It appears the National Credit Act has become toothless as unscrupulous creditors continue to break the law with impunity. Picture: iStock.
South Africans are among the most indebted people in the world, with as much as 73% of disposable household income servicing debt repayments.
Credit abuses and frailties in the legislative framework, compounded by financial illiteracy, leave borrowers vulnerable to manipulation by lenders. This is according to a SA Law Journal article by Stephan van der Merwe, senior attorney at the Stellenbosch University Law Clinic.
The Constitution provides for equal access to the courts where debt is concerned but this is effectively denied to poor South Africans, particularly where smaller debts are involved.
Van der Merwe laments that the higher courts have missed an opportunity to strengthen the rights of borrowers against the unscrupulous practices of lenders.
The problem is dire enough to warrant judicial intervention and effective access to courts to assist vulnerable debtors.
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The skewed power relationship between these parties ensures that debtors are no match for shrewd creditors.
Advocate Geoff Budlender argued in a 2004 article, Access to Courts, that “prevailing levels of poverty and illiteracy have the result that many people are simply unable to place their problems effectively before the courts”.
Private law firms are unlikely to wade into the debtor protection business as there is little or no money in it, while legal aid assistance is thin, and requires a solid grounding in consumer and banking law, frequently lacking among junior attorneys who are often assigned to such cases.
Unsecured and credit card debt ballooned to R18 billion by 2022.
It was not just ‘mashonisas’ (illegal money lenders) but more respectable credit providers that leapt at the opportunity to shower loans on millions of black South Africans previously denied credit under apartheid.
It quickly became apparent this was unsustainable, as evidenced by the volume of summonses and debt judgments against borrowers. In May 2019 alone, the courts granted nearly 19 000 judgments for debt worth R342.1 million. In that same month 47 360 summonses were issued for debt recovery.
Unscrupulous lenders can also frustrate the civil enforcement processes, while “debtors remain considerably more vulnerable to abuse than creditors,” says Van der Merwe.
“The concern that South Africans are the most indebted people in the world is exacerbated by people’s frequent regression into over-indebtedness.”
Covid-19 intensified the misery of abused debtors, notwithstanding the three-month debt repayment holiday announced by the banks in 2020, while the courts suspended non-urgent and non-essential civil cases.
That reprieve turned out to be short-lived, with summonses for debt flooding from banks in the months immediately after the three-month debt repayment holiday, according to Lungelo Lethu Human Rights Foundation, which defends mainly the poor against debtor abuse.
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The Constitutional Court has confirmed that unjust debt collection practices have the potential to infringe constitutional guarantees, in addition to the right of access to courts, and the livelihood and dignity of low-income earners.
One of the key reforms introduced in the post-apartheid era was the overturning of jail time for debtors, previously allowed under the Magistrates’ Court Act.
In 1999, the Micro Finance Regulatory Council (MFRC) was created to encourage increased access to credit for all South Africans, and to combat abuses.
The MFRC was later incorporated under the National Credit Regulator when the National Credit Act (NCA) came into force in 2007. This was followed by the Consumer Protection Act, which is intended to give consumers stronger legal rights.
Despite these advances, abuse of borrowers has continued.
Common practices included reckless lending and the confiscation of bank cards and security PIN numbers.
“The responsibility to realise the goals of transformative constitutionalism rests primarily on the shoulders of judges,” writes Van der Merwe.
“Judges are called upon to base their judgments on interpretations and choices influenced by legal and non-legal factors. Judicial decisions should not be abstracted from the real world and must be based on actual socio-economic circumstances.”
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The problem is that SA judges are typically conservative and traditionalist in their rulings, and this is counterproductive to transformative constitutionalism.
One of the most important cases fought in defence of debtors was Bayport Securitisation v University of Stellenbosch Law Clinic.
This related to the in duplum rule written into the National Credit Act (NCA), which prevents lenders claiming more than double the amount of the loan outstanding at the time of the default.
It was not uncommon for lenders to load collection and legal fees onto the outstanding amount, effectively undermining the intention of NCA. The law clinic attempted to bring the case before the Constitutional Court, but this was refused.
The University of Stellenbosch Law Clinic presented evidence to the Supreme Court of Appeal (SCA) of creditors paying as much as R5 100 for an outstanding debt of just R597, with an additional R605 still being claimed by the creditor.
The court found such practices allowed Bayport to circumvent the purpose of the NCA and ruled in favour of the borrowers, though this was overturned in the SCA, a decision Van der Merwe says lacked proper consideration of constitutional values.
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This SCA ruling allows lenders to continue pushing their debt recovery cases through the courts, racking up fees in excess of the in duplum limit. Debtors typically do not have the finances, expertise and opportunity to approach courts, and are thereby prejudiced by this unequal arrangement.
“If the South African legal system is serious about transformative constitutionalism, judges should be reprimanded when they render judgments, especially in high-impact cases, in ignorance of clear transformational directives based on the Constitution,” says Van der Merwe.
The Judicial Service Commission should start paying attention to such cases and bear them in mind when making future appointments to the bench.
The SCA decision clears the way for unscrupulous lenders.
This article originally appeared on Moneyweb and was republished with permission.
Read the original article here.
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