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Can An Account Be Reinstated Once Judgement Is Granted?

This was the question which has slowly been climbing it’s way from court to court in an effort to get clarity on a particular section of the National Credit Act which comes into effect when consumers start to miss debt repayments.

The particular case involves Ms Nkata and First Rand Bank. Ms Nkata took a bond with FRB. When she hit financial difficulties she allowed the debt to fall into arrears and eventually the bank decided to begin legal action. They sent Ms Nkata a Section 129 letter advising her of her options (to bring the account up to date or to go see a Debt Counsellor). At this time she was unable to sort things out. Naturally FRB went to court and got a judgement and then moved to sell the property. It was only at this point Ms Nkata decided to pay up the outstanding amount on the account (there had been extra legal costs incurred but she did not know about those and so only paid the arrears amount). It was after this time that the house was actually sold to another party.

Ms Nkata was not happy and took the matter to court since she had done what the Section 129 letter (particularly 129(3)) said to do. Because she had not paid any of the enforcement costs FRB felt that the account was not up to date and because they had already been allowed by a court to sell the house they felt the matter as closed. After their day in court the High Court agreed with Ms Nkata and said that FRB had to set things right. Seeking further clarity on the issue (which has big ramifications) the credit provider challenged this ruling on appeal and actually won the case at the SA Appeal Court. It seemed that a judgement and warrant of execution meant no more chance for a consumer to revive a credit agreement.

Was This A Constitutional Matter?

The case was not over though, as the matter was successfully referred to the Constitutional Court which is SA’s highest court and consider the only the most serious cases of national importance. An organisation called SERI (Social-Economic Rights Institute) got on board on Ms Nkata’s side of the fence and helped argue the matter. At this highest level, the court heard all the arguments in regard to NCA S129(3). Particularly of note was the question of (1) was this too late to try reinstate the agreement between creditor and consumer and (2) what about the costs of enforcement which had been added to the account for the legal action and sale? Ms Nkata had not covered those costs in her catch up payment. A Third issue was (3) did the consumer have to give notice of having made such a catch up payment and wanting to reinstate the credit agreement?

One of the main points that has come to the fore from the Constitutional Court ruling is that consumers can’t realistically be expected to know the legal costs before being informed of them. This makes sense as the credit provider normally will only inform consumers of these much later. Also consumers probably don’t know about notifying creditors that they want to pay arrears and revive an account but creditors do have access to the account balance and can see when such catch up payments are made. The ruling was in Ms Nkata’s favour and potentially much to the benefit of many similar consumers.

What Now?

Credit providers now face an extra hurdle to jump in enforcement. The question is how to deal with this change in understanding based on this ruling. Do they (1) inform consumers of the costs as they add up, bit by bit (but what would constitute the consumer being made aware of them etc?) or do they (2)  have their collections/legal service providers do so on their behalf (once again piecemeal)? Would those costs be the final accurate costs? Do they try rush the executions or final sales of assets to avoid this situation altogther? Do they institute another level of checks before the asset is handed over to a new buyer to ensure they are not handing over an asset which account has been reactivated or revived as per NCA Section 129(3)?  It is a tricky situation and one that could come up more over time as troubled consumers make last minute plans to bring the accounts back into good standing.

Though this case involves a particular bond for a particular client, the legal principal holds true in regard to all similar accounts and sets an important precedent about S129(3) which will have to be taken into consideration by credit providers when enforcing their rights through judgements and warrants of execution or auctioning off fixed assets.

A Judgement And Even A Warrant Are Not The End For Consumers

This case shows that a judgement is not executed when a warrant of execution is issued but only once an asset is actually sold. It also makes clear that this process of reviving the account cannot be denied or opposed by a credit provider simply because they do not want it to and prefer to carry on with a sale or auction. It happens automatically as long as the actual sale has not occurred.  This is good news for consumers in a similar position. Immediately it makes one think of vehicle repossessions and plans to auction off vehicles when consumers can make a last minute catch up payment.