National Credit Act - One year later

ADAMS & ADAMS – EXPERT OPINION

The National Credit Act that has been in operation for a year on 1 June, has proven its worth, says Leander Opperman, Head of Banking Law at Adams and Adams attorneys.

“The Act ensures that the consumer, the borrower in this case, is certain of his or her rights when entering into a credit agreement and that these rights are protected.  However, the responsibilities of the borrower and the credit provider are equally important.

“Of great importance is the fact that the Act applies to every credit agreement between parties dealing at arm’s length where a registered credit provider such as a bank or micro-lender is involved.  It does not apply to informal lending between two individuals.”

Michael Gwala, Partner and commercial attorney at Adams and Adams says recent cases have resolved dilemmas under the Act. 

“Most banking institutions include a clause in their bonds or loan agreements to the effect that the credit receiver consents to the bank enforcing its rights under the agreement in the Magistrate’s Court.  The bank also retains the option of instituting proceedings in any division of the High Court of South Africa.

“Section 90(2) of the Act, however, prohibits such provisions which afford the jurisdiction to a High Court if the Magistrate’s Court also has jurisdiction.

“This posed a dilemma as to whether the Act ousts the jurisdiction of the High Court to deal with applications for default judgment falling under the act where a Magistrate’s Court also has jurisdiction,” says Gwala.

In the first judgment on this section of the Act, the Transvaal Provincial Division of the High Court found that issuing summons in the High Court for a debt that could be recovered in the Magistrate’s Court runs counter to the express purpose of the Act. 
It was declared unlawful in section 90 of the Act and the matter was transferred to the Magistrate’s Court.

The judgment followed the case of a person who purchased a motorcycle where ownership was reserved by the seller until the full purchase price had been paid.  The seller’s right, title and interest in the motorcycle were ceded to its bank.

The purchaser fell into arrears and the seller issued summons on the agreement out of the Transvaal Provincial Division of the High Court. After service of the summons, the purchaser failed to defend the action and the seller applied for default judgment. 

The Registrar of the High Court refused to grant default judgment but referred the matter for argument in open court and argued that it fell within the jurisdiction of the Magistrate’s Court.

In another case the bondholder of a property issued summons out of the Transvaal Provincial Division of the High Court against the purchaser for payment of the balance owing on the bond. 

After service of the summons the purchaser failed to defend the action. Application for default judgment was made to the Registrar of the High Court who refused to grant default judgment and again referred the case for hearing in open court. 

Gwala says the court held that section 90(2) of the National Credit Act does not affect the jurisdiction of the High Court and was only intended to outlaw ‘forum shopping’ in credit agreements. To extend its scope to the overall jurisdiction of the High Court in credit agreements is to give it a meaning which it neither has, nor ever intended to have. The High Courts therefore, retain their jurisdiction in terms of the Act.

“The Court granted default judgment against the purchaser but awarded costs in favour of the bank on the Magistrate’s Court scale.

“No consent to jurisdiction is required if the plaintiff prefers to institute action in the High Court for a claim enforceable in the Magistrate’s Court, although the plaintiff runs the risk of being awarded costs on the Magistrate’s Court scale only.

“The National Credit Act therefore ousts neither the jurisdiction of the High Court nor the jurisdiction of the registrar, to deal with applications for default judgment falling under the Act where a Magistrate’s Court has concurrent jurisdiction,” says Gwala.

Opperman says the Act has certainly created an environment in which consumers have learnt that they must be sure that they can meet their monthly commitments arising from a credit agreement.

“It should not be left to the credit provider to advise a consumer whether he or she is able to meet a commitment. Applying common sense when entering into a credit agreement cannot be overstated.  Reckless lending, where you are given more credit than you can afford to repay, is prohibited.  On the other hand, if a financial institution declines your application, you have the right to ask why.

“The National Credit Act is a mutually beneficial process – customers wishing to borrow money should know exactly what they are entitled to when entering into a loan agreement, while credit providers should play open cards when offering loan facilities.  The benefits of the new Act have certainly proved their worth in the past year,” he says. 

Leander Opperman
Partner
Adams & Adams
leander-o@adamsadams.co.za

Michael Gwala
Partner
Adams & Adams
michael-g@adamsadams.co.za

For more information visit http://www.adamsadams.com or phone
012 481 1500.