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Important Credit Industry News as it breaks !

FSCA’s objectives as stipulated in the Financial Sector Regulation Act 9 of 2017

Services in relation to credit, including debt collection. In relation to credit providers regulated by the NCR, the FSCA’s jurisdiction excludes the actual content and entering into of credit agreements, but includes the provision of financial services ‘related to’ the provision of credit15 and aspects of the corporate governance of credit providers. The FSCA is required to license and supervise these activities. We are working with the NCR to refine the scope of these ‘related’ services and our respective roles in relation to them, but focus areas include advice on credit, distribution models used in the credit industry, and enhanced disclosure, advertising and marketing standards for credit offerings.

The FSR Act specifically includes debt collection as a service ‘related’ to credit, which will be subject to FSCA oversight. Our focus will be on debt collection in relation to credit agreements falling within the NCR’s jurisdiction, including where debts are ceded to a third party for value (‘selling the book of debt’). We will work with the NCR and the Department of Justice to align our regulatory and supervisory approach to debt collection with other existing frameworks.

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In South Africa, generally, prescription is regulated by the Prescription Act 68 of 1969 and in delictual, contractual (or any other liability), the prescription period is three years. The Prescription Act also delineates when prescription commences and how can it be interrupted.

Sometimes, particularly in medical malpractice matters, the lines may be blurred as to when prescription commences. In RAF matters, the Road Accident Fund Act regulates its own prescription periods and the pertinent provision in this regard is Section 23. In terms of the provision, the claim “shall prescribe upon the expiry of a period of three years from the date upon which the cause of action arose”.

Section 23(3) provides that “[N]o claim which has been lodged in terms of section 17(4)(a) or 24 shall prescribe before the expiry of a period of five years from the date on which the cause of action arose.” The SCA, in the matter of Masindi vs RAF, and, subsequently, the Pretoria High Court, in the matter of Gabuza vs RAF, the courts were faced with an intricate situation where, plainly put, they had to decide whether to deprive claimants few days (from the prescribed three years) or grant an extra day, in favour of the claimants.

Almost three months after the SCA’s decision in Masindi, the Pretoria High Court heard and delivered a judgement in an almost similar case, in the matter of Gabuza vs RAF. The difference between Masindi and Gabuza is that, with the latter case, the issue was about the alleged late lodging of the claim with the RAF and not with issuing and service. In Gabuza, the collision occurred on 22 March 2012 and was lodged on 23 March 2015. Thus, the last day for lodging would have been 21 March 2015, which fell on a Saturday. Even more interesting, Section 24 of the RAF Act stipulates two alternative methods of lodging i.e. via registered post and by hand. It was argued on behalf of the RAF that the claimant could still have lodged via registered post on a Saturday, 21 March 2015. The court, albeit accepting that the three-year period of lodging lapsed on 21 March 2019, it considered the practical reality that in South Africa, Post Offices close at 13h00 on Saturdays and the ensuing impossibility to lodge a claim for the remainder of the day that would equal the normal hours of an ordinary work-day. Against this background, the court adopted the Masindi case principle i.e. the next working day is the last day to lodge.

From the two above mentioned cases, it seems as though the courts are inclined to grant claimants a further day or days than depriving them a day or few days. In the matter of Masindi, had the court held that the last day for issuing and serving was Friday, 13 June 2014, the claimant would have been deprived of at least three days and, thus, her matter would have prescribed before a “complete lapse” of five years. A similar result would have ensued in Gabuza, had the high court held otherwise – though the claimant had some hours to lodge the claim on the exact last day.

In light of these matters, it seems trite that, in such matters, justice would get preference over an interpretation that would lead to absurd result. In doing so, the courts are giving true effect to the spirit, purpose and objective of the Constitution. The courts’ decisions are even more plausible, specifically, in RAF matters, considering the nature of the claims – it sometimes takes a while before a potential claimant can get legal assistance. Interestingly, the court, in Masindi, emphasised that each matter will be decided on its own merits. This then permeates further matters of similar nature to be adjudicated upon in future. Of importance, however, from Masindi and Gabuza matters, the courts provided direction and certainty in matters where the last day for lodging or issuing and serving falls on dies non.

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The National Assembly is about to head into its final week before disbanding for May’s national elections.

This has led to a frenzy as legislation and important business that can be completed is rushed to the finishing line while other less urgent parliamentary business is dropped for lack of time, reports PMG. Notably, A major new bill wAS adopted beginning of March by both houses, and have now been sent to President Cyril Ramaphosa to be signed into law.

The National Credit Amendment Bill was officially passed by the National Council of Provinces on 8 March '20 and has now been sent to President Cyril Ramaphosa to be signed into law. The bill aims to provide relief to over-indebted South Africans who have no other means of extracting themselves from over-indebtedness.

Specifically, the bill will allow certain applicants to have their debt suspended in part or in full for up to 24 months. This debt may then be extinguished altogether if the financial circumstances of the applicant do not improve.

The criteria for meeting this debt write-off include:

  • Where the unsecured debt is not more than R50,000;
  • Where the unsecured debt was accrued through unsecured credit agreements, unsecured short term credit transactions or unsecured credit facilities only;
  • Where the person earned no more than R7,500 a month over the last six months;

The bill also introduces a number of new offences related to debt intervention. Under the bill, it will now be an offence for a person who intentionally submits false information related to debt intervention. Any person who intentionally alters his or her financial circumstances, or persons who intentionally alter their joint financial circumstances, to qualify for debt intervention, will also be guilty of an offence.

The Banking Association of South Africa (Basa) made it clear that it does not support the principle of debt forgiveness – for very obvious financial reasons, but also for what it would do to the lending and credit industry. Aside from the costs banks would incur writing off the debt, the most likely reaction from banks would be to make lending conditions much tighter which would make it more difficult for the poor to secure credit, Basa said,


Reckless credit granting, debt collections and emolument attachment orders (also known as garnishee orders, which allow creditors to dock debtors’ salaries and wages directly from their employers) are back in the spotlight with a David-versus-Goliath case that is expected to be heard in the Western Cape High Court in August '20.
The case has been brought by Stellenbosch University Law Clinic and Summit Financial Partners and 10 clients, who are seeking clarity on the interpretation of the “in duplum” rule and what charges are allowed to accrue to debtors’ accounts. The applicants hope to put an end to reckless debt collection, which is causing widespread misery, particularly in poorer communities.

The exhaustive application includes 49 respondents, including the Department of Trade and Industry, the National Credit Regulator, all the banks, Bayport Financial Services, the Finbond Group, the Debt Collectors Council, Foschini, Edcon, Lewis, various law societies and law firms.

Bayport Financial Services is cited for credit agreements with two of the clinic’s clients: one, a farm labourer, alleges in his supporting affidavit to the application that he was given a loan of R16000 in 2010, paid back an amount in excess of R31500 and, according to Bayport, still owes more than R37000. This means he is expected to repay more than R68500 to service his initial R16000 loan. His salary had been garnished for more than three years, with R917.81 deducted from his R2247.26 salary every month.

In its replying affidavits, Bayport say it is fully within its rights to collect amounts approaching R65000 on the R16000 loan. It admits it has already collected more than R32500 from the debtor, and that “(his) account remains active, and Bayport will continue to enforce its contractual rights until the outstanding debt is recovered in accordance with the law”.

Bayport further admits it made an “error” in the second matter that has been brought to court and has “written off” the R7400 that was still being collected prior to the case.

In their reply, the applicants state they are “shocked” that Bayport feels justified in collecting amounts so disproportionate to the original loan, because this illustrates “Bayport’s ignorance of the spirit and aims of the NCA (National Credit Act)”.

The in duplum rule is a common-law rule that’s been on our books since the 1830s and has entered the public domain in recent years largely because of the behaviour of predatory debt collectors, who have added interest upon interest on debts, and lumped handsome collection fees on top of that. The rule means that the interest accrued on a debt ceases once it equals the original principal debt. For example: the total debt may not exceed double the original debt. So if you took a loan of R1000 that falls within the ambit of the NCA, the interest and collection charges should cease to run once R2000 is reached. In theory, that is. But any payment made by the debtor after the cap has been reached means interest will again start to accrue on the principal amount.

In 2005, with the promulgation of the NCA, the rule’s ambit was widened.

The NCA provides that, despite any common-law provision or wording in a credit agreement to the contrary, the amounts that accrue while the consumer is in default under the agreement may not exceed the unpaid balance of the principal debt at the time that the default occurs. The common-law in duplum rule was limited to arrear interest only. But section 103(5) of the Act widened its application to encompass all costs - including initiation fees, collection costs, credit insurance and administration charges - plus interest.

The statutory rule also applies over the period of the default, meaning a credit provider is not allowed to apply any further charges or interest - even though the debtor is making repayments - and whatever the manner of collection, including attorneys’ fees. This favours the debtor, not the creditor, but some creditors and collectors have interpreted the in duplum rule to their benefit - charging as much as they please and causing widespread debtor hardship, because the recovered debt is many times the original amount.

The situation was perfectly summed up in a 2016 case involving furniture retailer Lewis, which shamelessly ripped off a 60-year-old gardener. It had charged him R17955 over three years for a washing machine that cost R5999. In the Stellenbosch University Law Clinic case, the banks, represented by the Banking Association of South Africa (Basa), claim they are within their rights to charge collection fees, which include service, tracing, administration and legal fees - even after these costs far exceed the in duplum limit. And that, because there is no consistency among the banks in terms of how they recover debts, in duplum applies only before judgment is obtained.

Basa says if legal costs are counted as part of “collection fees”, its members’ recovery efforts will be hamstrung. And a consumer will have “no incentive whatever to pay what he pays under the credit agreement”.

Available economic activity data has shown that the economy ended last year on a weaker footing, with December retail sales figures being the latest to disappoint, declining for the first time in nearly two years. Statistics South Africa said yesterday that retail sales declined 1.4 percent on a yearly basis in December – the first decline in retail trade since February 2017. StatsSA said that on a monthly basis, retail sales slumped 4.8 percent, the most since May 2011. Lower sales were recorded for clothing, textiles, food, beverages and tobacco.

FNB economist Siphamandla Mkhwanazi said despite the weak December figure, he expected a moderate positive contribution to the fourth quarter gross domestic product. Looking ahead we expect the combination of a sharp decline in the December and January petrol price and the gradually increasing credit take-up by consumers (particularly unsecured credit) to support retail sales in the coming months.

The value of the U.S. dollar remains strong against the Euro, the British pound, the Chinese Yuan, and the world. Over the past year, since the end of January 2018, the U.S. Dollar index (DXY) has risen from just over 89.00 to close at just over 97.00.

It now takes only $1.1278 to acquire one Euro where, last year, it took just over $1.2500 to buy one Euro. One British pound, last year, cost $1.4264 whereas yesterday one pound cost around $1.2850. Last year, it took a little less than 6.2700 Chinese Yuan to buy one U.S. dollar. Yesterday, it took close to 6.8000 Yuan to buy a dollar.

We could go further, but these data seem to tell a good part of the story…

Banks may make it harder for consumers to get car loans, credit cards and personal loans under proposed rules from the corporate regulator. After the royal commission put bank lending practices under the microscope, adding to pressure from regulators, the Australian Securities and Investments Commission last week issued a consultation paper on responsible lending, which reiterated some of its concerns about how customers' living expenses were assessed by banks.

In response to the paper, which will be followed by consultation with banks over the coming months, some banking analysts predicted certain types of consumer credit could be tightened. At the same time, however, they said there could be benefits for the big banks, because the new rules are expected to force smaller non-bank lenders to tighten their processes, similar to what banks have already done over recent years.