Nedbank V Jones
Did this case change Debt Review forever?
Every now and then a court case comes along that changes the way that debt review is done. For example, back in 2009, when chaos ruled in the industry, the NCR went to court and asked for a Declaratory Order to find out if matters had to go to court or not. The ruling came back and said: Yes, debt review matters must go to court (at some point). The ruling also helped organize the process somewhat. There have also been supreme court rulings about the process which made everyone start doing things in a different way. Now an interesting ruling in a Nedbank matter has some people saying that the whole way debt review has been done over the last few years was wrong.
One of the things that happened in this case, is that the court made an order that says courts must not issue orders which change the interest rate on debts since that is not one of the powers given courts by the National Credit Act. The ruling also said that no court orders can be issued where the monthly repayment does not cover the interest portion of a credit account since it doesn’t meet the purposes of the NCA (eventual satisfaction of a debt).
‘immediately people have called this ruling into question’
Now, immediately people have called this ruling into question. For example: Does allowing a debt to grow to be limited by NCA Section 103(5) not meet the purpose of the Act? If Section 103(5) of the Act is an integral portion of the Act (this is the section that only allows a debt to double if you miss payments) then allowing payments less than the interest portion would not conflict with the purpose of the Act. Would it?
Regarding rearrangement of a debt with reference to the interest portion -The question is: can two responsible parties to an agreement not agree to a reduction or change to that agreement? Part of the issue here might be that perhaps the original agreement is not ever actually amended and some creditors see the debt review court order as sitting separate to the original agreement.
Some Debt Counsellors are worried that every court order ever issued is invalid and that consumers are at risk. They worry that Nedbank may now go and undo any court order where an interest rate was changed for any reason.
Debtfree Magazine spoke to Nedbank and asked them (1) why they took the matter on and (2) what they hoped to accomplish? The answers may not be what you expect.
DF: What is Nedbank Debt Review Department’s intention toward interest rate reductions? Do you have any problems with agreeing to changed rates (for example through DCRS)?
Nedbank: Nedbank Ltd is committed to responsible debt counselling and, as one of the main signatories, remains steadfast in our commitment to the Task Team agreement. It has always been our position that, in many circumstances, the relief afforded in terms of the National Credit Act, 2005 does not always provide sufficient assistance to our over-indebted clients. For this reason, within industry agreed standards, Nedbank Ltd continues to grant interest rate concessions and has no plans to discontinue this practice.
DF: Would you like to comment on the Jones ruling and the intent behind the matter?
Nedbank: There were two reasons behind the bringing of the Jones application. The first reason is that there are a few Magistrates’ Courts that are of the view that a debt review order cannot be rescinded or varied. This is patently incorrect in terms of the rules of the Magistrates’ Court Act and is something that has plagued not only Credit Providers but Debt Counsellors and Consumers alike.
The second reason for bringing the Jones application was to address the practice of unreasonable proposals. Anyone who has been in the industry for any length of time will know that there was general confusion in the early years and many of the re-arrangement proposals and court orders did not make any economic sense. By and large, the industry has developed and grown and, with the buy-in and interaction of all the industry role players, we have all matured and improved the way that we handle debt review matters.
There do, however, remain a few pockets of resistance within the industry. We cannot force parties to negotiate in good faith or to adhere to industry standards, they always have the recourse to the Courts who then have to adjudicate the merits of the proposal placed before the Court. Our intention behind bringing the Jones application was to ensure that the Courts who adjudicate on these matters have a clear understanding of what their powers are with regard to debt review matters.
Specifically, many industry parties have been concerned about the practice of reducing interest rates without Credit Provider’s consent, fixing interest rates, particularly on bonds, for unreasonably long periods of time and ordering the client to pay unreasonable installments that do not even cover the monthly interest due on the credit agreement. These practices very often lead clients into a worse financial position than what they were at the time that they entered into the debt review process.
DF: So, do you feel that rates can be reduced at all?
Nedbank: There appears to be a view in certain Courts, following the Norris and Jones judgments, that debt review orders cannot be granted where the Credit Provider has agreed to the reduction in the interest rate. We respectfully disagree with this position. We do not believe that courts should be making orders in respect of interest rates in any shape or form. If a Credit Provider agrees to a reduction of the interest rate, that is an agreement between the parties and the Court can note that such agreement exists but it is not for the Court to adjudicate the issue of interest. Where the Credit Provider and the other parties have not entered into a re-arrangement agreement, the contractual interest rate will apply and a reasonable instalment to solve the debt must be offered.
‘Nedbank Ltd would like to assure our clients and all industry role players that we remain dedicated to assisting our clients to lighten the burden of financial distress.’
Nedbank Ltd would like to assure our clients and all industry role players that we remain dedicated to assisting our clients to lighten the burden of financial distress. Not only do we pro-actively support and encourage debt counselling for clients who can benefit from this process but we also have numerous other projects and programmes aimed at ensuring the financial well-being of our clients. Our resolve to support our clients through times of financial difficulty and our commitment to the debt review process remains unchanged.
The Real Issues
So, it seems that Nedbank’s real issue was where courts had changed interest rates without Nedbank agreeing to do so, like in the Jones matter when the original court order was granted. Where they do agree actually to changing the interest rates, they have no problem whatsoever. They say that, while the NCA doesn’t say a Magistrate can just change interest rates by themselves, it is possible for two parties to make an agreement. This agreement can be ‘noted’ in the court order but not specifically ordered. For example, it might be shown on a list showing the repayment plan from the Debt Counsellor. They don’t feel a court can rule on anything about interest rates or refuse to rule because interest rates changes are shown. They want courts to stick to ordering the changes allowed in the NCA and operating according to normal MCA rules otherwise.
‘It does however, show that Nedbank do not intend to go and try undo every court order issued since 2009 which features an interest rate change agreement.’
So, Nedbank see a clear difference between (a) making an order to change rates and (b) simply making a note that the parties have agreed to do so. Is this just a case of semantics? Perhaps. It does however, show that Nedbank do not intend to go and try undo every court order issued since 2009 which features an interest rate change agreement.
Some say the simple solution is to not mention the interest rate in the prayers and to simply show the agreed repayment amount and term of repayments. The interest rates can be sorted out in the background between both parties.
The big question is, despite what Nedbank think: Does this court case mean that all previous debt review court orders where changes to interest rates were ‘noted’ are invalid? We will soon see what happens and if many magistrates feel that this is the case, then this matter may have to be elevated to even higher courts for further clarification. Already courts in the Western Cape have started to reject applications based on this ruling and though still isolated, this is troubling. This matter may call for the NCR and other parties, like the Debt Counsellors associations, involvement in a hurry in order to protect the hundreds of thousands of consumers involved.
*DF underlines some portions of Nedbank’s answers to highlight key thoughts.