Bank’s Action Reckless in Debt Review

Eva Smith (Attorney) @ Lucid Living

Durban High Court Judge Fikile Mokgohloa has labelled a leading bank as “reckless” in failing to participate in a debt review process involving home owners who defaulted on their bond payments.

This comes after Judge Rashid Vahed criticised banks last month for adding legal costs to defaulters’ bills without court sanction.

Mokgohloa dismissed with costs an application brought by FirstRand Bank against Durban home owners Nagine and Kursheda Raheman.

In the application, the bank had asked for judgment in the amount of about R220 000 plus interest, as well as an order declaring their Trenance Manor, Phoenix, property executable. Mokgohloa said the Rahemans had admitted they had failed to pay the necessary bond instalments, but had raised a special plea, saying they had been placed under debt review in January 2010.

In February 2010, the debt counsellor representing the Rahemans, forwarded a proposal to the bank with regard to repayments of the money owed. The next month, the Rahemans forwarded a revised debt review proposal increasing the contribution in respect of payments that would be made to the bank. The bank did not object to the proposals made or make any suggestions, and the Rahemans continued to make payments to the debt counsellor.

In May 2010, the debt review proposal in terms of their debt was made a court order in the Durban Magistrate’s Court. However the bank claimed in court papers that it was entitled to the relief sought, as it had terminated the debt review in accordance with National Credit Act, and that notice of this had been sent to the Rahemans in April 2010.

Mokgohloa found that, since a court order regarding the rearrangement of debt had already been made, the bank was not entitled to “exercise or enforce” by litigation any right under the credit agreement. She added that the bank had failed to participate in the debt review.  “The legislation obliges the consumer and credit provider to participate in good faith in the debt review, and any negotiations should result in responsible debt rearrangement. “The bank failed to respond to the proposals… I am of the view that the plaintiff’s failure to participate in the review proceedings is reckless.”

This judgment bodes well for protecting consumer’s rights, in respect of debt counseling, under the National Credit Act. The process of debt review has been derailed by credit providers, who refuse to cooperate and act on any opportunity to terminate the process. This ruling now supports the Act’s requirement for credit providers to “participate in good faith” in the debt review process and work toward a mutually beneficial outcome.