the court will not grant the cancellation of the administration order.

However, the above scenario shows that Mr Smith is also unlikely to be able to cope with the R850.00 being deducted from his salary every month. He cannot afford it. He has to find a way to have the debt “written off”. Sequestration is an option.

If Mr. Smith is sequestrated, all his debt would be “written off”. This means that he would only have to provide for the repayment of 20% of his total outstanding debt and his outstanding creditors would receive 20 cents in the Rand.

Mr Smith’s administrator advises that the latest balance is R45 000.00. This means that under sequestration, an amount of approximately R9 000 would have to be provided for repayment to his creditors (that is, 20 cents in the Rand). Further, with sequestration, the garnishee would also stop, thereby increasing his monthly nett income.

However, Mr. Smith will not be able to obtain credit until he has been rehabilitated. A person is generally rehabilitated after 4 years, calculated from the sequestration date.

Debt and the defence of prescription clarified

Debt and the defence of prescription clarified

The collection of prescribed debt has been is now prohibited. No person may sell a debt under a credit agreement that has been extinguished by prescription under the Prescription Act 68 of 1969. Further, no person may continue the collection of, or re-activate a debt under a credit agreement where the debt has been extinguished by prescription or where the consumer could have raised the defence of prescription had the consumer been aware of such a defence.

The above prohibitions were incorporated into the National Credit Act 34 of 2005 by the National Credit Amendment Act 19 of 2014 and are now entrenched in section 126B. The National Credit Amendment Act 19 of 2014 was assented to on the 16th of May 2014 and came into effect on the 13th of March 2015.

Albeit that the sale, collection and re-activation of prescription is now prohibited, many debt collectors continue to buy debt books that include prescribed accounts and some debt collectors continue to harass consumers for prescribed accounts and in some instances, judgments are even granted in respect of prescribed accounts as the defence of prescription and/or issue of prescription was not placed before the Court at the time the judgment was granted.

There is even evidence of companies listed on the JSE, who part-take in these unlawful practices. One such company is on record as saying that it does not collect on prescribed debt, although it admits that mistakes can happen. The number of such incidents need to be examined to test the mettle of this explanation.
Thus, where demands for payment are made to consumers, consumers must be prudent enough to determine the lawfulness of the creditors’ demands for payment. Threatening letters of legal action being taken against the consumer are par for the course. The tone and letter of these letters smack of intimidation and consumers, being unaware of their rights, cave in under the pressure. When challenged, some debt collectors will go as far as saying the prescription was broken when the consumer made payment toward the account. Remember, this is not correct. To “break” or interrupt prescription is essentially unlawful in terms of Section 126B of the National Credit Act 34 of 2005.

Can a Garnishee Order or Emoluments Attachment Order be Set Aside?

Can a Garnishee Order or Emoluments Attachment Order be Set Aside?

An emoluments attachment order, or “garnishee” may be amended or rescinded provided the person bringing the application shows a valid reason for doing so. However, this is limited to the existence or validity of the order or the correctness of the balance being claimed or that the debtor cannot afford the amount stipulated in the order. Thus, a consumer may only challenge a ‘garnishee order’ if it is fraudulent or incorrect in its claim.

An employer may recover from the employee concerned a commission of up to 5% of all amounts deducted in respect of services rendered in terms of the emoluments attachment order.

The amount that a creditor can charge in terms of interest and legal costs is governed by the court order and legal costs, read with the National Credit Act, if the credit is a credit agreement in terms of the National Credit Act.

Section 65J(1)(a) of the Magistrate’s Court Act states that an emoluments attachment order must be issued from the jurisdiction in which the employer of the judgment debtor resides, carries on business or is employed, or if the judgment debtor is employed by the State, from the jurisdiction where the judgment debtor is employed. This provision is essentially for the benefit and convenience of the employer and/or employee who may wish to apply to the court for the amendment, suspension or rescission of such an order.

If a consumer’s salary is subject to an EAO, the consumer can request that their employer obtain a statement of the account in question. In terms of section 65J of the Magistrates’ Court Act an employer may request a statement of account. However, this section does not compel creditors and/or their attorneys to render statements on a regular basis.

Regulation 23.3.6 in terms of the Public Finance Management Act 1 of 1999 caps the emoluments attachment to 40% of the state employee’s salary. However, no such cap exists for debtors employed in the private sector.

Beware! Upfront fees for credit repair are unlawful

Beware! Upfront fees for credit repair are unlawful

Credit repair in South Africa has become a formidable industry. Only ten years ago, one needed an attorney to improve one’s credit record. Today there are dozens of so-called credit repair agencies and most do not employ attorneys, and many do not have any legal qualifications.

With the proliferation of credit repair agencies, there has also been a rise in fraud committed against defenceless and ignorant consumers. Many of these agencies charge their clients upfront and in full for these services and many consumers complain that the services aid for are not delivered.

Consumers with impaired credit records need to beware. It is unlawful for “credit repair agencies” to charge a fee upfront. Even a so-called evaluation fee to determine if a consumer qualifies fro a credit repair service is unlawful.

Section 126A (3) of the National Credit Act states:

(3) A person who offers to supply, or supplies, any service for the express purpose of –

(a) improving a consumer’s credit record, credit history or credit rating; Or

(b) causing a credit bureau t remove credit information from its records concerning the consumer,

MAY NOT (own emphasis) charge a consumer, or receive any payment from the consumer, for the credit repair service until that service has been fully performed, and must provide each consumer with a disclosure statement in the prescribed manner and form.

In other words, credit repair agencies who charge a fee upfront are in breach of the National Credit Act. According to subsection (4), this does not apply to attorneys.