Debt review – the consequences for debtors and creditors in collection proceedings

According to Ronel de Klerk (de Rebus April 2012) and as we have written in numerous news items on our website, a string of recent judgments regarding debt review (in terms of the National Credit Act 34 of 2005 ( NCA)), has rocked the proverbial boat for all concerned. These judgments include Nedbank Ltd and Others v The National Credit Regulator and Another (Juselius) 2011 (3) SA 581 (SCA) and Collett v First Rand Bank Ltd 2011 (4) SA 508 (SCA).

 

In the Collett case the court found that in terms of section 86(10) of the NCA, when a consumer is in default of the credit agreement, a credit provider may terminate the debt review process at any time after the prescribed 60-day period expires.

 

However, in the Juselius case, the court found that a notice sent to a consumer by the credit provider in terms of s129(1) (letter of demand) constitutes the first step in legal proceedings. In addition, it found that the relevant credit agreement must be excluded from the debt review process altogether.

 

In practice, the combined effect of these two judgments is that, although credit providers may be protected from unnecessary delays caused by unsubstantiated debt review applications, more credit agreements are being excluded from the debt review process than ever before. This is because credit providers have been sending out notices in terms of section 129(1) (letter of demand) as soon as an over-indebted consumer defaults on his payments in terms of the original credit agreement. These notices then have the effect of precluding the accounts from being included in the debt review process. As a result the over-indebted consumer, who needs the relief that the NCA holds, finds debt counselling to be long on promises but short on delivery. The scales are clearly out of balance.

 

Further to the above, in Juselius, an additional question was placed before the court relating to whether such a section 129(1) notice constitutes ‘the step’ for purposes of the debt review application. The court answered in the affirmative and confirmed that section 85 may offer a glimmer of hope in instances where a section 129(1) notice (letter of demand) excludes the credit agreement from the debt review process.

 

Therefore, when they show good cause, the debt counsellor and consumer have the relief provided in section 85(a) at their disposal. In terms of section 85, the court may “refer the matter directly to a debt counsellor with a request that the debt counsellor evaluate the consumer’s circumstances and make a recommendation to the court”. Good cause has never been defined and each case is measured individually against its specific facts. In addition, the individual measurement of good cause implies that the court can exercise its discretion in determining whether or not it is just and equitable. However, this may lead an already over-indebted debtor to incur additional costs to try and alleviate his or her over indebtedness.

 

Debtors and creditors and role players such as attorneys and debt counsellors should observe these provisions before deciding how to proceed with a specific matter of indebtedness.

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