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).

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.

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.