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PAIA manual

View the PAIA manual HERE 20230626_PAIA_Manual_Esselaar Attorneys_PGE

Paul Esselaar

Paul Esselaar completed his BA, LLB at Rhodes University in Grahamstown in 1997. Thereafter he attended the School for Legal Practice at the University of Cape Town in 2000 and went on to complete his articles at Kessler De Jager Inc. During his articles he focussed...

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Financial Services Laws General Amendment Bill tabled in Parliament

According to the South African Government News Agency (SANews) the Financial Services Laws General Amendment Bill was tabled in Parliament last week. In short, 'the Bill, which was released for public comment in March, addresses urgent issues in eleven financial...

Is the Financial Services Industry pulling wool over consumers’ eyes?

The Financial Services industry is in a state of flux. The Financial Services Laws General Amendment Bill (FSLGAB) was tabled in parliament on 25 September 2012. The aim of the Bill is to ensure that ‘South Africa has a sounder and better regulated financial services...

Credit Law: Section 89(5)(c) of the NCA declared unconstitutional

In the May/June edition of CLR Paul Esselaar wrote about a decision by the Western Cape High Court in which s 89(5)(c) of the National Credit Act was declared unconstitutional for being inconsistent with the right to property in s 25(1). In other words it was found...

Draft NCA Regulations on Affordability Assessments published

The Department of Trade and Industry has published draft regulations on, "Affordability Assessment for the Amendment of Regulations for matters relating to the functions of the National Consumer Tribunal and Rules for the Conduct of matters before the National...

Drowning in Red Tape: The new threshold for registration as a credit provider

With all the pieces of legislation that are constantly being updated it is easy to miss changes to legislation that are really important – especially if that change comes in the form of a Regulation (something typically drafted by a ministry such as the Department of...

The National Credit Act update

Date: Monday, 17 May 2021 - 09:00 to Wednesday, 19 May 2021 - 11:00 The National Credit Act Amendment Act 7 of 2019 has real consequences for credit providers and debt counsellors in particular. This course focuses on the likely impact that the changes will have in...

NEW

PAIA manual

View the PAIA manual HERE 20230626_PAIA_Manual_Esselaar Attorneys_PGE

Paul Esselaar

Paul Esselaar completed his BA, LLB at Rhodes University in Grahamstown in 1997. Thereafter he attended the School for Legal Practice at the University of Cape Town in 2000 and went on to complete his articles at Kessler De Jager Inc. During his articles he focussed...

Web Site Terms and Conditions

The Esselaar Attorneys Web Site is subject to copyright by Esselaar Attorneys or is licenced under copyright from third party owners. You may reproduce any web page - subject to the disclaimer below - for personal use only. Any comments and statements contained within...

Email Disclaimer

This message and any accompanying attachment(s) may contain confidential and copyrighted information. If you are not the addressee(s) indicated in this message or responsible for delivery of the message to the addressee(s), do not copy or deliver this message or the...

Financial Services Laws General Amendment Bill tabled in Parliament

According to the South African Government News Agency (SANews) the Financial Services Laws General Amendment Bill was tabled in Parliament last week. In short, 'the Bill, which was released for public comment in March, addresses urgent issues in eleven financial...

Is the Financial Services Industry pulling wool over consumers’ eyes?

The Financial Services industry is in a state of flux. The Financial Services Laws General Amendment Bill (FSLGAB) was tabled in parliament on 25 September 2012. The aim of the Bill is to ensure that ‘South Africa has a sounder and better regulated financial services...

Credit Law: Section 89(5)(c) of the NCA declared unconstitutional

In the May/June edition of CLR Paul Esselaar wrote about a decision by the Western Cape High Court in which s 89(5)(c) of the National Credit Act was declared unconstitutional for being inconsistent with the right to property in s 25(1). In other words it was found...

Draft NCA Regulations on Affordability Assessments published

The Department of Trade and Industry has published draft regulations on, "Affordability Assessment for the Amendment of Regulations for matters relating to the functions of the National Consumer Tribunal and Rules for the Conduct of matters before the National...

Drowning in Red Tape: The new threshold for registration as a credit provider

With all the pieces of legislation that are constantly being updated it is easy to miss changes to legislation that are really important – especially if that change comes in the form of a Regulation (something typically drafted by a ministry such as the Department of...

The National Credit Act update

Date: Monday, 17 May 2021 - 09:00 to Wednesday, 19 May 2021 - 11:00 The National Credit Act Amendment Act 7 of 2019 has real consequences for credit providers and debt counsellors in particular. This course focuses on the likely impact that the changes will have in...

In November 2021 the Supreme Court of Appeal provided a judgment (Bayport Securitisation Limited and Another v University of Stellenbosch Law Clinic and Others (507/2020) [2021] ZASCA 156 (4 November 2021)) which – surprisingly – seems to have largely gone unnoticed by journalists interested in consumer rights. The appeal was against a declaratory order granted by the Western Cape High Court and has severe implications for debtors in South Africa. 

On reading (and re-reading) the judgment it seemed possible that the reason this judgment has not created big flashing red lights for consumer journalists is due to a lack of clarity as penned by acting Judge M V Phatshoane?

The purpose of this article is to provide our interpretation of what this judgment means in practice, how this has changed our view of the National Credit Act no.34 of 2005 and what the implications of the judgment are. 

Up until November 2021 it was the collective opinion of most attorneys as well as Judge AJ Hack of the Western Cape High Court that a credit provider was only entitled to recover double the amount of capital that it had loaned as at the date of default. This is best illustrated by an example: 

  1. Credit provider A loans Joe Soap R10 000. 
  2. Joe Soap repays R5000 of the capital amount but then loses his job and defaults on the loan repayments. Thus, at date of default the remaining capital amount due was R5000. 
  3. Credit provider A now wants to recover the loan from Joe Soap and sues out a summons claiming the R5000 plus:
    1. a service fee (s101(1)(b)), 
    2. interest (s101(1)(c)),
    3. credit insurance (s101(1)(d)),
    4. default administration charges s (s101(1)(e)), and
    5. collection costs (s101(1)(f)).
  4. In terms of section 103(5) all the fees, charges and interest mentioned above cannot exceed R5000. This meant that – in practice – the credit provider would know that it would never be able to recover more than R10 000 from Joe Soap as all its fees would be capped at an amount equal to the default capital amount (i.e. R5000 capital outstanding + R5000 in interest, fees, charges and legal fees). 

Micro lenders would be well aware that trying to recover a debt from a consumer often would not be cost effective as it is easy for legal costs to exceed the default amount (in our example R5000) which in turn would mean that even if the credit provider was completely successful it could end up paying more to the attorneys than it recovered from the debtor. This also meant that consumers with small debts could never face massive litigation costs where they need to pay for attorneys and advocates’ fees as – even if they lost – the ‘recoverable amount’ would only ever be double the capital amount due at the time of default. In short it dissuaded credit providers from starting litigation for small debts as it was commercially illogical. 

All this changed with the Supreme Court of Appeal judgment on 4 November 2021. In the appeal the five appeal court judges were tasked with deciding whether Judge Hack of the Western Cape High Court was correct in his interpretation of section 103(5) of the National Credit Act? They unanimously agreed that Judge Hack had erred. 

More specifically they found that all litigation costs (legal costs to recover the debt as well as interest and costs of execution after judgment) do not form part of the rule created by section 103(5) of the National Credit Act (see paragraph 19 of the judgment). 

Once again this is best illustrated by returning to our previous example but applying the law as set out by the Supreme Court of Appeal: 

  1. Credit provider A loans Joe Soap R10 000. 
  2. Joe Soap repays R5000 of the capital amount but then loses his job and defaults on the loan repayments. Thus, at date of default the remaining capital amount due was R5000. 
  3. Credit provider A now wants to recover the loan from Joe Soap and sues out a summons claiming the R5000 plus:
    1. a service fee (s101(1)(b)), 
    2. interest (s101(1)(c)),
    3. credit insurance (s101(1)(d)),
    4. default administration charges s (s101(1)(e)), and
    5. collection costs (s101(1)(f)), 
    6. litigation costs 
  4. Credit provider A succeeds and gets a judgment for R10 000 plus: 
    1. Interest at 7% per annum (current prescribed rate of interest) up until date of payment, 
    2. Litigation costs (probably on an attorney client scale) up until judgment
    3. Execution costs to recover the debt after judgment.

In theory the debtor could now face a claim for R50 000 if litigation costs and execution costs (such as sheriff’s fees) and interest after the date of judgment amount to R40 000. (Note that legal costs of R40 000 are perfectly possible if the matter went to trial). 

Hopefully it will now be clear why this judgment is a BIG DEAL as small loans now have the possibility of costing the debtor far in excess of the amount that was loaned (in our example the debtor ends up paying an amount that is 500% greater than the loan he received from credit provider A)! 

Here is a list of the winners and the losers: 

WINNERS

  • Credit providers who can now go back to their debtors’ book and hand over a significant percentage of the debtors’ book to attorneys to collect, 
  • Attorneys who would have a significant increase in the number of matters being referred to them by credit providers

LOSERS

  • Debtors who have defaulted on their loans

There is also a possibility of a silver lining as the credit market might react by being more willing to provide micro-loans now. 

The last question on this judgment is whether it will be appealed by the Stellenbosch Legal Aid clinic to the Constitutional Court. Certainly, the judgment has a massive effect on consumers and the credit industry and so it would be surprising if this judgment is not appealed. 

In the meantime consumers wanting loans should be far more careful now than before as defaulting on even a small loan could have devastating consequences…