ARTICLES

The money or the box: Perspectives on reckless credit in terms of the National Credit Act 34 of 2005

Die geld of die boks: Perspektiewe op roekelose krediet ingevolge die Nasionale Kredietwet 34 van 2005

CM Van Heerden^I; A Boraine^II

^IBProc LLB LLM LLD Associate Professor, Department of Mercantile Law, University of Pretoria
^IIBIuris LLB LLM LLD Dean and Professor, Faculty of Law, University of Pretoria

OPSOMMING

Die Nasionale Kredietwet 34 van 2005 (hierna die NKW) lei die konsep van roekelose krediet vir die eerste keer In Suid-Afrikaanse kredietwetgewing in. Die NKW poog om roekelose kredietverlening te voorkom deur voorooreenkoms-assessering ingevolge artikel 81 daarvan verpligtend te maak en maak verder voorsiening vir verskeie remedies ten opsigte van roekelose krediet. Daar word aan die howe verskeie magte verleen afhangende van die soort roekelose krediet wat toegestaan is. Aansienlike onduidelikheid bestaan egter oor die basis waarop die magte van die hof om te beveel dat 'n totale of gedeeltelike tersydestelling van die regte en verpligtinge van die verbruiker, aan wie roekelose krediet soos beoog in artikel 80(1)(a) en 80(1)(b)(ii) toegestaan is, uitgeoefen moet word. Dit is voorts ook nie duidelik op watter basis 'n hof ten aansien van voormelde soorte roekelose krediet moet besluit tussen tersydestelling van die verbruiker se regte en verpligtinge of opskorting van die krag en effek van die ooreenkoms nie. Hierdie bespreking stel praktiese ondersoek in na die aard van roekelose krediet en die wyse waarop 'n voorooreenkoms-assessering gedoen moet word. Die remedies ten opsigte van roekelose krediet word ontleed in 'n poging om die praktiese effek van die magte van die hof vas te stel ten opsigte van die verskillende gevalle van roekelose krediet waarvoor die NKW voorsiening maak. Die prosedurele implikasies verbonde aan roeklose krediet word ook ondersoek.

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1 S 3(c)(i) & (ii) National Credit Act (NCA). See also Renke "Measures in South African consumer credit legislation aimed at the prevention of reckless lending and over-indebtedness: An overview against the background of recent developments in the European Union" 2011 THRHR 208 209.
2 See further Otto & Otto The National Credit Act Explained (2010) 58-63,7779; Scholtz et al Guide to the National Credit Act (2009) ch 11. See also Vessio "Beware the provider of reckless credit "2009 TSAR274.
3 S 79(1)(a) NCA.
4 S 79(1)(b) NCA.
5 S 3(i) read with s 85, 86, 87 and 88 NCA. See the discussion of over-indebtedness and its accompanying debt relief remedies in Scholtz et al par 11.3.
6 Desert Star Trading 145 (Pty) Ltd v No 11 Flamboyant Edleen CC 2011 2 SA 266 (SCA).
7 The provisions regarding reckless credit as set out in s 80(1) NCA do not apply to an increase in terms of s119(4) NCA. S 119(4) NCA provides that if a consumer, at the time of applying for the credit facility or at any later time, in writing has specifically requested the option of having the credit limit automatically increased from time to time, the credit provider may unilaterally increase the credit limit once a year and by an amount as indicated in the subsection. Thus, in such instance a pre-agreement assessment as prescribed by s 81, as discussed hereinafter, will not be necessary.
8 S 80(1)(a) NCA.This type of reckless credit appears to be reckless per se and will also be referred to as type one reckless credit for purposes of this discussion. See also Vessio 2009 TSAR 274 281.
9 It is to be noted that this subsection is broadly worded and does not require that the consumer should "specifically" not have understood the risks, costs and obligations under the agreement but merely requires a "general" lack of such understanding.
10 S 80( 1)(b)(i) NCA. This will also be referred to as type 2 reckless credit for purposes of this discussion.
11 S 80(1)(b)(ii) NCA. See also Scholtz et al par 11.1. In this instance there is thus an overlap between over-indebtedness and reckless credit. This will also be referred to as type three reckless credit for purposes of this discussion. See further Vessio 2009 TSAR 274 275 where she indicates that The Oxford English Dictionary defines "reckless" as "disregarding the consequences or danger etc; rash" and concludes that reckless lending includes not only the act of disregarding the consequences but also the act of not analysing at all, or analysing incorrectly, one's client or potential client in the carrying out of certain prescribed assessments or investigations.
12 Scholtz et alpar 11.1.
13 S 78(1) NCA.
14 Otto & Otto 9.
15 Scholtz et al par 11.1. Obviously this is so because compulsory credit assessment as set out in s 81 NCA was not a requirement before entering into credit agreements until the coming into operation of the reckless credit provisions of the NCA.
16 S 4(1) NCA. Regarding credit guarantees, see Stoop & Kelly-Louw "The National Credit Act regarding suretyships and reckless lending" 2011 2 Potchefstroom Electronic Law Journal 66.         [ Links ]
17 S 8(3) NCA.
18 S 8(4) NCA.
19 S 8(5) NCA.
20 S 4(1)(a) to (d) NCA.
21 Nedbank Ltd v Wizard Holdings 2010 5 SA 523 (GSJ).
22 S 9 NCA.
23 S 78(1) NCA.
24 See also s 80 read with s 119(4) NCA.
25 See in general Otto & Otto 77 -79; Scholtz et al par 11.4; Stoop & Kelly-Louw 2011 2 PER 67 86; Renke 2011 THRHR 208.
26 Renke 2011 THRHR 208 223 where he points out that this is a general prohibition.
27 S 81(2) NCA.
28 S 81(1) NCA.
29 Vessio 2009 TSAR 274 279.
30 The Constitution of the Republic of South Africa, 1996.
31 S 82(2) NCA.
32 S 82(3) NCA.
33 S 82(2)(a) & (b) NCA.
34 S 64 NCA.
35 S 63 NCA.
36 Scholtz et al par 11.6. See also Vessio 2009 TSAR 274 280 fn 42.
37 S 78(3) NCA.
38 S 78(3)(c) NCA.
39 See Stoop & Kelly-Louw 2011 2 Potchefstroom Electronic Law Journal 67 for a detailed discussion regarding the obligation to do a s 81-assessment in respect of a surety.
40 S 81(4)(a) & (b) NCA.
41 Scholtz et al par 11.4.1.
42 Norwood v Firstrand Bank Ltd unreported South Gauteng High Court case nr 36853/2010.The court indicated (par 6) that not every failure by a consumer to fully and truthfully answer the credit provider's request for information as part of the prescribed assessment will entitle the credit provider to the complete defence mentioned in s 81 (4) NCA.The question as to what would constitute such materiality was however left open by the court (par 15).
43 Scholtz et al par 11.4.5. See also African Bank Ltd v Myambo 2010 3 SA (GNP) 298.
44 S 86(6) NCA provides that if a consumer seeks a declaration of reckless credit during a debt review in terms of s 86 NCA, the debt counsellor must determine whether any of the consumer's credit agreements appear to be reckless.
45 A debt counsellor is defined in reg 1 as "a natural person who is registered in terms of s 44 of the NCA offering a service of debt counseling. Debt counselling is also defined in reg 1 as "performing the services contemplated in s 86 of the NCA".
46 2011 1 SA 310 (GSJ).
47 Par 37. See also SA Taxi Securitisation Pty) Ltd v Nako unreported case Eastern Cape High Court no 19/2010.
48 Boraine & Van Heerden "Some observations regarding reckless credit in terms of the National Credit Act 34 of 2005" 2010 THRHR 1.
49 Ibid.
50 Idem 3.
51 Ibid.
52 Ibid.
53 Idem 4.
54 Ibid.
55 Idem 7.
56 S 89 NCA, which sets out the various instances of unlawful agreements, does not contain a reference to a reckless credit agreement.
57 Boraine & Van Heerden 2010 THRHR 1.
58 2011 1 SA 310 (GSJ)t
59 Par 47.
60 Ibid.
61 Ibid. See also SA Taxi Securitisation (Pty) Ltd v Chesane 2010 6 SA 557 (GSJ) par 28 and SA Taxi Securitisation (Pty) Ltd v Booi unreported case Eastern Cape High Court no 4077/2009.
62 Ibid.
63 S 84(1) NCA.
64 It is submitted that this is an unfortunate choice of word, as the suspension does not end or terminate the relevant rights and obligations. "Resume" instead of "revive"may have been a more appropriate choice.
65 S 84(2)(a)(i) & (ii) NCA.
66 S 84(2)(b) NCA.
67 S 3(d) NCA provides that one of the purposes of the NCA is promoting equity in the credit market by balancing the respective rights and responsibilities of credit providers and consumers.
68 2011 1 SA 310 (GSJ)t
69 Par 48.
70 Par 45.
71 Par 46. The court indicated (par 48) that if the effect of the agreement is merely suspended, all elements of the agreement would have to be suspended and that this would mean that the consumer would not be entitled to retain possession of the vehicle during the period of suspension but that at the same time the consumer would not have to make any payments under the agreement during the suspension period.
72 It is submitted that a consumer who cannot afford to repay his debt in terms of a credit agreement, is also usually not in a position to pay the security premiums applicable to the item financed in terms of that agreement.
73 See SA Taxi Securitisation v Chesane 2010 6 SA 557(GSJ).
74 Ibid. See also Otto & Otto 113.
75 S 83(3) NCA. See s 87 NCA which provides: "(1)(a) If a debt counsellor makes a proposal to the Magistrate's court in terms of section 86(8)(b) or a consumer applies to the magistrates court in terms of section 86(9), the Magistrate's court must conduct a hearing and, having regard to the proposal and information before it and the consumer's financial means, prospects and obligations may - reject the recommendation or application as the case may be; or make an order declaring any credit agreement to be reckless, and an order contemplated in section 83(2) or (3), if the Magistrate's court concludes that the agreement is reckless; an order rearranging the consumer's obligations in any manner contemplated in section 86(7)(c)(ii); or both orders contemplated in subparagraph (i) and (ii)." It is further provided by s 87(2) NCA that the National Credit Regulator may not intervene before the Magistrate's court in a matter referred to it in terms of s 87.
76 S 83(4) NCA uses the word "must".
77 S 83(4)(a) NCA.
78 S 83(4)(b) NCA.
79 Part A of ch 5 NCA deals with unlawful credit agreements and provisions.part B deals with disclosure, form and effect of credit agreements. Part Aof ch 6 NCA deals with collection and repayment practices.
80 Scholtz et al par 11.3.3.2.
81 S 88(3) NCA provides that: "Subject to section 86(9) and (10), a credit provider who receives notice of court proceedings contemplated in section 83 or 85, or notice in terms of section 86(4)(b)(i) may not exercise or enforce by litigation or other judicial process any right or security under that credit agreement until - the consumer is in default under the credit agreement; and one of the following has occurred:
an event contemplated in subsection (1)(a) through (c); or the consumer defaults on any obligation in terms of a rearrangement agreed between the consumer and credit providers, or ordered by a court or the Tribunal.
S 88(1) NCA provides that a consumer who has filed an application for debt review in terms of s 86(1), or who has alleged in court that he or she is over-indebted must not incur any further charges under a credit facility or enter into any further credit agreement, other than a consolidation agreement, with any credit provider until one of the following events has occurred: (a)the debt counsellor rejects the application and the prescribed time period for direct filing in terms of section 86(9) have expired without the consumer having so applied;
(b)the court has determined that the consumer is not over-indebted, or has rejected a debt counsellor's proposal or the consumer's application; (c)or a court having made an order or the consumer and credit providers having made an agreement re-arranging the consumer's obligations, all the consumer's obligations under the credit agreements as rearranged are fulfilled, unless the consumer fulfilled the obligations by way of a consolidation agreement.
See Firstrand Bank Ltd v Fillis 2010 6 SA 565 (ECP)
82 As indicated, s 81 provides that the credit provider "must" not enter a credit assessment without first doing the necessary assessment.
83 Breitenbach v Fiat SA (Edms) Bpk1976 2 SA 226 (T).
84 Neugebauer & Co Ltd v Bodiker & Co (SA) Ltd 1925 AD 316 AT 319; FPS Ltd v Trident Construction (Pty) Ltd 1989 3 SA 537 (A) 542.
85 Par 55ff
86 Par 56.1.
87 Ibid.
88 Par 56.2.
89 Ibid.
90 Par 56.3. In this case the court indicated that the consumer should also have indicated income derived from using the vehicle as a taxi.
91 Par 56.4.
92 See in this regard the remark by Wallis J in Shackleton Credit Management (Pty) Ltd v Microzone Trading 88 CC unreported KZN case no 7089/09 par 26.