/ 2 February 2011

High court rules against debt review termination

The Western Cape High Court has ruled that consumers should be protected against legal enforcement by credit providers while proceedings for a court order are pending. This means that credit providers will not be able to terminate consumer debt reviews after 60 business days have expired and the matter has been referred to a magistrate.

The case that produced the ground-breaking judgement found that Wesbank was not entitled to terminate the debt review process of customer Deon Papier because 60 days had lapsed from the day he approached a debt counsellor to restructure his debt. Under the National Credit Act (NCA), consumers’ assets are protected from credit providers during the debt review process.

This judgement will put an end to major credit providers terminating a debt review after the expiry of 60 days regardless of whether the consumer and debt counsellor had followed the correct process.

According to Paul Slot, the director of debt counselling at Octogen, this is good news for consumers, who have had their debt reviews terminated precisely when they have most needed protection. According to the judgment, this akin to “providing the consumer with an umbrella then snatching it back the moment it starts to rain”.

The court agreed with the National Credit Regulator (NCR) that a literal interpretation of Section 86(10) of the NCA would be absurd and consumer protection should be paramount.

The judgement is welcome news for debt counsellors, too.

“In practice, this means that a consumer can apply for debt review and the debt counsellor must follow the process as per the NCA, which includes the referral to a magistrate’s court within 60 business days. The consumer has to continue with payments as per the proposal of the debt counsellor until the matter has been finalised by the magistrate’s court,” Slot said.

“This is a victory for the debt counselling industry and more so for financially stressed consumers,” said Octavia Hlatshwayo, managing director of Mzansi Debt Counselling.

“Far too often, we have seen creditors seriously compromising the debt counselling process by issuing a summons to consumers although debt counsellors have followed regulated procedure and are awaiting case numbers or pending court orders. Creditors have created the perception that we do not know what we are doing, so this is welcome news for our industry, as well as for over-indebted consumers.”

Peter Setou, NCR senior manager of education and strategy, agrees. “The premature enforcement of credit agreements in the high courts also drives up the costs of litigation at the expense of those least able to afford it,” he said.

There about 30 000 debt review cases on the roll at courts throughout the country and about 7 000 consumers apply for debt review every month.

According to Slot, the implementation of the NCR task team restructuring rules should result in a reduction of opposed cases referred to courts, but there’s still a need to expedite cases already on the roll at the courts.

Quibbles aside, though, this ruling will allow consumers who are serious about repaying debt to have a fair chance of doing so. All too often, credit providers don’t give consumers a chance to reach settlement with the help of debt counsellors, which runs contrary to the spirit of the law, so the judgement is a real victory for the over-indebted.

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