Default & a Declaratory Order
A new court case might have some significant ramifications for consumers, credit providers and Debt Counsellors.
A Debt Counsellor is trying to get clarity on the application of NCA Section 103(5) (and common law Induplum). In particular, the term ‘default’ that is used in the law in various places.
The challenge is that certain credit providers have for years insisted that any ‘default’ on a consumer’s account is cured or resolved (goes away) when a debt review debt restructuring court order is granted. They then say that as long as the consumer sticks to the debt review repayment plan they are not in a state of default and so the limits of NCA Section 103(5) do not apply.
Not everyone agrees (both among Debt Counsellors and some credit providers).
What's the Point?
The point of the court case is to try get the High Court to give:
- Clarification of the definition and applicability of the term ‘default’;
- Confirmation that an application for debt review order does or does not rectify the default;
- Based on that ensure that fees and charges do not exceed the outstanding balance while the consumer remains in default.
The Debt Counsellor has put forward some interesting arguments in the case.
Here are some highlights of her reasoning. She argues that:
- The term “default” pertains only to the original credit agreement and cannot encompass a debt review re-arrangement order or agreement.
- The National Credit Act (NCA) does not explicitly state that debt review resolves the default.
- By not applying section 103(5) to agreements under debt review, the consumer is being penalized.
- The legislator distinguishes between two types of default: default under a credit agreement and default under a debt review court order.
- The credit provider interpretation is not aligned with the interests of the consumer, as set out in Section 3 of the NCA.
- The current guidelines provided by the National Credit Regulator (NCR) support this viewpoint.
The application has been served on all interested parties and it will be very interesting to see how the case plays out. It is also likely that we may see other interest parties wanting to join the matter.