COMMENTARY ON THE EXPLANATORY MEMORANDUM ON THE PROPOSED CONSUMER CREDIT ACT.


1.PURPOSE OF THIS COMMENTARY


1.The purpose of this document is to provide commentary based on the Explanatory Memorandum to the proposed Consumer Credit Act.


1.2.In drafting this commentary, author did not peruse the latest draft of the proposed Act, nor did author interview any interested parties


1.3 Author did, however, consult the Explanatory Memorandum as published in the Government Gazette dated 17 August 2004, Number 26678.


1.4.Author further draws on extensive practical experience in debt collecting practices, the Usury Act and the Usury Act Exemption Notice as well as Administrations in terms of Section 74 of the Magistrates' Courts Act, Act 32 of 1944 in the drafting of this commentary.


2. ADPART 1 (POLICY REVIEW):


2. In terms of part 1 of the Explanatory Memorandum, as mentioned Supra. the most important causa cited for policy review is "the perception that regulatory weaknesses are part of the problem, and that the current regulatory framework is fragmented, outdated and ineffectual in dealing with a complex market that increasingly affects consumers at all Income levels"


2.2. Author agrees that a perception as mentioned supra in paragraph 2.1does' exist, but author does not however believe this to be true on all counts,


2.3 With regards to the MFRC as regulatory body, practical experience has shown Author that the administrative and executive branches thereof is in need of improvement


2.4 When advising debtors who seek legal advise on usurious interest, or drafting legal documents, such as Applications 'in terms of the provisions of Section 36(1) or Section 65J(5) of the Magistrates' Courts Act, based on such advise, author frequently approaches the MFRC for information regarding the registration of the particular creditor with the MFRC, as well as whether or not such creditor's loan agreements have been considered and approved by the MFRC


2.5 More often than not, the MFRC instructed author that although a certain creditor is in fact registered, due to the excessive backlog of matters, such creditor's agreement has only been "provisionally" approved


2 6 Regulation 2 3 of Annexure "A" to the Usury Act Exemption Notice determines that "The lender shall use standard written agreements, as approved by the regulatory institution, containing a!l the terms and conditions of the money lending transactions and clearly reflecting the rights and obligations of the borrower and the lender


2.7 It is clear that the provisions of this regulation does not provide for the "provisional" approvement of agreements by the MFRC


2.8 Regulation 2 of Annexure '"A", as mentioned supra, also deals in full with disclosure by the credit grantor in such credit grantor's agreements and otherwise.


2.9 Thus if the MFRC peruses a certain agreement accurately and thereafter approves such in accordance with Regulation 2 of Annexure "A", dissatisfaction with the level of disclosure should not present a problem to the debtor concerned.


2.10 With regards to the concerns in respect to the fact that in some cases the actual cost of credit exceeds that which was disclosed and that the mechanisms for complaints and redress are inadequate, author does not agree in toto.


2 11 Although, in author's experience, seeking redress through the MFRC is not expeditious enough, seeking redress though the courts, on the other hand, is.


2.12 Should a person feel aggrieved by the cost of credit charged by a credit grantor in a certain matter, the courts, current legislation and the common law already provides sufficient means of protection and course of redress.


2.13 Section 11 of the Usury Act determines the following

"If in any proceedings, whether by way of provisional sentence, summary judgement or otherwise, for the recovery of a debt in persuance of a money lending transaction or a credit transaction or a leasing transaction, the defendant alleges that payment of finance charges is claimed by, or has been made to, the plaintiff at a rate exceeding the maximum annual finance charge rate allowed by this

Act, and the defendant requests that the plaintiff be called as a witness to prove his claim, no judgment shall be granted in such proceedings until the court has afforded the defendant or his legal representative an opportunity to examine the plaintiff in regard to his claim unless it appears to such court that such examination is impracticable or that the defendant's allegation is prima fade without foundation".


2.14 Similarly the common law provides the so-called in duplum rule, which the courts have applied since its inception.


2.15 In a letter as published in the October 2004 issue of the De Rebus, the manager of Investigations and Prosecutions of the MERC submits that " .. the answer is not found in the Exemption Notice to the Usury Act, but in other sources such as the Magistrates' Courts Act and Rules".


2.16 This, writer submits, is the crux of the matter and the problems concerned.


2.17 The answer to the problems as identified in Part 1 of the Policy Review, lies not in the lack of sufficient legislation or executive branches in the implementing thereof nor in the creation of new legislation which, writer further submits is superfluous


2 18 The real problem faced by debtors is the so-called short debt-collection process, which in author's experience has for some time been misused by creditors to the debtors' detriment


3 SORT-COLLECTION PROCESS


3.1 The Magistrates' Courts Act, Act 32 of 1944, as amended, provides for so-called short-collection processes in both Sections 57 and 58 thereof.


3.2 Section 58 determines as follow:


If any person . . upon receipt of a letter of demand or service upon him of a summons demanding payment of any debt, consents in writing to judgment in favour of the creditor, for the amount of the debt and the costs claimed in the letter of demand or summons, or for any other amount, the clerk of the court shall, on the written request of the plaintiff or his attorney... enter judgment".


3 3 In author's experience, it has become almost a general practice by creditors In specifically the money lending industry, to have the debtors either sign receipt of a letter of demand and consent to judgment in blank, at the same time as entering into the money Tending agreement, or that such creditors make use of a computer system that prints out post-dated demands and consents to judgments for signature by the debtors


3.4 These "consents" to judgment more often than not, in the case of blank documents, are then filled in by hand by the creditor upon default by the debtor, and include both usurious interest and penalty amounts, to which such creditors are not entitled.

3.5If the clerk of the court is then prima facie convinced that all the requirements in terms of the provisions of both Sections 57 and 58 are met, judgment is then so entered into against the debtor


3.6 The debtor is therefor never afforded the opportunity of disputing any part of such judgment or of instituting proceedings in terms of the provisions of Section 11 of the Usury Act, before judgment is so entered


3.7That right has been confirmed by the High Court on various occasions and one has only to refer to the matters of Western Bank Ltd v Packery 1977(3) SA 137(T), Senekal v Trust Bank Of Africa Ltd 1978 (3) SA 375 (A) and Condor Industries (Pty) Ltd V African Gate Holdings Ltd 1978 (1) SA 540(T).


3.8 The most basic right of the debtor as a party to any judicial proceedings, being audi alteram partem, is thus denied to him by way of this process.


3.9The debtor thus never has the opportunity to raise, in a court of law, defenses such as usurious interest or the ICICLIS standi of the plaintiff who seeks judgment.


3.10Thus, in author's practical experience, most judgments, some of which were obtained by way of mistake or fraud, has been granted simply because such matters were never presented in an open court of law, to be decided on by a properly trained magistrate, taking into account both the creditor's version as well as that of the debtor,


3 11 If a debtor therefor realizes that judgment has been entered into against him either by mistake or by way of fraud, such debtor has to rescind that judgment by way of application in terms of Section 36 of the Magistrates' Courts Act, resulting in further legal costs.


4.CONCLUSION


4 1Author is therefor, with reference to the aforementioned. of the opinion, that the creation of new legislation with the object of protecting the rights of debtors against unlawful practices of creditors, is superfluous.


4.2It is author's further opinion that the material solution to solving the quandary concerned, being the protection of debtors against unlawful practices in debt collection and usurious interest charged by creditors, lies not in the creation of new legislation, but in the amendment of current legislation to that effect.


4.3Author suggests that the Magistrates' Courts Act be amended in the following manner.


a) that the provisions of Sections 58 and 57 be revoked in toto:

and


b)that the provisions of Section 65J be amended to only allow a judgment creditor to obtain an emoluments attachment order by way of proper application, which application be heard in open court.


4.4 It is author's submission that if the Magistrates' Courts Act is amended as proposed supra creditors will always be forced to follow the proper procedure by means of summons to be served on the debtor and therefor will always have to approach the court after giving effect to the audi alteram partem rule.


4.5This will severely hamper any creditor from trying to obtain judgment and an emoluments attachment order by way of fraud. as such will always be dealt with in an open court of law, with the fullest knowledge by the debtor.


4.6Author further submits that it is advisable to review the Rules of Court as contained in the Magistrates' Courts Act, with the view of bringing such more in line with the Uniform Rules of the High Courts.


4.7It is author's final submission that the creation of new legislation and the establishment of new procedures, will only lead to legal uncertainty, as no case law will exist on such and the existent case law will be made redundant.


VINCENT VAN DER MERWE: J C GROBLER & BURGER INC.