SERI’s PRESS STATEMENT
21 APRIL 2016
CONSTITUTIONAL COURT UPHOLDS DEBTORS’ RIGHTS
The Constitutional Court today threw a lifeline to distressed credit consumers. It held that a consumer who falls into arrears with her loan repayments can reinstate her credit agreement by bringing her account up-to-date, even after a bank has obtained judgment for the full amount she borrowed.
The Court was dealing with the case of Nomsa Nkata, who fell into arrears with her mortgage bond with First Rand Bank. After Ms. Nkata missed some payments on her bond, FRB sued her and obtained a judgment for the full value of her debt and an order allowing it to sell Ms. Nkata’s house. Ms. Nkata then brought her account up-to-date, but she did not pay any default charges or FRB’s enforcement costs. FRB then sold her house. The Constitutional Court had to decide whether Ms. Nkata, by paying all her arrears, “reinstated” her agreement within the meaning of section 129 (3). If she had, the sale of her house was illegal.
Section 129 (3) allows a credit consumer who has fallen into arrears to reinstate her credit agreement without paying back the full debt. The consumer need only pay the amount of her arrears, default charges and the reasonable costs of enforcing the loan agreement. This must be done before any judgment obtained on the court had been executed, whether by the sale of a consumer’s property, or otherwise.
FRB argued that section 129 (3) was not engaged, because Ms. Nkata did not give the bank notice of her intention to reinstate the agreement, she did not pay its enforcement costs and it had executed the judgment by the time Ms. Nkata paid her arrears.
SERI, admitted as a friend of the court, argued that reinstatement of a credit agreement does not depend on a consumer giving notice of his or her intention to do so. This would be unfair, because most consumers will have no idea that they have the right to reinstate the agreement. Simply paying the arrears is enough. Once the arrears are paid, the credit agreement is reinstated by operation of law.
SERI also argued that it did not matter that Ms. Nkata did not pay FRB’s enforcement costs, because these had not been quantified or demanded by the bank. Only the bank will know what its enforcement costs are. A consumer should not be prevented from reinstating her agreement because the bank has not bothered to quantify and demand its costs.
Finally SERI argued that FRB’s judgment had not been executed by the time Ms. Nkata paid her arrears. FRB said that a judgment is executed once it has issued a warrant of execution, which is the first step in organising a sale. SERI argued that execution only takes place once the property is sold, and the purchase price is paid. In Ms. Nkata’s case, that had not happened at the time she had paid her arrears.
The majority of the Court agreed with all of SERI’s submissions. Deputy Chief Justice Moseneke held that section 129 (3) of the National Credit Act must be interpreted in favour of the values of fairness and equality. This meant that a consumer could not be expected to give notice of an intention to exercise a right she does not know she has; that the bank should not be able to resist reinstatement for non-payment of costs it had not quantified; and that a consumer should be able to revive her credit agreement right up until someone else has bought and paid for the property on which the agreement is secured.
The Court found that Ms. Nkata’s loan agreement had been reinstated, and set aside the sale of her home.
Keamogetswe Thobakgale, a SERI attorney, said: “The Court today upheld the importance of fair-dealing between very powerful banks and distressed consumers of credit. The Court confirmed both that consumers should be given the full benefit of legislation meant to protect them, and that a bank cannot rely on its own failure to demand payment of amounts it says are owed, to avoid the operation of the law.”
Advocates Stuart Wilson, Irene de Vos, and Attorney Keamogetswe Thobakgale represented SERI in the Constitutional Court.
Contact details: Keamogetswe Thobakgale, SERI Attorney 078 685 5508 / 011 356 5866/ email@example.com.