SERI welcomes judgment which throws lifeline to credit consumers
The Socio Economic Rights Institute (SERI) on Thursday welcomed a Constitutional Court judgment which has thrown a lifeline to distressed credit consumers.
The court held that consumers who fell into arrears with their loan repayments could reinstate their credit agreement by bringing their accounts up to date‚ even after a bank had obtained judgment for the full amount they had borrowed.
The court passed judgment in the case of Nomsa Nkata‚ a businesswoman who fell into arrears with her mortgage bond with First Rand Bank.
After Nkata missed some payments on her bond‚ the bank sued her and obtained a judgment for the full value of her debt and an order allowing it to sell her house.
Before the bank sold her house‚ Nkata brought her account up to date‚ but she did not pay any default charges or the bank’s enforcement costs. The bank then sold her house.
The section in dispute‚ 129 (3) of the National Credit Act‚ allows a credit consumer who has fallen into arrears to reinstate his or her credit agreement without paying back the full debt.
The consumer need only pay the amount of his or her arrears‚ default charges and the reasonable costs of enforcing the loan agreement.
This must be done before any judgment obtained on the court has been executed‚ whether by the sale of a consumer’s property‚ or otherwise.
The Constitutional Court had to decide whether Nkata‚ by paying all her arrears‚ “reinstated” her agreement within the meaning of section 129 (3) of the Act.
If she had‚ the sale of her house was illegal.
The majority of the court’s judges ruled in her favour. They found that Nkata’s loan agreement had been reinstated when she brought her account up to date. The court also set aside the sale of her home.
Writing for the majority‚ Deputy Chief Justice Dikgang Moseneke said the purpose of section 129(3) was to encourage consumers to pay their overdue debts‚ default charges and legal costs.
Consumers in good standing were rewarded with reinstatement of the credit agreement and the return of their attached property‚ Moseneke said.
The minority judgment‚ by Justice Edwin Cameron‚ found that Nkata had not reinstated the credit agreement.
Cameron said‚ by paying her arrears but not the bank’s legal costs‚ Nkata had failed to pay all of the amounts required by section 129(3) for reinstatement.
SERI‚ which was admitted as friend of the court‚ said the Constitutional Court upheld the importance of fair dealing between very powerful banks and distressed consumers of credit.