Mars Ruling Undoes Damage of Nedbank V Jones
Over the last few months, consumers in the Western Cape have been experiencing problems with local courts in the wake of a judgment handed down in a matter between Nedbank and a consumer (Jones). In that particular case, the bank was concerned that a court had made a debt review court order changing interest rates without the bank agreeing to lower rates. The court then made an order which soon caused a lot of chaos across the province and began to cause issues with debt review court applications.
Note: if a Debt Counsellor makes a proposal to court (which is served on all parties involved) that a credit provider does not like, then the credit provider is able to send a legal representative to court to oppose the matter and ask the court to make a slightly different order. Sometimes however with the thousands of court matters going on it is possible that a matter could slip by unnoticed or not attended to by an attorney and only picked up later once the court has already granted the order. The creditor can then either abide by the court order or ask the court to change the order after the fact.
The National Credit Act (NCA) makes provision for changing the time it takes to pay back the money and the amount paid but is silent on changing interest rates’
Now in many other types of court matters (like a sequestration or administration), the courts are empowered to do some pretty amazing things with debt, including adjusting interest rates. However, since the NCA does not specifically grant this power to a court for a debt review matter, the courts generally leave it alone unless the credit providers send a letter with the court papers, saying that they want to change the interest rate.
Why Would Credit Providers Lower Interest?
Lowering interest rates for consumers under debt review helps to assist the consumer and to helps to get the debt paid up faster. This, in turn, shows good faith towards their client and helps their client get back into the credit market sooner. Helping a consumer while in financial trouble today may well help retain that client and their family in the future. In many cases, credit providers will even help consumers under debt review by lowering the interest rate all the way down to zero %. Particularly is this the case with unsecured credit. This is one of the reasons why debt review is such a good option for consumers struggling with debt. Cutting out things like account fees and reducing interest can help save thousands of rand over time.
There were a number of issues with the initial ruling in the Jones matter which was later appealed by Nedbank. From interest rates fixed without any term given, to such small payments that the debts began to grow over time, issues abounded. Thus Nedbank felt they had to appeal and hoped to have the court order that rates shouldn’t be changed without the bank agreeing or asking for such a reduction.
The ruling in the Nedbank v Jones matter had to do specifically with that consumer’s case but mentioned that courts shouldn’t just go ahead and change the interest rate willy nilly by themselves since the NCA does not allow for it. This made several other local courts worry that they were perhaps acting outside the powers granted them by the NCA when dealing with debt review applications. As a result, some stopped granting orders even where the various credit providers had themselves asked for lowered interest rates.
Credit providers like Nedbank argued that where they had agreed to lower rates to help the consumer then the court should be able to make such an order and it would not conflict with the NCA. Preventing this was not their intention with the Jones matter. Regardless, court orders for debt review soon got snarled up in the Western Cape, leaving consumers dangerously exposed to additional litigation and further costs from unscrupulous creditors trying to get out of the debt review.
Read The Jones Ruling Here:
In a similar case involving Nedbank (v Norris), the bank was concerned that the granted court order for debt review did not make provision for insurance payments on their debt and totally removed all interest on their account without consent. As a result, the banks appeal in that case also lead to a ruling which caused confusion about reducing interest with or without consent.
Jones Matter Causes Trouble At Court
Soon Debt Counsellors had to get sneaky and began to simply leave out any reference to interest rates in the debt review applications to court. They began to do the opposite of what had been the case with the Jones matter. Rather than mention the interest rate and repayment amount, they now simply mentioned the repayment amount and the term it would take to repay the debt. This then involved trusting that the credit providers would later stick to whatever rate agreement was made behind the scenes and leaving it out of the court papers. While this worked in some matters, it did not in others where the courts felt trapped and refused to grant orders. The issue then began to grow, spreading to more and more courts and needed to be addressed somehow.
Debt Counselling firm Octogen had a debt review matter for their client Mz Mars which was affected. Octogen then decided to appeal the Mars matter. Other Debt Counselling firms also decided the only way to deal with the matter was to also take these matters on appeal. The Octogen case was recently heard in the High Court in Cape Town and the positive ruling undoes some of the damage done by the Jones and Norris matter. The case was heard and ruled on by three High Court Judges which gives it extra clout in legal circles and should now guide all Western Cape Magistrate courts who were concerned about what the ruling in the Jones matter actually meant.
‘the ruling undoes some of the damage done by the Jones and Norris matter’
The ruling specifically mentions that the case of Nedbank v Jones 2017 (2) SA473( WCC) is not authority for the Magistrate’s refusal to make the consent orders proposed in this case and similar cases…
Magistrates should no longer refuse to grant reduced rates where consented to because of the confusion around the Joens matter. This is now superceded by this ruling which says it can be done.
It then goes on to list some of the cases being held up in Worster Magistrates Court but the High Court ruling will provide clarity for all lower courts in the region not just Worster. Magistrates are encouraged in the Mars ruling to apply their mind to all relevant factors of each case and to, where necessary, vary the duration, the instalments and interest which forms part of the indebtedness in order to achieve an equitable and fair result for all parties. (see paragraph 38).
Download the Ruling Here
This ruling may then go further than just the Jones matter (and similar western Cape matters) and may be saying that each debt review case needs to be considered on it’s own merits and where necessary, to ensure fairness to all parties, interest rates may be changed by the court. Here the ruling does not specifically say only where this is agreed to by the credit provider. This might also include, in some cases, making an order which initially allows a debt to grow, since the interest portion of the debt might be larger than the initial instalment towards that account or where the repayment plan is related to Section 103(5).