When a credit provider institutes legal action against a consumer to recover payment from him / her in terms of a credit agreement regulated by the National Credit Act (“the NCA”) and the Regulations promulgated thereunder, it has certain obligations, compliance with which, as at the time of the entering into of the agreement, subsequent to the consumer’s default in terms thereof and at the time that it institutes legal action against the consumer, it must allege in the Summons and ultimately prove.
In terms of the Magistrate’s Court Act, if a claim is founded, on any cause of action arising out of or regulated by the NCA and Regulations, the credit provider shall state the nature and extent of its compliance with such provisions.
The High Court Act and Rules do not have similar provisions, but will adapt the same criteria in terms of its Rules to the following effect:-
“Every pleading shall contain a clear and concise statement of the material facts upon which the pleader relies for his claim, defence or answer to any pleading, as the case may be, with sufficient particularity to enable the opposite party to reply thereto.”
Such compliance includes the following aspects:-
A copy of the application and credit agreement, which must include a pre- agreement and quotation, must be annexed to the Summons. We have found, in practice, that on numerous occasions the credit provider has mislaid the agreement and presents a copy of what it alleges is, in effect, a reconstruction of the true agreement, only a part thereof and omits the variables / specific particulars thereof, which the Court will not accept in evidence unless it is alleged in the Particulars of Claim and ultimately proved to be acceptable secondary evidence thereof. A credit provider’s blank statement that these documents cannot be located, is insufficient. An acceptable explanation must be alleged and proved as to why these documents cannot be located, that the alleged reconstructed terms of the agreement are indeed true and correct versions thereof and accordingly admissible as evidence to prove the true terms of the
agreement.
A credit provider must not enter into a credit agreement without first taking reasonable steps to assess the proposed consumer’s general understanding and appreciation of the risks and costs of the proposed credit and of the rights and obligations of a consumer under a credit agreement, his / her debt re-payment history as a consumer under credit agreements and existing financial means, prospects and obligations.
The agreement, when signed by the consumer, more readily than not, is drafted in complicated legal terms, designed to deceive, mislead and confuse and must therefore be explained to the consumer as to its meaning, impact and consequences, as the consumer is probably legally illiterate in that complex and technical legal terminology is materially incomprehensible to him / her. Failure to comply with the provisions may constitute reckless lending as it may be found that no consensus was reached between the credit provider and the consumer, that the consumer did not understand the risks of credit, the credit caused him / her to have become over indebted, the credit provider failed to take material steps to assess the risk and costs of the proposed credit and the consumer’s rights and obligations as a consumer under the agreement, his / her debt repayment history as a consumer under the credit agreement and his / her financial means, prospects and obligations and that the consumer consequently may not have entered into in the agreement, if this was done and that it would be just and reasonable to set aside the agreement, which would thereby be null and void and that the consumer be relieved from any further indebtedness in terms thereof, subject to restitution.
A credit agreement is reckless if the credit provider failed to conduct such assessment, or conducted an assessment which fell short of compliance with the provisions referred to, irrespective of what the outcome of such an assessment might have concluded at the time or the credit provider, or it conducted an assessment, but entered into the credit agreement with the consumer despite the fact that the preponderance of information available to the credit provider indicated that the consumer did not generally understand or appreciate his / her risks, costs or obligations under the proposed credit agreement, or that entering into that credit agreement would make the consumer over-indebted, as he / she would be unable to meet his / her obligations under that credit agreement or to understand or appreciate the risks, costs and obligations under the proposed credit agreement.
A credit provider must not enter into a credit agreement unless the credit provider has given the consumer a pre-agreement statement and quotation in a prescribed form. In certain classes of a credit agreement a quotation in the prescribed form, setting out the principal debt, the proposed distribution of that amount, the interest rate and other credit costs, the total cost of the proposed agreement and the basis of any costs, must be issued to the consumer.
Particulars as to the negotiations leading up to the entering into of the agreement, as to jurisdiction, both geographically and monetarily, computation of claim amount, proof of affordability to pay loan test, notice to debtor to inform him / her of prescription, the correctness of the interest rate in accordance with legislation whereby it is regulated and the correctness of the date of interest and the documents in support of the pre-assessment referred to above, a record of payments made and of any steps taken after default by a consumer in support thereof must be referred to in the Summons and annexed thereto, must be alleged and proved.
The Court has the power to declare that the credit agreement is reckless and set aside all or part of the consumer’s rights and obligations under that agreement, as the court determines just and reasonable in the circumstances, or suspend the force and effect of that credit agreement. The Court must further consider whether the consumer is over-indebted at the time of the proceedings and accordingly make an order to suspend the force and effect of that credit agreement until a date determined by the Court when making the order of suspension and to restructure the consumer’s obligations under the other credit agreements, considering the consumer’s current means and ability to pay the consumer’s current financial obligations that existed at the time the agreement was made and the expected date when any such obligation under a credit agreement will be fully satisfied, assuming the consumer makes all required payments in accordance with any proposed order.
A legal action must be preceded by a written Notice drawing the consumer’s attention to the default and propose that the consumer refer the credit agreement to a debt counsellor, alternative dispute resolution agent, consumer court or ombud with jurisdiction, with the intent that the parties resolve any dispute under the agreement or develop and agree on a plan to bring the payments under the agreement up to date; and If a consumer has not received the Notice or notification from the Post Office that the alleged registered post applicable was available for collection, the legal proceedings shall be suspended pending rectification of this omission.
Disclaimer: This article is for information purpose only and does not constitute legal advice. Call on our attorneys for legal advice, rather than relying on the information herein to make any decisions. The information is relevant to the date of publishing.