Constitutional Court Ruling May Offer Consumers Better Protection From Banks

Eva Smith (Attorney) @ Lucid Living

The Banking Association of South Africa (Basa), the National Credit Regulator (NCR) and a human rights organisation, the Socio-Economic Rights Institute of South Africa (Seri), are at odds over how a section of the National Credit Act (NCA) should be interpreted.

The NCR and Seri say the current interpretation infringes on certain basic rights including the right to equality, housing and property, while Basa has said that changing the interpretation could endanger the entire credit industry.

The Constitutional Court has been asked to decide if it is sufficient for creditors to simply send notices that it would take court action against someone in arrears. A ruling on the matter could have serious implications for South Africa’s credit-reliant population and the country’s banking industry.

The law being scrutinised is Section 129 of the National Credit Act.

The court heared arguments on whether it is enough for a bank to simply send a section 129 notice to a defaulting customer or whether it must ensure that the customer actually receives the notice. “The relevance is whether the notice came to the attention of the consumer,” submitted Stuart Wilson of Seri, acting as a friend of the court.

The case originated from a dispute between Standard Bank and a customer, Mashilo Sebola, who defaulted on his mortgage repayments. According to the National Credit Act, the bank sent him a section 129 notice, notifying him of its intent to attach his home for sale in execution of his mortgage.

But he never received the notice, or even a summons. He argued in court that this should suffice as a defence against the bank’s claim enforcing the credit agreement.

Both the High Court and Supreme Court dismissed his application, saying that the bank only needed to show that it had sent the notice, and not that he had received it.

Sebola appealed to the Constitutional Court, arguing that the fact he did not receive the notice should be considered as a defence against the bank’s enforcement of the credit agreement.

The NCR, acting as a friend of the court, has come down on the side of the consumer in the matter, saying it wants to promote non-litigious methods to resolve such cases.

“There is a lack of capacity in the court system to deal with the volume of credit-related cases, and given the ever-increasing volume of such cases, this backlog continues to grow. It says that where alternative dispute resolution is pursued — for example, debt counselling — customers are more likely to go on to make their payments.

The NCR argues that in cases where an opportunistic consumer deliberately fails to collect a registered letter, the credit provider can protect itself by having a sheriff deliver the notice. This, it argues, would likely only apply to a relatively small number of cases and would cost between R28 and R44. These costs could be born by the consumer and would be minor compared to the cost of enforcing the credit agreement through legal means, it said.

“The enforcement of a credit agreement bites hardest where the debt is secured against a consumer’s property, and this always has the potential to invade Constitutional rights,” said Kate Tissington, research and advocacy officer at Seri. Seri proposed that the court declare that section 129(1) of the act requires that the notice issued in its terms “comes to the attention of the consumer”.

But according to Basa, a third friend of the court,the interpretations put forward by the NCR and Seri would harm the effective functioning of the credit market. In court papers, the organisation said these interpretations would require personal delivery for all section 129 notices.

“It would make the business of providing credit even more risky and onerous than it already is, which would have a chilling effect on the South African credit market,” it said.

The bank believes that the NCA does not require it to make sure the recipient receives the notice, and that it has to prove only that the notice was sent.

Hundreds of thousands of these notices were sent in bulk and there was an assumption that in 99% of cases, the Post Office would do its job, the bank’s counsel Chris Loxton said.

Matthew Chaskalson, representing the NCR, also as a friend of the court, said the poor stood to lose the most in terms of executions.

In the first nine months of 2011, 77 percent of credit provided was to people earning under R10 000 a month. They were less likely to receive a notice because of service delivery issues. The Post Office could not be seen as an agent for debt collection.

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