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Chapter 12 - Consumer Law

Debt counseling

What is Debt counseling?

The idea of debt counseling is to give people an opportunity to pay back the money they owe through an agreed, legal process, rather than wait until there are more serious consequences - like being called to court or having their goods repossessed. Debt counseling can also assist a consumer if credit has been granted to them recklessly.

Debt counselors are trained and registered by the National Credit Regulator to assist consumers who may have become over-indebted as a result of entering into credit agreements.

Seeing a debt counselor

• Anyone may apply to a debt counselor for a debt review. A debt review is when a debt counselor makes a note of a consumer’s income and expenses, and works out affordable repayments for their debts to see if they are over-indebted.

• In some cases the magistrate’s court may instruct someone to see a debt counselor to assess if they are over-indebted before making a court order with respect to their case.

Debt counseling may only be done by people who are formally trained and registered by the National Credit Regulator.

What the debt counselor will do

The debt counselor will conduct a debt review which means they look at the consumer’s total income and expenses (including their debts repayments) to determine whether or how the consumer is able to repay the debts. They will charge a fee for the service.

The debt counselor will inform the credit providers and all registered credit bureaus (within five working days) that this review is taking place, and must -

• determine whether the consumer is officially over-indebted or not within 30 days;
  
• assess if there has been reckless lending; and then
  
• make a proposal to the magistrate’s court (if they believe the consumer is over-indebted):
  
• that the court declares the consumer over-indebted;
  
• that the court declares that there has been reckless lending (if the debt counselor believes this to be the case);
  
• that the court orders some form of relief for the consumer by changing the way repayments are to be made (in other words, it restructures the debt); the debt counselor will take responsibility for managing the consumer’s payments if the debt is restructured by the court. This is referred to as ‘being under debt counseling’.
  

When a consumer is under debt counseling

When a consumer is under debt counseling, the following must happen:

• The consumer must pay the debt counselor an agreed monthly amount;
  
• The debt counselor will pay the creditors each month according to the agreement made in court;
  
• The consumer may not borrow any more money until all the debts are paid off;
  
• The consumer credit information will be listed at credit bureaus. Credit bureaus are the organisations that keep a record of all consumer credit information, including the consumer’s credit history, financial history, education, employment and career, and identity details. This information will assist a credit provider in deciding whether to give a person credit, or may influence their decision to do so. This ensures that no-one lends a person money until their debts are fully paid.
  

When a consumer has paid all their debts

When a consumer has paid all their debts the debt counselor must give the consumer a debt clearance certificate which states that the consumer has paid off all debts owing. The consumer should take the certificate to the credit bureaus. The credit bureaus should take the person’s name and information off their lists of people who are subject to debt review/debt counseling.

Example

Tomsina works as a counter assistant earning R2 400 a month. She comes to see you as she is unable to pay all her debts every month and has received a written notice from a clothing store to say she is behind with her payments. She says she is also behind with repaying a microlender, a furniture dealer and the clothing store where she has an account.

When you make a list of her expenses which amount to R2 800 per month, it is clear that Tomsina is over-indebted and will be unable to pay her monthly debts.

Tomsina applies to a registered debt counselor to have her debt reviewed. The debt counselor does a debt review by assessing her debts and her income. Tomsina gives the debt counselor a copy of her budget and list of debts.

The debt counselor agrees that Tomsina is over-indebted according to the NCA, and makes calculations of new repayments that she can afford. The debt counselor first approaches the credit providers to try to reach informal debt rearrangement agreements with them. She does this, and while the microlender and the clothing store agree to new terms, the furniture dealer does not want to do this – so the debt counselor arranges to go to court. The court declares Tomsina over-indebted and orders that the debt be restructured.

Tomsina is told that she may not borrow any more money until this debt has been paid off. She understands that the credit bureaus will have a record of her financial situation on their records until she has paid off her debts. Every month, she gives the debt counselor the agreed amount of money and the debt counselor pays this money to her credit providers.

After Tomsina has paid all her debts she will receive a debt clearance certificate from the debt counselor to prove that she has finished paying all her debts. As she doesn’t want her negative listing to remain on the record of the credit bureaus, she applies to have this information removed from the credit bureaus records.

Legal proceedings

A credit provider may only begin legal proceedings against a consumer -

• after 10 working days have passed since delivery of a written notice, and
  
• once the consumer has been in default for at least 20 working days (defaulting is when the consumer does not make an agreed payment on a loan or does not do something which they have undertaken in the credit agreement to do).
  

The credit provider may not begin legal proceedings

• while the consumer is working with a debt counselor, alternative dispute resolution agent, the court, or any of the institutions set up under the NCA.

To begin legal proceedings, the credit provider can either

• ask the consumer to sign a consent to judgement, or
  
• issue a summons.
  

Consent to judgement

A consent to judgement is a legal document that may be signed by the consumer if they accept that a judgement (court order) will be made against them to ensure payments. If a person signs a consent to judgement it means that they admit that they have defaulted, and they either –

• Agree to take responsibility to pay the amount they owe in instalments - and if they do not do this, they accept that a judgement (court order) will be made against them to ensure the payments, or

• Agree that a court order should be made against them to ensure payments in instalments.

A consent to judgement must refer to a court near to where your client lives or works. There is no problem with a person signing a consent to judgement if they are definitely in default. In this case, it may be a cheaper option for them as it will avoid expensive legal processes.

However, if the person believes they have not defaulted (for example if they feel there has been a mistake on the account) they should not sign the consent to judgement.

Summons to court

If the person ignores the written notice/ letter of demand, a messenger of the court is likely to come to their house to serve a summons to appear in court. A summons is an order of the court and should never be ignored.

If a consumer gets a summons, they have five working days to respond by -

• making arrangements to pay the money they owe, or
  
• consulting an attorney, or
  
• informing the court that they intend to defend themselves (file a notice of intention to defend).
  

Once a summons has been issued, the consumer may no longer apply for a debt review with a debt counselor. He or she should consult a lawyer if intending going to court. If the person intends to defend themselves, they will need to make a plea. This means the person either admits guilt or explains why they are not responsible for the debt. (If the person needs legal assistance, give them contact details of a law clinic or of a lawyer who may work for reduced fees.)

Court orders

If a consumer is given a court order make sure that it is a valid court order. If the person thinks that there is a reasonable defence with respect to the original debt (in other words, the credit provider was wrong in some way and should not have started legal proceedings), advise the person to get a lawyer to represent them in court.

• Default judgement

If the consumer ignores a summons to appear in court about their debt, then a default judgement by the court will be made and the person will be ordered to pay the money owing. This can get very expensive as the person will now have to pay the money they owe plus the interest that has been added to it, plus the legal costs of the court order. These legal costs could include the sheriff’s and the attorney’s fees.

• Being placed ‘under administration orders’

If the person is unable to pay the amount they are ordered to pay by a court, they may apply to the magistrate’s court to make an order - known in the Magistrate’s Court Act (1944) as an administration order. This is intended to deal with a debtor who has few assets, a low income and financial difficulties that they cannot manage.

The administration order will specify

• the financial obligations of the person owing the money,
  
• the amount of the payments (taking these obligations into account),
  
• how often the payments should be made, and which assets may and may not be sold by the administrator.
  

The administration order will appoint an administrator to collect the person’s money each month and to pay the debts as stated in the order. They will charge a fee for doing this. For as long as the person is ‘under administration orders’, no creditor may attempt to get money or property directly from the person and he or she is not allowed to incur any other debts without telling the administrator or they would be breaking the law.

• Emolument attachment order

An emolument attachment order is a court order which is given to the consumer’s employer, instructing them to deduct from their employee’s salary the money that they owe and give it straight to a credit provider. On top of this, the employer may deduct a 5% administrative fee. The consumer will see the deductions on their pay slip.

The court must not order deductions that are so large that your client is not able to look after themselves or their dependents. If the consumer believes this is the case, he or she should appeal to the court to amend the order.

• Garnishee order

A garnishee order is when the court orders people who owe the consumer money, to pay the credit provider who is owed money, instead of the consumer. A garnishee order also allows the credit provider to take money that the consumer expects to receive from, for example, an inheritance.

• Warrant for repossession

If there is a default judgement against a consumer and they have no money to pay the debt (plus all the additional amounts), then the credit provider is allowed to get a court order to repossess goods. That is, they can get permission from the court to sell some of the consumer’s possessions to raise the money that is owed to them. When the possessions are sold to pay the creditor, they are often sold at a lower price than they are worth – and the consumer is still responsible for paying any money that is still owing. A sheriff of the court brings the court order to the consumer’s home. Then she or he will visit for the first time to make a list of the consumer’s possessions. At this stage the consumer should identify possessions that are not yet fully paid for, or which do not belong to them, as these cannot be taken away.

The second time the sheriff comes, s/he will take possessions away. They will first take things that are easy to move (like furniture and appliances). But then they are allowed to take possession of the consumer’s house or even the land they own.

The sheriff is the only person who can remove possessions and must have a court order to do this. In addition he or she must get the consumer’s permission to enter their house or flat and should not come in the middle of the night or when the consumer is not at home.

Example

Solly’s goods are repossessed. Solly does not pay his furniture account and the shop that he has bought from gets a default judgment against him for R2 600. Solly ignores the written notice that he receives from the shop’s lawyer.

While Solly is at work the sheriff of the court goes to his house with a Warrant of Execution and removes his furniture and fridge.

Solly goes to an advice office for advice. The paralegal he speaks to explains that the court had a right to issue a summons. However, the sheriff had acted improperly because of the following:

• He came while Solly wasn’t there;
  
• He took goods from the house at the same time as issuing the summons. (This meant that Solly did not get the five days to respond after receiving the summons, before any court order was taken against him); and
  
• He had not listed the possessions that belonged to Mr Mbuli, and had taken goods that belonged to a tenant.
  

The paralegal advised Mr Mbuli to consult a lawyer and recommended someone who helps the advice office with this kind of case.

Getting credit: contracting with a credit provider

Responsibilities of credit providers

There are different places where consumers can go to borrow money (get credit), for example banks, microlenders and shops. The National Credit Regulator’s website lists all registered credit providers. The National Credit Regulator (NCR) is an institution introduced by the National Credit Act (NCA) to ensure that credit providers, debt counselors and credit bureaus comply with the NCA. The NCR will also help consumers with understanding their contracts and will support consumers if they have problems with credit providers.

When dealing with consumers, credit providers are required to:

• give the consumer a quotation which is binding for five days;

• explain the contract to the consumer in a language they understand;

• explain the costs and interest charges (The costs of credit includes the fees, costs and charges related to borrowing money, including interest. Interest is the amount that credit providers charge for lending money and is usually a percentage of the amount borrowed);

• display their registration certificate in a way that is clearly visible, tell the consumer clearly that they are registered and include their registration information in the contract;

• make sure that a consumer can afford to pay back the new debt by carefully assessing their financial situation so that they do not engage in reckless lending,

• give reasons written in plain language if they refuse a loan;

• give in writing the name and address of any credit bureaus that have provided information about the consumer’s credit record;

• notify the consumer before they send negative information to a credit bureau.

Credit providers may not:

• keep a consumer’s bank cards or identity documents (although they may use them to confirm the person’s identity or to make copies);
  
• ask the consumer for their PIN code for their bank account; or
  
• refuse to give the consumer credit because of social prejudices, such as a person’s age, sexual preference, religion, ‘race’ or gender.
  

Credit providers have the right to refuse to enter into a credit agreement with consumers but must provide reasons.

Rights and responsibilities of consumers

If a consumer signs a consent to judgement, they have agreed that the credit provider can take them to court if they do not pay their instalments. They will also have to pay all the credit provider’s legal costs. Consumers are responsible by law for repaying money once they have signed a contract for credit.

Consumers have the following rights:
- to ask for anything they do not understand to be explained to them in a language they understand;

- to read the contract, or have it read to them, before they sign it

Understanding the contract or credit agreement

When consumers agree to repay money that they have borrowed, they enter into a credit agreement. This means that the consumer signs a contract that clearly states the conditions for borrowing that money - including administrative costs and interest. It is important therefore, that when entering into such an agreement, they carefully read through and thoroughly understand the document before accepting it by signing it.

When entering into a credit agreement, the consumer should remember the following:

• never sign a blank form, as they may find that they are responsible for payments and conditions that they did not agree to,

• never sign a form with blank spaces that can be filled in after they have signed it, so they should put a line through blank spaces,

• make sure that the contract does not include a consent to judgement,

• take time to read through the contract,

• they have the right to take the contract home and read it with a friend or family member before signing it,
• they are entitled to one free copy of every document they sign,
  
• keep a copy of the contract and all the forms that they have signed in a safe place, and
  
• they have a right to ask for a statement of their account at any time which must show how much they have paid and how much they still owe.
  

Types of loan and credit agreements

In addition to the standard loans such as purchases on credit, mortgage agreements and pawn transactions, the NCA has introduced new types of credit agreements, which are covered by the Act.

• Developmental credit agreements include loans for education, small businesses, fixing or buying a low-income house, and low-level loans by a credit cooperative (Section 10 of the Act).

• Emergency loans are student loans, school loans, and education, training and skills development loans.

• Public interest loans are credit agreements that, for example, are made to assist consumers to cope with natural disasters and are declared a public interest loan by the government

Not all loan agreements are credit agreements. The NCA says that the following are not ‘credit agreements’ and are therefore not covered by the Act:

• a lease between a consumer and the landlord when renting accommodation;
  
• a monthly amount towards an insurance policy; and
  
• money borrowed from a stokvel of which a person is a member.
  

Paying back the debt

The repayments made by a consumer are first used to pay the costs of the credit (the administrative fees and the interest) that the credit provider charges for lending the consumer the money. Only after these have been paid do instalments begin to pay back the actual amount borrowed – known as the principal amount. As interest is added to the outstanding balance on a regular basis (for instance monthly), the consumer may take a long time to start paying back the principal amount, even if they are paying their instalments every month.

Calculating interest

Interest can only be charged on the amount a consumer borrows, including the interest they have not yet paid. Interest cannot be charged on a deposit, nor can interest be charged when there is no debt – in other words when someone pays the whole amount straight away.

The NCA wants to ensure that the amounts charged for lending money are fair and that the same is charged everywhere. It has therefore set strict guidelines for credit providers to follow when charging costs and interest, and has specified the formulae to be used and the maximum allowable interest rate for each

Refusing to give credit

Sometimes people battle to borrow the money they need, as no-one will lend it to them. When they think they are being treated unfairly or do not understand why they are being refused a loan, they may come to an advice office for help.

Reasons for refusing credit

Credit providers are not obliged to give credit to anyone. A credit provider has the right to refuse credit as long as the reasons are not based on discrimination.

Your client has the right, on request, to be informed in writing of the reasons for credit being refused, and to be told whether negative credit bureau reports played a role. If the client does not know, contact the credit provider to find out.

Credit providers may refuse to lend money -

• if this would mean that the loan would be reckless – that is on the basis of a fair assessment that the consumer is over-indebted and that they would be unable to pay the debt without taking a further loan;
  
• when the credit provider is unable to check the consumer’s credit record (and does not want to run the risk of reckless lending); or
  
• when the consumer is negatively listed and is prohibited from borrowing any more money. A negative listing is information held at a credit bureau that shows that a consumer has defaulted on a credit agreement.
  

If you think the credit provider has acted within their rights, and you believe your client can afford more credit, you may have to simply advise your client to apply elsewhere for credit.

Querying a decision not to grant credit

You should query the credit provider’s decision not to grant credit if your client believes the reasons to be incorrect or unfair. The following may be instances of this.

• Your client has strong evidence that the refusal to give them credit was based on social prejudice (like age, sexual preference, religion, ‘race’, gender etc).

This can be difficult to prove, but can be important to confront in instances where there is a good case. If you think the credit provider discriminated on these grounds, report the credit provider to the National Credit Regulator or to an Equality Court.

• Your client believes the decision was based on an incorrect assessment of their ability to pay.

In this case it might be helpful to the client for you to assess their financial situation with them. Use the client record sheets Debt Information, Household expenses to assist in budgeting and Budget (record sheets 3 - 5) as it is really important to have a complete record of both what they earn and what they spend.

If the client’s regular expenses are more than their income, a credit provider would have been correct to assess your client as over-indebted, and was right not to give them any credit. If, however, it seems that your client could easily manage the debt, it would be worth approaching the credit provider to reconsider their decision.

• Your client feels they have been incorrectly or unfairly listed at the credit bureaus.

In this case you should advise your client to apply to the credit bureaus to check and change their records.

The role of credit bureaus

When a consumer takes out their first loan with a credit provider, they have to complete a form that asks for their consumer credit information. This includes their credit history, financial history, education, employment and career, and identity details. This information and the details of the loan are given to a credit bureau. Any credit provider that the consumer approaches for a loan or credit has the right to ask the credit bureau for information about the consumer. Consumer credit information can be given to credit bureaus by credit providers - or by consumers or the courts. Credit bureaus must make sure the information is accurate. Any person has the right to challenge the accuracy of any information and unless evidence is provided, inaccurate information must be removed from the records of the credit bureaus.

A registered credit bureau must do the following:

• accept the filing of information after the fee is paid by the credit provider;
  
• make sure the information is correct and not maintain inaccurate information;
  
• keep information for prescribed periods and to the prescribed standard;
  
• provide a report of the information when required by credit providers or anyone else who has the consumer’s permission;
  
• not charge for corrections or challenges to information by the consumer;

• not make a negative judgement when no consumer credit information is held by the credit bureau.

Consumers have the responsibility to check whether their credit history is recorded correctly by the credit bureau. They have the right to request a free copy of their credit record once every year in their birthday month.

What to do if a consumer is negatively listed at the credit bureau

A consumer can be negatively listed when he/she takes a loan and does not pay the instalments on time and the credit provider gets a court judgement against them. This information is given to the credit bureaus who keep it on record for up to five years.

A consumer will also be listed when they are under administration with a debt counsellor or other agent who is helping them manage their debts. When your client is listed at the credit bureaus, they are unable to be given any further credit as it is illegal for anyone to do so.

Once your client has paid off their debts, the debt counsellor will give them a debt clearance certificate. It is your client’s responsibility to submit this to the credit bureaus so that they can remove the information from their records.

If a consumer feels he or she has been incorrectly or unfairly negatively listed by a credit bureau, they can declare a dispute with the credit bureau and provide proof of payment from the credit provider.

After this the bureau has 20 working days to investigate the information, during which time the information is flagged as disputed.

After the investigation, the bureau will make a decision to keep or remove the disputed information.

If the consumer is not satisfied with the results from these processes they can contact the institutions that deal with these kinds of issues. These are:

• Credit Information Ombudsperson - if the consumer feels they have been incorrectly or unfairly negatively listed (they should include a reference number from the credit bureau).

• Consumer Protector - if a consumer feels their rights have been violated.

• National Credit Regulator (NCR) - if the consumer wants to report a dispute between themselves and a credit provider.

• National Consumer Tribunal - if the consumer is dissatisfied with the manner in which the dispute between the consumer and credit provider was resolved by the NCR.

See Resources for contact details of these institutions.

Debt-collectors

Debt collectors may be used by credit providers to recover debts from consumers. Debt collectors are regulated by the Debt Collector’s Act (No 114 of 1998) which provides for the exercise of control over debt collectors and legalizes the recovery of fees or remuneration by registered debt collectors. The overall goal of the Act is to monitor the conduct and professionalism of debt collectors and promote a culture of good governance within the profession. This will contribute to protecting consumers as well as creditors. The Council for Debt Collectors exercises control over debt collectors.

Debt collectors are allowed to charge for letters and notices that they send out to people. These costs usually have to be paid for by the debtor (person who owes the money). Debt-collectors are not allowed to issue a summons- this can only be issued by a court. .

Admission of Liability

In order to get a consumer to pay his or her debt, a debt-collector may get the consumer to sign a form, called an Admission of Liability. If the consumer signs this form, it means they agree that the money is now owed to the debt-collecting agency and NOT to the shop.

By signing this form the consumer also agrees to pay all the extra administrative charges of the debt-collecting agency. The original amount that was owed to the shop will now increase because of these add-on charges.

If the consumer signs this form and then refuses to pay the agency, the debt-collector can refer the debt to their lawyers. The consumer will then have to pay to the lawyers the original debt, the debt-collector's fee and the lawyer's costs. The consequences of signing such a form are therefore very serious.

If a consumer is finding it difficult to repay the debt, it is preferable for them to contact a debt counsellor who will work with the consumer and the credit provider to try and reach an agreement on how the debt should be repaid. This gives the consumer an opportunity to pay back the money through an agreed legal process, rather than wait until there are more serious consequences - like being called to court or having their goods repossessed.

See Debt counselling.

The Debt Collector’s Act

The following are important provisions in the Debt Collector’s Act:

-Establishment of a Council for Debt Collectors – The Council consists of 10 people appointed by the Minister which is responsible for monitoring debt collectors and their work.

-Registration as a debt-collector – No one, except for a lawyer, can act as a debt-collector unless they are registered as a debt collector under the Act. There is a prescribed code of conduct for debt collectors that is published in the government gazette.

-Complaints against debt-collectors – Complaints can be referred to the Council who can withdraw a debt collector’s registration if they are found guilty of improper conduct. An application can also be made to the court to deregister a debt-collector if they don’t comply with the Act.

-Debt-collectors are not allowed to do the following:

• Use force in the process of collecting debts
  
• Misrepresent any information to people
  
• Spread (or threaten to spread) false information about someone they are collecting from.
  

-Debt-collectors are only allowed to collect the following:

• The amount of the original debt that wasn’t paid, plus interest based on interest rates that are legal, for the period during which the debt wasn’t paid.;
  
• Necessary expenses and fees that are prescribed by the Minister in the Government gazette;
  

-A debt-collector must open a separate trust account at a bank and any money deposited into this account must be dealt with according to specific procedures in section 20 of the Act.

For more information on the Council for Debt Collectors and a list of registered debt-collectors, go their website: www.debtcol-council.co.za.

Other methods of recovering debts

Where people use unlawful methods like intimidation and harassment, illegal repossession of goods that were not bought under a credit agreement, repossession of goods without a court order or use threats to have people arrested and put in prison, then they can be reported to the police. Threats of violence against anyone are regarded as assaults. Entering someone’s property without their consent is trespass or housebreaking if they open a door or window to enter a house.

See Problem 16: Getting a civil judgment in a criminal case.