1. Protecting and assisting the consumer

1.1 The LSNP and LSSA fully support the purposes of the Bill as envisaged in Section 3 thereof. We have always taken an active part in efforts to improve rules of law for both the consumer and the creditor. For example, an attorney was the project leader in the Report on Debt Collection published in March 1995 by the S A Law Commission (Project 74, RP No 198/1995) and this report is still relevant as will be shown later.

1.2 Attorneys have a unique knowledge of interaction between creditors and consumers in that they act daily in matters on behalf of either consumers or creditors. Such matters are, amongst others, Section 74 (of the Magistrate's Court Act, 32 of 1944) administration orders, Section 65 (of the Magistrate's Court Act, 32 of 1944) financial enquiries, rescission of judgments, actions against credit bureaux, summonses and other court actions. Attorneys advertise widely in newspapers for consumer clients who need assistance in their financial difficulties and disputes.

1.3 In our view the solution to the problems relating credit and debt should be sought in improving "access to the courts" for both the consumer and creditor. In our view this Bill will not succeed in helping the consumer and will harm the economy of the country, creation of employment and probably the interests of consumers also.

1.4 The present Credit Agreements Act, 75 of 1980 has various measures aimed at protecting the consumer, for example Sections 11, 19 and 21, amongst others. These measures have, over the years, not assisted consumers or credit providers. Section 11 was supposed to afford the consumer 30 days notice of intended action and Section 19 prohibited Section 65 orders for payments by instalments. Before 1980, credit providers made extensive use of Magistrate's court procedures and court rolls were filled to capacity with credit agreement matters. After 1980 credit providers began to make almost exclusive use of recovery agents for the collection of credit agreement debts and the repossession of goods. Such recovery agents are possibly subject to regulation by the Debt Collectors Act, 114 of 1998, but in practice such agents operate extra judicially with little control over their actions. The prohibition of Section 65 financial enquiries and orders in credit agreement matters was a big mistake which should be rectified as soon as possible.

1.5 Two important lessons can be learned from the operation of the present Credit Agreements Act:

The enormous advantage of Magistrate's Courts over other courts is that they are situated in almost every town in the country and physically easily accessible to consumers and credit providers. In addition, the infrastructure and skills for handling the huge volumes and types of cases contemplated in the Bill, are already there.

1.6 The National Credit Tribunal, if only very moderately successful, will never be able to handle the volumes. We propose that the creation of a National Credit Tribunal not be proceeded with. It is likely to be a springboard for further litigation to the High Court and the Constitutional Courts.

2. Credit is the only way by which many consumers can acquire an asset

2.1 There are two very real advantages to consumers who enter into an credit agreement. First, the consumer has the benefit of immediate use of the goods or services. Second, the consumer, after payment of all instalments, becomes the proud owner of the goods which was bought. There are a number of additional advantages to consumers.

2.2 Sections 79 to 85 inhibit the granting of credit to consumers and require the credit provider to make a judgment on the financial position of the consumer before granting credit. In his own interest, with the aid of credit bureau information and without prompting by any law, credit providers are already making such judgments. But we submit that the requirements of Sections 79 to 85 will inhibit and unnecessarily deny the granting of credit to many consumers who would have complied with their obligations despite an adverse or borderline assessment. This denial of credit will largely affect negatively on those who struggle to make ends meet or have no previous credit record. In addition, the assessment procedure may be humiliating to many consumers who, most of the time, are the best judges of their own finances.

2.3 The solution to "reckless credit" and "over indebtedness" is to be found at financial hearings in terms of Section 65 of the Magistrate's Court Act, and not by tightening credit assessment before an agreement is signed. The test at a Section 65 hearing should be whether the consumer can, whether by instalments, return of the goods, or restructuring, comply with his or her obligations without hardship to his or her family. In making of such orders, the Section 65 courts should be given a very wide discretion.

2.4 In our view any measures that curtail or discourage the granting of credit are wrong in that it is detrimental to the economy, and consumers. Instead of further safeguards and preventative measures at the time when credit is granted, assistance should instead be given to consumers when it appears that they have difficulty in complying with their obligations. This assistance should also not interfere with or have the indirect effect of discouraging the granting of credit. Assistance to customers, in our view, should be effectively given at court level, in other words, it should be easy, quick and inexpensive for any consumer to obtain a hearing in a court of law.

3. Section 83 is inadequate

3.1 Courts are generally loath to make orders which have not been requested in formal written applications or pleadings.

3.2 Consumers are generally unable to draft such applications or pleadings themselves and, in most cases, do not have the means to employ attorneys to do so.

3.3 The words "in any court proceedings in which a credit agreement is being considered" in Section 83 are too wide and will lead to widespread problems. Credit agreements are usually lodged with requests for default judgments in Magistrate's Courts (where most, if not all, such agreements are filed). Such judgments are almost always considered in chambers, based upon documents supplied by the credit provider and without any of the parties being present. No court, including the Magistrate's Court, is geared for an enquiry at this stage. Most magistrates will interpret the word "consider" to mean "investigate" all credit matters which will place an intolerable load on magistrates and practitioners, increasing costs (ultimately for the consumer) and discouraging court proceedings.

3.4 Section 65A (of the Magistrate's Court Act, 32 of 1944) enquiries into the financial situation of debtors offer the best venue for consideration of credit agreements and making orders in regard thereto. Section 65A proceedings are not without shortcomings but are very widely used in every Magistrate's Court in the country. The proposals in S A Law Commission's Report in Project 74 will, if implemented, solve in a practical and cost effective way many of the matters now dealt with in the draft Bill. The proposals of the S A Law Commission have not been enacted.

3.5 A simple and effective solution would be to provide a consumer or his representative with a prescribed form at every Magistrate's Court whereby he of she may require at any time before or after service of summons that a financial enquiry must take place, and at which enquiry the court will have authority to make various orders, assisting the consumer. There is no reason why a consumer cannot take the initiative in applying for a hearing in terms of Section 65 at which hearing the magistrate is tasked with investigating the financial affairs of such person in the presence of creditors or their representatives if they wish to be present. In this regard we refer to our proposals regarding debt counsellors below.

3.6 It is imperative that credit providers should be encouraged to make use of court procedures rather than employing agents who act extra judicially. The court will always provide a balanced judgment on the interests of the parties even where the consumer is absent. In this regard, as will more fully appear later, we are severely critical of the provisions of the Sections 129 to 133 which will discourage debt providers from making use of court procedures. The solution to the problem of assisting the consumer is to make it very easy, simple, quick and inexpensive for the credit provider to bring a matter (and the consumer) before court. Sections 83, 129 to 133 prevent access to justice instead of promoting it.

3.7 A further flaw in the Bill is the failure to grant rights to employers to act on behalf of consumers in their employ. In many instances it is the employer of the unsophisticated consumer who sees the need for court assistance, where, for instance, the existence of a number of emolument attachment orders reduces the net income of the consumer to a very low level. In such cases the law must allow the employer to request a hearing in his or its own name on behalf of the consumer.

3.8 The Bill is further defective in that the position of a surety is not addressed. The surety is also a consumer in a wider sense and, in many instances, assists in payment (and sometimes also has the use) of goods and services. One can think of the many pensioners, pledging their pension capital, who have signed as sureties for their consumer children. If the law protects the children, it should also protect the parents.

3.9 For example, we would like to see a procedure whereby a consumer who are unable to meet his or her obligations, may, before returning the goods to the credit provider, give two (or less) weeks notice of a Section 65 financial enquiry to the credit provider asking for an order for reduced instalments while still keeping possession and use of the goods.

4. Debt counsellors must be registered as such in terms of Section 44

4.1 No person may offer or engage in the services of a debt counsellor unless registered. Attorneys act in various capacities, including court actions, on behalf of debtors and are able to do so because of training and experience. A quick look at the advertising columns of newspapers will show the large number of attorneys advertising for debtor clients. These debtor clients are helped by attorneys in court applications and hearings, Section 74 administration orders, debt restructuring, "name clearing" at credit bureau's and many other tasks. If it is the intention of the Bill that attorneys should also register as debt counsellors, we strongly object to such a requirement. Attorneys should also be exempt from the prohibition contained in Section 44.

4.2 We believe that there is a place for the services of debt counsellors provided that they are state officials who have offices in Magistrate's Courts. Their duties should be limited to advising consumers and helping them arrange for financial hearings in terms of Section 65. A debt counsellor could typically act in two capacities, as clerk of the court and as debt counsellor.

4.3 If there is a debt counsellor at every Magistrate's Court, whether part time or full time, it will promote access to justice for thousands of consumers who would otherwise not have been able to afford the services of an attorney.

4.4 Section 86 should be deleted. Attorneys routinely act on behalf of consumers in a similar manner as described in this Section. The debt counsellors envisaged by the Bill will in fact be acting as attorneys without being admitted as attorneys and without being subject to the stringent requirements (such as conflict of interest in not being able to act for the consumer and credit provider in the same matter at the same time) of the Attorneys' Act, the various Law Societies and their rules. In addition, the debt counsellor's office can never be a viable economic profession except, possibly, in the large cities. Attorneys, on the other hand, are found in every city and town of substance in South Africa.

5. Are advocates, doctors and attorneys debt providers?

5.1 "Agreement" is defined in Section 1 as including "an arrangement or understanding" which means that such an agreement is not necessarily a written or signed document.

5.2 "Credit" is defined in Section 1, amongst others, as "a deferral of payment of money owed to a person". In other words, a debt that is now due, but will only be payable at a future date.

5.3 The terms "credit agreement" and "credit facility" are described in Section 8. A credit agreement is "credit facility" if a "credit provider" undertakes to supply goods or services and defers the obligation to pay for such services or goods, or Bills the consumer periodically for such services or goods, and a charge, fee or interest is payable to the credit provider in respect of such agreement, the amount deferred or Billed but unpaid within the period provided for in the agreement. In terms of the common law, if a payment is due to be paid on a certain future date, and it is not paid, interest will run on the overdue payment at the mora rate prescribed in the Prescribed Rate of Interest Act, 55 of 1975. This brings an attorney, doctor and others within the ambit of a credit facility in Section 8(3).

5.4 Subject to the credit grantor being a "credit provider" (Section 40) , the above will include the services routinely rendered by, for example, doctors, advocates, attorneys, auditors and many other professional and technical people. The professions and small business send thousands of accounts every month to customers for professional services rendered, maintenance done, security services rendered and the like.

5.5 A person must register as a credit provider in terms of Section 40, if he or she is the credit provider under at least 100 credit agreements. The provision in the Section relating to outstanding accounts will not be applicable as these types of accounts do not constitute "outstanding accounts" as defined. A majority of attorney firms have more than a 100 clients who owe them money. There are more than 4000 small single practitioner firms of attorneys who will have to register as credit providers. It is not uncommon to find in 300 or more pending matters in a single attorney's practice handling MVA claims. Similarly most doctors and audit firms have more than 100 patients and clients.

5.6 If it is the intention that professional or technical "credit providers" who render services on a "open account" basis should register as credit providers and comply with provisions of this Bill, we strongly object to such a requirement as there is no need for such registration. If it is not the intention, we submit that these professions should be expressly excluded from the operation of the Bill. Even if there is a remote possibility that a court may find a professional person to be credit provider, the Bill should be clarified in this regard.

6. Credit Bureaux are necessary

6.1 Information obtained from a credit bureau by an attorney acting for a creditor, is vitally important for the purpose of deciding whether to take legal court action against a debtor. If a debtor is not listed (when his records have been expunged – Section 71), he is more likely to be summonsed than not. Where it appears that other creditors have taken legal court action against the debtor, an attorney will often decide not to proceed with any further action, deeming it unlikely that such action will succeed.

6.2 In addition, telephone numbers and addresses supplied by credit bureaux are often instrumental in avoiding expensive legal costs (which have to be paid by the consumer). A telephone call to a debtor is often sufficient encouragement to a debtor to make an offer to pay the debt. We submit that information supplied by credit bureaux play an important role:

6.3 There are "creditors" who misuse credit bureaux. They list consumers as "bad payers" where genuine disputes exist.

7. Re-arranging the consumer's obligations

7.1 We fully support the principle of restructuring or rearrangement of a consumer's obligations proposed in Section 87 and 88, but we differ in the way the restructuring should be achieved. Section 65C of the Magistrate's Court has a rudimentary procedure to hear two or more matters at one time. Implicit in this Section is a court order whereby the amount which the debtor is able to pay, is distributed amongst creditors pro rata in accordance with the size of the debt owed to each creditor. The S A Law Commission in its proposals in Project 74, made recommendations regarding changes to Section 65 to provide for a more efficient way of dealing with payments to multiple creditors.

7.2 We propose that the reference to debt counsellors be deleted from Sections 87 and 88 and in stead, that the procedure proposed by the S A Law Commission should be implemented. This would mean that as soon as it appears that there is more than one credit provider, the court may, mero motu or on request by the consumer or creditor or employer of the consumer, arrange for a hearing where all creditors are invited and represented.

7.3 In addition, where it appears that a consumer is able to pay without undue hardship a lesser amount than the payment agreed in the credit agreement, the court must have the power to reduce such payments and order the goods to remain in the possession of the consumer for his or her use.

7.4 In certain aspects the above procedure would be similar to Section 74 administration hearings and orders. (See the report by Professor André Borraine of the University of Pretoria relating to Section 74 Administration orders). It is also important to note that oral evidence of the financial situation of the consumer will necessary and that the Section 65 court is well geared for hearing such evidence.

7.5 The Law Society proposes that instead of creating new court procedures, the existing Section 65 procedures should be amended and the court empowered to give the order for rearrangement as contemplated. We further propose that the consumer or his employer, or even a surety, be given the right to convene a meeting (or more than one meeting) of creditors in a Section 65 hearing in a Magistrate's Court at any time with the aim to restructure, review or reduce his or her payments. Such procedure can be easily implemented by having a notice form available at every Magistrate's Court where, with the aid of the clerk of the court (or debt counsellor), a notice specifying the date and time of the hearing is given to every creditor or his attorney and such notice, in case of most notices, will be filed in the pigeon-hole which every attorney has at the Magistrate's Court in his or her district.

8. The amount owing by the consumer is not easily determinable

8.1 Sections 110 to 115 are unsatisfactory. The following problems exist in our view:

* Referring a dispute or even a query to a Tribunal is inappropriate. Distance from the seat of the Tribunal will be a problem. Communication on paper is always a problem for a consumer and should preferably be solved by personal explanation and debate.

* A statement of account usually contains many items and courts (and probably also the Tribunal) will be unwilling to get involved in the calculations of and decisions on many items. Taxing masters and cost committees of Law Societies are much better qualified to determine amounts owing except where it involves a principle of law.

* Expense and speed is again of importance. Obviously interest will run on overdue amounts to the detriment of debtor if the dispute or query is not quickly solved. The creditor has a similar interest in having the matter quickly settled. It is unlikely that the Tribunal as envisaged will be able to maintain speedy solutions in the long run.

8.2 We propose that:-

8.3 The first and last solutions are likely to work effectively, not least because these hearings can "bring justice to the people" and function in almost any town. Taxing masters, however, are already overloaded and the Department of Justice is likely to object to taxing masters being used for this purpose.

The S A Law Commission in its proposals in Project 74, made certain proposals for the calculation of an amount still owing by a debtor in any debt situation. These proposals have not been enacted and we propose that they should be considered at this point for incorporation in this Bill.

9. Debt enforcement is too complicated, time consuming and expensive

9.1 If the present proposals in Sections 126, 127, 129, 130, 131,132 are enacted they are unlikely to be used by credit providers or consumers.

Credit providers will simply instruct recovery agents to visit consumers, persuade them to sign a written voluntary surrender of the goods in terms of Section 127(2), in which document the credit provider is instructed to sell the goods. In 90% of matters, the sale of the goods will be the end of any claims. This is the situation in the present Credit Agreements Act.

To ensure that credit providers and consumers use court procedures and fairness is maintained between the parties, the process will have to be simplified materially. Either the credit provider or the consumer must be able to obtain a court hearing within a short space of time.

9.2 Opportunities for varied interpretations of the abovementioned quoted Sections abound. The Sections mention a number of notices. The question as to how these notices must be served, e.g. ordinary post, registered post, by sheriff (very expensive) will be the subject of much litigation. The words "approach the court" used in a number of Sections will also be the subject of much dispute. A Magistrate's Court, being a creature of statute, knows only two types of procedures, applications and actions. Jurisdiction in respect of applications is severely limited (Sections 30 and 46) despite the Amendment of Laws in Schedule 2 of the Bill. Jurisdiction in respect of district will be further problem in that credit providers will raise jurisdiction as a defence where the credit provider's head office is not within the district.

9.3 We propose that there should be a simple letter of demand, delivered (by hand or sheriff) or posted to the consumer at his or her last known address, demanding payment of arrears or the balance, within ten days, after which the credit provider may commence legal proceedings, applying for an order to repossess the goods (if any), and, if he so chooses, a summons claiming the balance of the debt less the proceeds of a sale of the goods. We again refer to the proposals of the S A Law Commission’s Project 74.

In addition, if the debtor arranges for instalments or lesser instalments (whether he or she keeps the goods or not) at any point during the legal process, an easy and speedy mechanism for determining and fixing the balance owing and legal costs (if any) from time to time should be introduced.

9.4 The court, in hearing the matter, should have a wide discretion of orders, among them:

* ordering an emoluments attachment order,

* postponing the hearing for further evidence,

* rescinding a part or the whole of any judgment which have been given.

On behalf of the LSNP and the LSSA

15 August 2005