Can A Lawyer Ask a High Court to Declare You Not Over-indebted?
A recent High Court ruling has given clarity on whether the country’s High Courts can declare a consumer who entered debt review not over-indebted.
A Full Bench of judges was recently asked to rule on whether the High Court can declare someone no longer over-indebted. This is because there have been a number of contradictory rulings given across the country on the topic. Because there are hundreds of thousands of consumers who began but did not finish the debt review process who would once again like to make use of credit again but cannot.
Credit providers, who are approached by consumers for new credit, check with the credit bureaus to see if the consumer has other debts and how they repay them. If these credit providers see what is called a “debt review flag” they are quick to decline a consumers application (even if they can afford the debt). This is due to fear of being accused of giving out reckless lending.
When consumers enter debt review their Debt Counsellor informs the National Credit Regulator who in turn notify all credit bureaus that the consumer has applied for help with their debt. The credit bureaus then just leave that listing in place until a Debt Counsellor later proves to them that all the consumers’ debts are paid up.
What Does it Mean to be ‘Over-indebted’?
If you cannot pay all your necessary expenses at home (like food, electricity, insurance, transport) and pay all your creditors the amounts they require each month then you are over-indebted. Or at least you appear to be over-indebted. According to the recent Full Bench High Court ruling, only a court (or the National Consumer Tribunal) can actually declare that you are over-indebted.
If you are declared over-indebted then you are able to access debt relief by having your debts restructured by the courts. This can be done as a court sees fit or according to the proposal of a Debt Counsellor (or soon the National Credit Regulator).
‘If you are declared over-indebted then you are able to access debt relief by having your debts restructured by the courts’
Paying to Get Out of Debt Review
Some attorneys have offered to help consumers ‘get out of debt review’ through the High Court. Some have charged consumers a big fee to ‘remove their debt review status at the credit bureau’. Many credit hungry consumers have signed up for such services.
There may be as many as 600 000 people who are effectively “trapped” with a debt review status at the credit bureaus who are no longer making use of the services of a Debt Counsellor and who are trying to handle their debts by themselves again however they see fit.
These consumers may have signed up willingly or even signed up when not fully understanding the ramifications of debt review. Some start the process, get a court order and then decide not to pay as required by the court order.
‘There may be as many as 600 000 people who are effectively “trapped” with a debt review status at the credit bureaus’
Other consumers start the process and have a sudden increase in income. They are then technically able to go back to paying what they were asked to before they began debt review. They approach their Debt Counsellor to leave the process and are surprised when they are told that the Debt Counsellor can only give them a clearance certificate when their non home loan debts are all paid up.
The NCA Does Not Allow a High Court To Declare Consumers Not Over-indebted
The recent ruling makes several things clear. First, there are some amendments that needed to be made in 2014 and 2019 that were not made even though they were pointed out to the DTI. These should be made.
Hopefully, the DTI could use the opportunity to make other very necessary amendments such as how consumers can leave debt review early. The Ful Bench said that they were unsure if the law makers intended to trap people in the process or not. They can’t tell.
Next, the ruling makes it clear that the National Credit Act does not make provision (other than Section 71) for the High Courts to declare a person who has entered debt review not over-indebted.
The ruling did, however, point out that consumers who have applied for debt review but whose matter had not yet been ruled on by the Magistrates court could provide the Magistrates Court with additional information and the Magistrates Court can then declare that the consumer is not over-indebted.
Download the Ruling Here
Are The Credit Bureaus the Real Problem?
Interestingly, credit bureaus do not require any evidence that the consumer has actually applied for debt review help before they list them but they insist on all sorts of additional proof that the accounts are later paid up.
They say this is because the NCR has told them that they must even though the National Credit Act does not allow for this. Instead, the credit bureaus simply ignore the very clear requirements of the NCA which states that when a Debt Counsellor gives them a clearance certificate they must remove the debt review listing.
Credit bureaus also do not track payments made while under debt review in line with the restructuring court order. This means they provide only the barest minimum of information about debt review consumers which could be prejudicing them.
Are Scared Credit Providers The Real Problem?
The NCA says that if a consumer can easily afford credit they should be given access to that credit. They should not be discriminated against for any reason including due to exercising a right under the NCA (such as Debt Counselling).
However, credit providers are petrified of giving someone credit recklessly. There has not yet been a case where a consumer has taken such a credit provider to court. So, credit providers are erring on the side of caution and if they see that the person was under debt review (or even recently spoke to a Debt Counsellor) they are hesitating to offer consumers credit they can afford. Should they? They can be fined R1 million if they get it wrong so, they are being understandably scared.
Amend The Act
The ruling now makes it clear that, until the NCA is amended, consumers who enter debt review should expect to be in the process until their smaller debts are all paid up. They should also not be taken in by attorneys offering to get there debt review status for a fee.