Tuesday will see an important case heard at the Constitutional Court regarding Section 129. The Banking Association of South Africa (BASA) say that if the Constitutional Court rules contrary to what almost every other court has previously ruled on the subject then it could threaten the industry. In fact BASA has said that changing the interpretation could “endanger the entire credit industry.”
Section 129 of the National Credit Act, says that a consumer in default of a credit agreement should to be “given notice of his default” and the opportunity to refer their debts to a debt counsellor or to a form of alternative dispute resolution. The Constitutional Court will hear arguments on whether it is enough for a bank to simply send a section 129 notice to a defaulting customer at the address they have on record or whether it must actually ensure that the customer receives the notice and can thus act on the advice contained therein.
The case comes from a dispute between Standard Bank and Mr. Mashilo Sebola, who defaulted on his mortgage repayments, was then sent a section 129 notice but never received the notice (or summons). He argues that this should suffice as a defense against the bank’s claim enforcing the credit agreement. He even went to court to argue the point. Both the High and Supreme Court dismissed his application, saying that the bank only needs to show that it had sent the notice, and not that he had received it. The NCR says “There is a lack of capacity in the court system to deal with the volume of credit-related cases, and given the ever-increasing volume of such cases, this backlog continues to grow. It says that where alternative dispute resolution is pursued — for example, debt counselling — customers are more likely to go on to make their payments. The NCR says that if a consumer does not collect registered mail section 129 notices they could then send them via sheriff. Basa spokesperson Nicky Lala-Mohan said this was because it could have the unintended consequence of creating a practice where people routinely claim they did not receive the notices.
According to BASA the NCR’s suggestion would “harm the effective functioning of the credit market”. In their court papers, they have said these interpretations would require personal delivery for all section 129 notices. It would make the business of providing credit “even more risky and onerous than it already is, which would have a chilling effect on the South African credit market,” it said.
With bulk deliveries of these notices by the Sheriff the cost would be very low for the creditors (R20 – R40) and would be charged to the consumers account anyway. It seems a change to this understanding may be more of an inconvenience for the banks since it would mean that consumers would then be able to exercise rights that it seems they may not want consumers to exercise.
SERI – another friend of the court has put forth another suggestion as to how the matter could be handled in such a way as to balance consumer and creditors rights.
For more info see the Feb 2012 issue of Debtfree DIGI out later this week.