Sequestration, Administration and Debt Review Compared

Sequestration some salient points:

  • High Court procedure – more costly
  • Court grants only IF it is in the interests of your creditors – no guarantees:
  • Your assets must cover the debts
  • Associated costs of sequestration are paid out of your estate, i.e. bad for creditors.
  • Without creditors agreeing, the court will not accept your application
  • If granted, your assets will be sold and each of your creditors repaid a portion of what you owe. The balance is written off and you never have to pay it, by law
  • Creditors must make a claim against your insolvent estate, if they don’t their claims will be written off
  • You lose your assets and you have no control over how much they are sold for and you get none of the proceeds either
  • Your credit record carries a notice of sequestration and you are legally forbidden to get more credit until your estate is rehabilitated
  • You must apply to court to be declared rehabilitated.
  • It could take up to 9 years before you can get credit again
Administration, some salient points:
  • Only applies where you owe less than R50 000.
  • No write offs!
  • Reduces monthly repayments to an amount you can afford.
  • You pay for a much longer period, which increases total debt, as interest continues to be charged
  • Magistrates’ court procedure
  • Notice of administration on your credit record until the administration order is set aside.
  • High costs
  • Order has to be set aside in court
Debt Review, some salient points:
  • Similar to Administration but no cap on the amount you can owe.
  • Court may force creditors to write off some of the capital and/or interest
  • Reduces monthly repayments to an amount you can afford – as determined by the debt counsellor
  • You do not decide how much you must pay monthly, and are often left only with enough for bare basics
  • You can speed up repayment periods by reducing normal expenses at your own control
  • You pay for a much longer period, which increases total debt, as interest continues to be charged
  • Magistrates’ court procedure
  • Your credit record carries a notice of debt review and you are legally forbidden to get more credit until your debts are paid
  • The debt counsellor has to issue a clearance certificate to end debt review

Dereliction and Relegation of Debt Counsellor’s Duties may prove costly for Debt Counsellors…

Dereliction and Relegation of Debt Counsellor’s Duties may prove costly for Debt Counsellors…

In December 2016, three people were ordered to pay R180 000.00 in fines for failing to comply with debt counselling regulations. The fines were imposed by the National Consumer Tribunal (the “NCT”) after it was discovered that the guilty parties had been operating a debt counselling business, but had done so in contravention of compliance with the National Credit Act 34 of 2005 (the “NCA”). [National Credit Regulator v Joy Victoria Minnies, Mark Minnies & Nadeem Williams(NCT/21258/2015/57(1)]
One of the charges included failing to timeously refer debt review matters to court to obtain an order for the debt review arrangement. It is common that debt counsellors do not obtain court orders for their clients, even though they must apply to court within 60 business days of the debt review application being accepted. The adherence to this timeframe is especially important for the consumer as credit providers can terminate the debt review process and take legal action against the consumer if the consumer is in default under a credit agreement that is being reviewed in terms of the debt review process, at any time at least 60 business days after the date on which the consumer applied for debt review (Section 86(10)).
In addition, the National Credit Regulator’s guidelines on fees for debt counselling state:“If a Debt Counsellor fails to submit proposals to Credit Providers or refer the matter to a Tribunal or a Magistrate Court within 60 business days from date of the debt review application the Debt Counsellor has to refund 100% of the fee paid by the consumer (excluding the application fee).”

Other charges included engaging in the services of a debt counsellor without being registered as a debt counsellor and also where registered, allowing other non-registered persons to perform debt counselling duties under the registrant’s NCR debt counselling profile.

The NCT became aware of the above transgressions after a consumer lodged a complaint because her creditors took judgment against her, despite her application to undergo debt review. Her paperwork was bungled by the debt counsellor and the consumer lost the legal protection against her creditors. As a result, she lost her house. The NCT also ruled that the consumer may institute civil damages against the debt counsellor.

BACKGROUND

In terms of section 57(1) of the National Credit Act 34 of 2005, the National Credit Regulator (NCR) applied to the National Consumer Tribunal (NCT) for the deregistration of two debt counsellors, namely the First Respondent, Joy Victoria Minnies, and the Third Respondent, Nadeem Williams.

The NCR’s allegations against the First Respondent, and NCT findings were as follows:

  1. Contravention of section 44(2) of the NCA, that is, engaging in the services of a debt counsellor without being registered at the time the debt counselling services were proffered. The NCT held that the NCA envisages a debt counsellor being actively involved and participating in every aspect of the debt review process. Simple administrative duties such as the receiving and filing of a document need not necessarily be performed by a debt counsellor. However, a debt counsellor must be actively involved in the entire process as a consumer expects to be assisted and advised by a registered debt counsellor throughout the process.
  2. Contravention of section 86(4)(b) read with Regulation 24(5) of the NCA, that is, failing to retain proof of the transmission of the Form 17.1. The Form 17.1 is the notification that the debt counsellor must send to the credit providers and credit bureau in which the latter are notified of the consumer’s debt review application;
  3. Contravention of section 86(7)(c) of the NCA, that is, failing to refer debt review matters to court. In terms of the NCA, the debt counsellor has 60 days within which to finalise the debt review process or the credit provides can terminate the process and take legal action in terms of section 86(10) of the NCA.

The NCR’s initial allegation against the Third Respondent was based on contravention of section 44(2). The NCR later clarified this allegation by stating that the Third Respondent was in fact guilty of allowing other parties to use his signature, name and registration number to process debt review applications. This allegation was upheld as it was noted that no debt counsellor may simply provide his electronic signature, name and registration number to be utilized without him or her being personally involved in every material step of that specific debt review application.

CONCLUSION

This case clearly reinforces the following debt counsellors’ obligations and duties:
  • To timeously lodge and apply to court for a court order or to the NCT for a consent order, once the consumer’s debt review application is successful;
  • To discharge his or her debt counselling tasks and not delegate such tasks to persons not registered to provide debt counselling services;
  • To not allow non-registered persons to use his or her NCR debt counselling registration number or status to assist consumers.

The right to receive a statement of account

Section 108 of The National Credit Act enforces:

The right to know how much you owe and how it has been calculated.

In respect of a mortgage bond, the credit provider must deliver a periodic statement at least every six months to the consumer. In the case of an instalment agreement, lease or secured loan, the statement of account must be supplied to the consumer at least every two months. In respect of all other credit agreements, statements of account must be issued every month.
Despite the above provisions of the NCA, a consumer and a credit provider may agree to reduce the frequency of statements of account. However, such an agreement cannot provide for more than three months between the issuing of successive statements of account. If a statement of account is not issued on time, then a consumer may approach the NCT for an order to compel the credit provider concerned to provide the statement. The NCT may then order the credit provider to provide the statement or determine the amounts in relation to which the statement was sought.
A statement of account does not have to be delivered in respect of a credit facility if no amount has been debited or credited in the statement period. It is important to note that any credits reflected on a statement of account take effect on the date payment is made to the credit provider or otherwise when the right to have the account credited arises. Similarly, debits take effect as of the date on which the consumer incurred that particular debit.
A statement delivered in respect of a credit facility is not binding to the extent of any credits to that account, or charge made to that account, after the date on which the statement was prepared.
The right to dispute entries in a statement of account

If a consumer disputes any part of a statement of account, for example, a particular credit or debit that she believes has been entered incorrectly, then she may deliver a written notice to the credit provider, detailing the basis of her dispute. The credit provider must, in response, investigate and explain the disputed entry or confirm that the disputed entry was indeed made in error and subsequently remove the entry in question.
The credit provider cannot commence with any enforcement proceedings on the basis of a default arising from the disputed entry until after the investigation has been completed. Therefore, the credit provider must give the consumer written notice, explaining the disputed entry in reasonable detail or confirming that the statement was in error either in whole or in part, and setting out the revised entry. Before this is done, enforcement proceedings cannot commence.
The right to a statement of settlement amount
If a consumer wishes to settle a credit agreement, she has the right to request an updated statement of account from the credit provider concerned. The credit provider is then obliged to deliver such a statement of account to her without any charge being levied.
This statement must be delivered to the consumer within five business days of her having made the request. This statement of account will be binding upon the credit provider for a period of five business days after delivery. The statement of account can be delivered to the consumer in any of the following ways:

  • orally, in person or by telephone; or
  • in writing, either to the consumer in person or by SMS, mail, fax or email or other electronic form of communication to the extent that the credit provider has such facilities.

The In Duplum Rule – How much do you owe?

In Duplum – How much do you owe?

Section 103(5) of the National Credit Act limits the amount that a creditor may recover for a credit agreement, by limiting the collection costs that may be charged if a consumer was to default on a credit agreement.

The maximum amount that can be collected is double the capital amount outstanding at the time a consumer defaulted, including any interest or collection costs. This provision is essentially an extension of the in duplum rule that is found in our common law and basically limits the interest and all other costs that a creditor may charge on an account that is in arrears. The limit on interest and costs that may be charged therefore protects debtors from exploitation by creditors.

For example, should the consumer borrow R10 000, end up owing interest and costs of another R11 000 and repay only R3 000 of the capital, the maximum amount that could be recovered would be the unpaid capital of R7 000 together with interest and costs up to a maximum of a further R7 000. If however, the interest and costs only add up to R4 000 then the maximum that could be claimed would be R7 000 plus R4 000.

Put differently, the following amounts, when added together, may not exceed the unpaid balance of the principal debt under a credit agreement as at the time that the default occurs:

• initiation fee
• service fee
• interest
• cost of credit insurance
• default administration charges
• collection costs

This is a departure from the past when collection attorneys and debt collectors could collect far more than was fair, by continuously adding fees and interest to an account. Often the fees and interest added could far exceed the initial amount borrowed.

Early settlement of debt and how to get there

Early settlement of debt and how to get there

The National Credit Act regulates how accounts can be settled early. To begin with, a consumer would need a settlement amount from the credit provider and the NCA gives the consumer certain rights with regard to this.

Section 113 of the National Credit Act: Statement of settlement amount.

(1) At the request of a consumer or guarantor, a credit provider must deliver without charge to the consumer a statement of the amount required to settle a credit agreement, as calculated in accordance with section 125, as of a date specified in the request.

(2) A statement requested in terms of subsection (1)

(a) must be delivered within five business days;

(b) may be delivered

(i) orally, in person or by telephone; or

(ii) in writing, either to the consumer in person or by sms, mail, fax or email or other electronic form of communication, to the extent that the credit provider is equipped to offer such facilities, as directed by the consumer when making the request; and

(c) is binding for a period of five business days after delivery, subject to subsection (3).

(3) A statement delivered in respect of a credit facility is not binding to the extent of any credits to that account, or charges made to that account by or on behalf of the consumer, after the date on which the statement was prepared.

(4) On application by a credit provider, the Tribunal may make an order limiting the credit provider’s obligations to a consumer in terms of this section if the Tribunal is satisfied that the consumer’s requests are frivolous or vexatious.

If the consumer is happy with the statement of settlement amount, he or she can settle the credit agreement early and proceed in terms of Sections 122, 125 and 126 below. If the consumer is not satisfied that a statement is accurate, he or she can refer to section 115 at the end of this article.

Section 122 of the National Credit Act states:

(1) A consumer may terminate a credit agreement at any time by paying the settlement amount to the credit provider, in accordance with section 125.

(2) In addition to subsection (1), a consumer may terminate an instalment agreement, secured loan or lease of movable property, by:

(a)surrendering to the credit provider the goods that are the subject of that agreement in accordance with section 127; and

(b) paying to the credit provider any remaining amount demanded in accordance with section 127 (7).

Section 125. Consumer’s or guarantor’s right to settle agreement.

(1) A consumer or guarantor is entitled to settle the credit agreement at any time, with or without advance notice to the credit provider.

(2) The amount required to settle a credit agreement is the total of the following amounts

(a) The unpaid balance of the principal debt at that time; (b) the unpaid interest charges and all other fees and charges payable by the consumer to the credit provider up to the settlement date; and

(c) in the case of a large agreement

(i) at a fixed rate of interest, an early termination charge no more than a prescribed charge or, if no charge has been prescribed, a charge calculated in accordance with sub­paragraph (ii); or

(ii) other than at a fixed rate of interest, an early termination charge equal to no more than the interest that would have been payable under the agreement for a period equal to the difference between (aa) three months; and (bb) the period of notice of settlement if any, given by the consumer.

If the consumer is unable to settle an account in full at once, he or she may also make advance payments to the credit agreement, thus reducing the balance faster than what would have ordinarily been the case.

  1. Early payments and crediting of payments.

(1) At any time, without notice or penalty, a consumer may prepay any amount owed to a credit provider under a credit agreement.

(2) A credit provider must accept any payment under a credit agreement when it is tendered, even if that is before the date on which the payment is due.

(3) A credit provider must credit each payment made under a credit agreement to the consumer as of the date of receipt of the payment, as follows

(a) Firstly, to satisfy any due or unpaid interest charges;

(b) secondly, to satisfy any due or unpaid fees or charges; and

(c) thirdly, to reduce the amount of the principal debt.

For a consumer to take advantage of the above sections of the National Credit Act, he or she must first be in a financial position to do so. Below are some general tips on how to manage a budget in order to get to the point of being able to settle one’s debt early in line with the above provisions.

  1. Make time for your money

Diarise one day a month to work on your finances. Even if it means you have to spend an entire day to look at your finances, it will be the difference between financial independence and a life of enslavement to debt.

  1. Track your spending

Keep a notebook and write down every expense, including the tip for the car guard, or the beggar at the traffic light. This will be arduous and very difficult at first, but it will help you understand where you spend unnecessarily. And most importantly, you can then cut out these expenses, e.g. you spend 30 to 40 Rand a day on buying a sandwich at the office cafeteria. That’s the cost of four loaves of bread. A cheaper option would be to take lunch from home.

  1. SAVE, SAVE, SAVE

A PENNY SAVED IS A PENNY EARNED!! Using your records of what you spend, write everything on one list. Highlight all expenses that you wish to eliminate. Add up those items that you think will be easiest to eliminate and prioritise that cash for savings. Open a separate savings account and have the money deposited into that account via direct debit. This will come in handy in case of an emergency. And if there is no emergency you just keep saving, which will come in handy in the long run.

  1. Try to live cash

Once a week, do shopping list of household items needed for that week. Draw enough cash to pay for these items. Exercise the discipline that this cash is ALL you have for the week and do not withdraw any more at all. If an expense was not planned for on the weekly expenses list, then it must be deferred.

  1. Change your habits

Alcohol, tobacco, sweets and eating out are expensive. Cut these out and you will see your bills drop dramatically and your health will also improve.

  1. Involve the family

Make sure everyone in the family is involved in the exercise. If one member keeps spending without discipline it will defeat the purpose of your budget. Have a weekly family meeting to discuss, review and improve the spending habits of each family member. If you do this now with your children, they will grow up to be financially responsible and independent.

  1. Eliminate debt:
  1. List all debts with minimum monthly payments, interest rates and amounts owing
  2. Order them either by amount owing or highest interest rate.
  3. Note the minimum payments due on each debt and budget any extra cash to be added to the debt at the top of the list. It is usually easier to list the lowest debt first and aim to pay it off first.
  4. Continue to pay all debts, while adding the extra cash on the first debt until the first debt is paid off.
  5. Once the first debt is paid off, add all money you’ve been paying for that first debt (i.e. first debt minimum payment plus extra cash) to the second debt.
  6. Continue this process until all your debt is paid off.

For example: Debt A = 100 per month, Debt B = 100 per month, Debt C = 100 per month. Thus, if you follow the model, Debt A may receive 120 per month, and be paid off in 10 months instead of 12. This means that debt B receives 220 per month as of month 11 and will be paid off in 6 months instead of 12. Then Debt C starts to receive more and its term is also reduced drastically. The key to success is Discipline.

And do NOT take on more debt.

  1. Be flexible

Life happens! Going over budget is easy and sometimes cannot be avoided. Remember that you are on a journey and if you do your best to stick to the plan you will reach your destination no matter how many turns it takes. If you break the budget one month, you will stick to it the next.

What about Debt Consolidation?

Another option to reduce debt is debt consolidation. This means taking on one single loan that can pay off all existing debts. The borrower is then left with only one single payment to make per month to pay off the debt consolidation loan.

GOOD: The best thing about debt consolidation is that it is easier to avoid late fees, extra charges, and the bad credit that will inevitably result when you can’t afford to pay regular bills.

BAD: Interest rates on debt consolidation loans are usually very high. They also have longer repayment periods and as a result over time, one pays a lot more in total than one would have done without debt consolidation. Debt consolidation loans are also difficult to get, since highly indebted consumers are regarded as high risk and most will be forced to provide assets as security.

Consumer Rights under the National Credit Act explained

Consumer Rights under the National Credit Act explained

  • Introduction
  • The right to apply for credit
  • Protection against discrimination
  • The right to reasons for refusal of credit
  • The right to information on an official language
  • The right to information in plain and understandable language
  • The right to receive documents
  • The right to access and challenge credit records and information
  • How to dispute incorrect consumer credit information
  • Data-retention periods for credit bureau information
  • The right to apply for debt review
  • The right to be issued with a clearance certificate

The National Credit Act (NCA) is, to a very large extent, aimed at protecting the consumer. To meet this objective, it affords consumers various rights. These rights are aimed at promoting equity in the credit market by providing a balance between the rights and responsibilities of credit providers and consumers. In view of the large number of illiterate and uneducated consumers in the South African credit industry, extensive protection in the form of a wide variety of consumer rights is essential to ensure a credit market that is accessible and sustainable for all South Africans, particularly those who, historically, have been unable to access credit.

For every right it gives a consumer, the Act places a corresponding duty on the credit provider that is party to a credit agreement with that consumer. The corresponding obligation applies not only to the credit provider, but also to the providers’ agents and employees. As many consumers are not fully aware of their consumer rights, and the ensuing obligations the credit providers must discharge, we shall address and discuss the various consumers’ rights below. Each month, we shall add more rights to the list.

Section 60 provides that every adult natural person and every juristic person or association of persons has a right to apply to a credit provider for credit. It must be noted that section 60 provides for the right to apply for credit, not for credit to be granted. Subject to sections 61, 62 and 66, a credit provider has a right to refuse to enter into a credit agreement with any prospective consumer on reasonable commercial grounds consistent with its customary risk-management and underwriting practices.

It is submitted that nothing in the Act gives any person the right to require a credit provider to enter into a credit agreement with him. Where a credit application is declined on the basis of an affordability assessment having been conducted, a consumer who is aggrieved by the outcome of an affordability assessment may at any time lodge a complaint in terms of section 134 with the credit provider for dispute resolution. The consumer can also approach the National Credit Regulator to resolve the complaint in terms of section 136. If the National Credit Regulator issues a notice of non-referral in response to a complaint, the consumer may refer the matter directly to the National Consumer Tribunal, subject to its rules of procedure.

It is arguable that the Regulations regarding the “Removal of Adverse Consumer Credit Information and Information relating to Paid up Judgments” also enhance the consumer’s right to apply for credit. Similarly, the significant amendments to the assessment mechanisms and procedures to be used by credit providers before extending credit to any person will inevitably curtail the right to apply for credit. Credit providers are prohibited from using adverse consumer credit information relating to paid up judgments that have been removed in terms of the aforementioned Regulations for any reason, including credit scoring and assessment, and, are further prohibited from re-submitting adverse consumer credit information and information relating to paid up judgments that have been removed in terms of the said Regulations.

Section 61(1) of the National Credit Act prohibits a credit provider from unfairly discriminating directly or indirectly against a consumer on one or more grounds set out in section 9(3) of the Constitution or Chapter 2 of the Promotion of Equality and Prevention of Unfair Discrimination Act. This protection against discrimination applies to

a)  assessing the ability of the person to meet the obligations of a proposed credit agreement;

b)  deciding whether to refuse an application to enter into a credit agreement, or to offer or enter into a credit agreement;

c)  determining any aspect of the cost of a credit agreement to the consumer;

d)  proposing or agreeing the terms and conditions of a credit agreement;

e)  assessing or requiring compliance by the person with the terms of a credit agreement;

f)  exercising any right of the credit provider under a credit agreement, this Act or applicable provincial legislation;

g)  determining whether to continue, enforce, seek judgment in respect of, or terminate a credit agreement; or

h)  determining whether to report, or reporting, any credit information or record.

The prohibition against discrimination set out in section 61(1), read with the changes required by the context, applies equally to

a)  a credit bureau, when offering its services to the public, and when accepting, compiling, analysing, modifying or reporting any credit information or record;

b)  the ombud with jurisdiction or alternative dispute resolution agent, when offering or holding out the ability to resolve a dispute or assist in the resolution of a dispute between a credit provider and a consumer in terms of this Act, or in accepting or refusing a referral of such a matter, or in delivering any such service to credit providers and consumers;

c)  a debt counsellor when offering or holding out the ability to serve as a debt counsellor in terms of this Act, or in accepting or refusing a referral of such a matter, or in delivering any such service to consumers; and

d)  an employer or trade union, when acting in terms of section 75(3) or (4).

Section 61(1) and (2) prohibits unfair discrimination against an association or juristic person based on the characteristics of any natural person who is a member, associate, owner, manager, employee, client or customer of that association or juristic person. In accordance with section 61(4). It is not discrimination, on the basis of age, to

a)  refuse to receive or consider an application for credit from an unemancipated minor; or

b)  refuse to offer an unlawful credit agreement to, or enter into an unlawful credit agreement with, an unemancipated minor.

Although a credit provider may determine for itself any scoring or other evaluative mechanism or model to use in managing, underwriting and pricing credit risk, such model or mechanism must not be “founded or structured upon a statistical or other analysis in which the basis of risk categorisation, differentiation or assessment is a ground of unfair discrimination prohibited in section 9(3) of the Constitution”.

When a credit provider contravenes section 61, the consumer may institute proceedings before an equality court, in terms of Chapter 4 of the Promotion of Equality and Prevention of Unfair Discrimination Act. Such a complaint may also be referred to the Regulator in terms of section 136. If the complaint appears to be valid, the Regulator is obliged to refer it to the equality court.

In terms of section 61(7) a court may infer that a credit provider has discriminated unfairly against a consumer or prospective consumer if that credit provider knew or reasonably could have known that the consumer or prospective consumer was a historically disadvantaged person. This inference may also be drawn if a credit provider makes a decision contemplated in section 62(1)(a) to (d), with respect to that consumer or prospective consumer and refuses, or fails without reasonable cause, to respond to a request in terms of section 62 in respect of that decision.

A consumer is entitled to know the reasons why the credit he applied for was refused. On request from a consumer, a credit provider must advise the consumer in writing of the dominant reason as to why the credit was refused.

The right to be given reasons for refusal of credit applies when the credit provider:

a) refuses to enter into a credit agreement with a consumer;

b) offers a consumer a credit limit lower than that applied for by the consumer, or reduces the credit limit of an existing credit facility;

c)  rejects a consumer’s request to increase the credit limit of an existing credit facility; or

d)  refuses to renew an expiring credit card or similar renewable credit facility enjoyed by that consumer.

When responding to a request in terms of section 62(1), a credit provider whose decision is based on an adverse credit report received from a credit bureau must advise the consumer in writing of the name, address and other contact particulars of that credit bureau.

Inevitably it will happen in practice that certain consumers may harass credit providers with frivolous requests for reasons. On application by a credit provider, the Tribunal may make an order limiting the credit provider’s obligation in terms of section 62 if the Tribunal is satisfied that the consumer’s requests for information are frivolous or vexatious.

A consumer has a right to receive any document required in terms of the Act in an official language that the consumer reads or understands, to the extent that it is reasonable to expect the producer of the document to provide it in the requested official language. In determining what is reasonable, regard must be had to the usage, practicality, expense, regional circumstances and the balance of the needs and preferences of the population ordinarily served by the credit provider or any other person required to deliver that document to the consumer.
 
The consumer’s right to receive any document in an official language was reiterated in Standard Bank of South Africa Ltd v Dlamini where the defendant, namely Mr. Dlamini, failed to notify the applicant of the termination of the agreement by fax as prescribed in the agreement. Instead, Mr. Dlamini purported to terminate the agreement in a manner not prescribed in the agreement and Mr. Dlamini’s defence was that he was unaware that he had to notify the applicant of the termination of the agreement in the prescribed manner. In this instance, the court took into account the fact that Mr. Dlamini was functionally illiterate and did not understand English, and the fact that the transaction which resulted in the agreement arose in Pinetown, KwaZulu Natal where IsiZulu is the predominant language and held:
 
  • Mr. Dlamini’s failure to comply with a purely procedural obligation was not due to an unwillingness to comply but rather an unawareness of such an obligation;
  • the onus is on credit providers to inform consumers of their rights and responsibilities and where possible, creditors should also take reasonable steps to facilitate compliance by consumers with their responsibilities;
  • the National Credit Act is aimed specifically at consumers to reverse historical socio-economic inequalities and adjust the imbalances;
  • a provision is unlawful if it defeats the purposes or policies of the Act or deceives a consumer. The selective disclosure of Mr. Dlamini’s section 121 rights was deceptive;
  • where a provision is found to be unlawful, the court must sever the unlawful provision from the agreement, or alter it to render it lawful, if reasonable to do so. In this instance, the form and get-up of the agreement was found to be inconsistent with the Act and its regulations, as the creditor had not interpreted, translated or explained its material terms and that severance of the unlawful provision was not an option.
The court therefore set the entire agreement aside.
 
A producer of a document that is required to be delivered in terms of the Act is therefore saved from the trouble and expense of having to make its documents available in all the official languages of the Republic, but is obliged to offer each consumer an opportunity to choose an official language in which to receive any document, from at least two official languages as determined in accordance with a proposal approved by the National Credit Regulator.
 
Section 63(2) provides that if the producer of a document that must be delivered to a consumer in terms of the Act is or is required to be a registrant, that person must make a submission to the Regulator proposing to make such a document available in at least two official languages. The registrant must then offer each consumer an opportunity to choose an official language in which to receive any such document, from at least two official languages determined in accordance with a proposal approved by the Regulator. Such a proposal may require that the same official languages be used throughout South Africa or that different official languages be used in different parts of the country.
 
The Regulator must consider each proposal, having regard to the usage, practicality, expense, regional circumstances and the balance of the needs and preferences of the population ordinarily served by the person making the proposal. If the Regulator does not approve a proposal, because in its view the proposal does not adequately provide for the maximum practicable enjoyment of the right to information in an official language, it may require the person making the proposal to submit a fresh one. The person who made a proposal that is the subject of a decision of the Regulator in terms of section 63(4)(b)(ii) may apply to the Tribunal to review that decision. The Tribunal may make an order confirming or setting aside the decision.
 
A different situation applies to persons who are not registrants and not required to register but who produce documents that are required to be delivered in terms of the Act. Such persons must offer consumers an opportunity to choose an official language in which to receive those documents from among at least two official languages selected by the producer of the document, having regard to usage, practicality, expense, regional circumstances and the balance of the needs and preferences of the population ordinarily served by that person.
 
The producer of a document that is required to be delivered to a consumer in terms of the Act is obliged to provide each such document to the consumer in the official language chosen by the consumer in terms of section 63. It should further be noted that the relevant Minister, namely the Minister of Trade and Industry, is further empowered to prescribe for all or particular parts of the country at least two official languages to be used by the Regulator in any documents it is required to deliver in terms of the Act, so as to give maximum effect to the consumer’s right to information in an official language.
A document that is required to be delivered to a consumer in terms of the Act should be in the prescribed form, if any is prescribed, for that document. Alternatively, the document should be in plain language, if no form has been prescribed for it. The language in the document should be such that the consumer is not required to consult an external source to clarify or interpret any part of the document. Rather, the credit provider is obliged to ensure that its documentation is understandable by the ordinary consumer of the class of persons for whom the document is intended, with average literacy skills and minimal credit experience.
 
In order to avoid conflicting opinion about whether a document is drafted in plain language, the Act expressly states when a document will be regarded as being in plain language. For the purposes of the Act, a document is in plain language if it is reasonable to conclude that a consumer as described above could be expected to understand the content, significance, and import of the document without undue effort, having regard to –
 
         (a)      the context, comprehensiveness and consistency of the document;
         (b)      the organisation, form and style of the document;
         (c)      the vocabulary, usage and sentence structure of the text; and
         (d)      the use of any illustrations, examples, headings, or other aids to reading and understanding.
 
The Regulator may publish guidelines for methods of assessing whether a document satisfies the requirements of section 64(1)(b). If the agreement is a developmental credit agreement, the credit provider may request that the Regulator pre-approve the form of all the documents to be used by the credit provider for such credit agreements in terms of the Act. When forms relating to a developmental credit agreement have been so approved and the credit provider has used only those pre-approved forms in dealing with a consumer, section 64 will not apply to a developmental credit agreement effected as a result of such dealings.
 

In Standard Bank of South Africa Ltd v Dlamini the court reiterated that a document is in plain language if it is reasonable to conclude that an ordinary consumer of the class of persons for whom the document is intended, with average literacy skills and minimal credit experience, could be expected to understand the content, significance and import of the document without undue effort, having regard to the organisation, form and style of the document, and the vocabulary usage and sentence structure of the text. In this instance, the court found that the agreement was unduly lengthy and verbose, for instance, the terms and conditions spanned over five pages and incorporated 18 main clauses with several sub-clauses, and that Mr. Dlamini’s rights in terms of section 63 and section 64 were breached.

Every document that must be delivered to the consumer in terms of the National Credit Act must be delivered in the prescribed manner, if any manner is prescribed. Section 65(2) provides that, when the method of delivery for a particular document is not prescribed, the credit provider or any other person required to deliver the document must make the document available to the consumer by one or more of the following methods:
  1. in person at the business premises of the credit provider, or at any other location designated by the consumer but at the consumer’s expense, or by ordinary mail;
  2. by fax;
  3. by e-mail; or
  4. by printable web-page.
The document must then be delivered to the consumer in the manner chosen by him from these options.
 
Any original copy of a document required to be delivered to the consumer in terms of the Act must be delivered without charge. At the consumer’s written request a credit provider must give the consumer free of charge a single replacement copy of a document required in terms of the Act, provided the request is made within a year after the date for original delivery of that document. The credit provider must provide the consumer with any other replacement copy at the consumer’s written request, subject to any search and production fees permitted by regulation.
 
A credit provider who believes that a consumer’s requests for copies of documentation are frivolous or vexatious may apply to the Tribunal to limit the provider’s obligation to provide replacement copies. If the Tribunal is satisfied that such requests are indeed frivolous or vexatious, the consumer’s right to receive documents will be curtailed by an order limiting the credit provider’s obligation in terms of section 65(4) to deliver documents to the consumer.
 
Section 65(3), (4) and (5) does not apply to a developmental credit agreement if the National Credit Regulator has pre-approved procedures to be followed by the credit provider in the delivery of documents with respect to such credit agreements in terms of the Act and the credit provider has complied with those pre-approved procedures in dealing with the particular consumer. When pre-approving any such procedures to be followed by a credit provider that enters into developmental credit agreements, the National Credit Regulator must balance the need for efficiency of the credit provider with the consumer’s right to receive documents.
 
Further, if the credit agreement relates to goods and the consumer agrees to receive substituted goods, the credit provider must give the consumer an amended credit agreement describing the substituted goods, but without making any other changes to the original agreement.

Section 70 of the National Credit Act prescribes what consumer credit information may be reported and to whom it may be reported.

In terms of section 70(1) “consumer credit information” includes:

(a) a person’s credit history, including applications for credit, credit agreements to which the person is or has been a party, pattern of payment or default under any such credit agreements, debt re-arrangement in terms of Act, incidence of enforcement actions with respect to any such credit agreement, the circumstances of termination of any such credit agreement, and related matters; for example include civil court judgments, debt restructuring, adverse classifications of consumer behaviour, adverse classifications of enforcement action, administration orders, sequestration, liquidations

(b) a person’s financial history, including the person’s past and current income, assets and debts, and other related matters within the scope of that person’s financial means, prospects and obligations and related matters;

(c) a person’s education, employment, career, professional or business history, including the circumstances of termination of any employment, career, professional or business relationship, and related matters; or

(d) a person’s identity, including the person’s name, date of birth, identity number, marital status and family relationships, past and current addresses and other contact details, and related matters.

In National Credit Regulator v Southern African Fraud Prevention Services it was held that fraud information is a subset of consumer credit information as it “equally impacts the credit provider’s decision whether or not to grant credit to the affected consumer”. Such information falls under Regulation 17, category 5 and as such, is in fact a subjective adverse classification of consumer behaviour that can be retained on the consumer’s credit report for a maximum period of 1 year. Accordingly, fraud information must be expunged from the consumer’s credit reports in terms of section 70(2)(f) read with Regulation 17(1).

In practice, incorrect credit information about a specific consumer is sometimes reported. To address this, section 72, read together with regulation 20, provides the consumer with the right to access and challenge credit records and information.

Every person has a right to be advised by a credit provider, at least 20 business days before any adverse information concerning that person is reported by the credit provider to a credit bureau, of that credit provider’s intention of reporting such information, and to receive a copy of that information upon request.

A consumer may challenge the accuracy of any information on his credit report. The credit bureau, credit provider or National Credit Regulator must then take reasonable steps to find evidence that supports the challenged information, within 20 business days.

When credible evidence is found to prove the veracity of the information challenged, a copy of that evidence must be given to the person who challenged the information. Should the consumer seek to challenge the “credible evidence”, he may make an application to the National Credit Regulator to investigate the disputed information. This application must be made within 20 business days after the consumer’s receiving a copy of the “evidence”.

The National Credit Act prescribes the maximum periods for which consumer credit information may be reflected and used for credit scoring or credit-assessment purposes. The maximum periods for the retention of this information is as follows:

Categories of consumer credit informationDescriptionMaximum period
1.   Details and results of disputed lodged by consumersNumber and nature of complaints lodged and whether complaint was rejected. No information may be displayed on complaints that were upheld.6 months
2.   EnquiriesNumber of enquiries made on a consumer’s record, including the name of the entity/person who made the enquiry and a contact person if available1 year
3.   Payment profileFactual information pertaining to the payment profile of the consumer5 years
4.   Adverse classifications of consumer behaviourSubjective classifications of consumer behaviour1 year or within fourteen business days after settlement by the consumer
5.   Adverse classifications of enforcement actionClassification related to enforcement action taken by the credit provider1 year or within fourteen business days after settlement  by the consumer
6.   Debt restructuringAs per section 86 of the Act, an order given by the Court or TribunalWithin the period prescribed in section 71(1) of the Act or until a clearance certificate is issued
7.   Civil-court judgmentsCivil-court judgments including default judgmentThe 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.   Maintenance judgments in terms of the Maintenance Act 99 of 1998As per the court judgmentUntil the judgment is rescinded by court
9.   Sequestration orderAs per the court order5 years or until the rehabilitation order is granted
10. RehabilitationAs per the court order5 years
11. Administration orderAs per the court order5 years

 

If a consumer is of the opinion, that he is over-indebted, he has the right in terms of Section 86 of the National Credit Act to apply to a debt counsellor for debt review.

The debt counsellor can also investigate whether any reckless credit has been extended to the consumer. In this way, the process of debt review is designed to provide the consumer with an opportunity for debt re-arrangement. It should be noted, however, that the rights relating to debt review, declarations of over-indebtedness, reckless credit and debt re-arrangement do not apply to juristic persons.

A consumer whose debts have been re-arranged under debt review must be issued with a clearance certificate by a debt counsellor within seven days after the consumer has satisfied all the obligations under every credit agreement that was subject to that debt re-arrangement order or agreement, in accordance with that order or agreement. Alternatively, if the consumer can demonstrate:

  1. financial ability to satisfy the future obligations in terms of the re-arrangement order or agreement under a mortgage agreement which secures a credit agreement for the purchase or improvement of immovable property; or any other long term agreement as may be prescribed;
  2. that there are no arrears on the re-arranged agreements, and
  3. that all obligations under every credit agreement included in the re-arrangement order or agreement, other than a mortgage agreement which secures a credit agreement for the purchase or improvement of immovable property; or any other long term agreement, have been settled in full.

Should a debt counsellor decide not to issue or fails to issue a clearance certificate as contemplated above, the consumer can apply to the National Consumer Tribunal, on the prescribed Form TI.71(3), to review the debt counsellor’s decision not to, or failure to, issue the clearance certificate. If the Tribunal is satisfied that the consumer is entitled to the clearance certificate, the Tribunal may order the debt counsellor to issue a clearance certificate to the consumer.

Further, the debt counsellor is obliged to file a certified copy of the clearance certificate with the national register of credit agreements and all registered credit bureaux within seven days after issuance of the clearance certificate. Where a debt counsellor fails to file a certified copy of a clearance certificate, the consumer may file a certified copy of the clearance certificate with the National Credit Regulator and the consumer may also lodge a complaint against the debt counsellor with the National Credit Regulator. It is important to note that prior to the National Credit Amendment Act, the debt counsellor was not obliged to submit the clearance certificate to the national register and to the credit bureaux.

In practice, a person who qualifies for a clearance certificate would obtain the clearance certificate from the debt counsellor and present it to the credit bureaux. Upon receipt of a copy of a clearance certificate, a credit bureau, or the national credit register, must expunge from its records:

  • the fact that the consumer was subject to the relevant debt re-arrangement order or agreement;
  • any information relating to any default by the consumer that may have –
  • precipitated the debt re-arrangement; or
  • been considered in making the debt re-arrangement order or agreement; and
  • any record that a particular credit agreement was subject to the relevant debt re-arrangement order or agreement.

In Thizwilondi Ananuas Magadze and Adcap and Others; Soyaphi Green Ndlovu and Bernice Koekemoer and Others, Judge AJ Neukircher delivered a combined judgment as the applications sought were virtually mirror images of each other, other than specifics pertaining to each applicant. The applicants, not being entitled to a clearance certificate, as per section 71, sought to terminate the debt review process and be declared no longer over-indebted. The question as to whether a court order, declaring the applicants no longer over-indebted has the same effect as a clearance certificate, as detailed above, was considered. The learned judge pointed out that section 88(1) does not have a similar proviso to section 71(5) which is the expunging of the credit bureau records. However, it was held that to “grant an order that falls short of failing to expunge the consumer’s credit record in toto would effectively mean that section 71 would carry more weight than an order issued out by the High Court and that situation would be untenable”. The NCA is “geared towards the protection of the consumer, and where relevant, the fiscal rehabilitation of the consumer”. The purposes of the NCA include the protection of consumers by promoting the development of a credit market that is accessible to all South Africans, and in particular to those who have historically been unable to access credit under sustainable market conditions.