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The Western Cape High Court last week delivered an important judgment that reaffirms the rights of borrowers who have fallen...
The Western Cape High Court last week delivered an important judgment that reaffirms the rights of borrowers who have fallen into arrears.
It is not up to the bank to dictate the terms to a customer attempting to make good on any arrears. This has to be a negotiated agreement between the parties, says the court.
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The defendant in the case, CP van der Merwe, bought a 2015 Ford Ranger but by December 2022 had allegedly fallen into arrears to the tune of R112 888.
The lender, FFS Finance, trading as Ford Credit, issued a Section 129 notice as required under the National Credit Act (NCA) notifying Van der Merwe of the arrears and remedies available to him.
It then attempted to cancel the loan agreement and reclaim the vehicle.
FFS claimed that it had complied with the provisions of the NCA and had proposed a number of alternative dispute resolution options.
Finance manager Kyle Vilakazi told Van der Merwe he had to pay 50% of the arrears immediately and the remaining arrears over three months. Van der Merwe was unable to meet these requirements, though he was willing to come to some arrangement to catch up on the arrears. FFS nevertheless cancelled the loan agreement.
‘Our way or the highway’
“In the matter before me, [FFS’s] attitude was preference to only one payment arrangement option, which was its own proposal,” ruled Judge Daniel Thulare of the Western Cape High Court, noting that FFS acknowledged that Van der Merwe had made a proposal of his own, but exactly what this was remained a mystery to the court.
FFS admitted that Van der Merwe had contacted it to make arrangements to catch up on the arrears.
“This is not the conduct of a respondent who has a hostile mindset towards his obligations in terms of the contract,” said Thulare.
“The conduct suggests an appreciation of the problem and a desire to resolve it.”
FFS approached the court seeking a default judgment (where the defendant fails to respond) for the repossession of the Ford Ranger, but the court felt Van der Merwe “may not have been afforded a fair opportunity to regularise the account”.
Purpose of the act
Thulare then explained why the NCA was brought into being: to address and correct the imbalances in negotiating power between consumers and credit providers.
It does not always follow that a demand of 50% of the arrears “is always reasonable and fair to a debtor who is known to have suffered financial distress in the recent past”.
“Such demand appears to have the tendency to negate a genuine attempt made to reach a resolution of the indebtedness without resorting to litigation, as envisaged by the NCA,” reads the judgment.
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Some debtors may not be able to meet strict lump-sum requirements, so arrangements that are tailored to each individual’s capacity to repay should be possible.
Coercion over collaboration
FFS seems to have dug its own grave when it informed the court Van der Merwe was unable to meet its repayment demands.
This, said Thulare, reflected the power imbalance between the parties.
There was no equality of arms, and the demand for 50% immediate repayment of the arrears with the balance over three months “suggests coercion and not collaboration”.
“The failure to indicate the proposal by the debtor, his financial health, and why the proposal did not make business and/or economic sense amounts to simply a pursuit of a dangerous policy to the limits of threatening debtor fairness and protection and is an unfair practice in debt collection,” writes Thulare.
“It excludes meaningful participation by the debtor in the payment arrangement.”
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Creditors are required to engage meaningfully with debtors.
Issuing a Section 129 notice of default as required by the NCA is not a creditor’s ritual.
“It should never be equated to an empty box for a creditor to tick. It confers on a creditor certain responsibilities which are prerequisites central to the decision of the creditor to institute litigation proceedings. The response of a debtor to a Section 129 is not simply a noisy irritation to be endured by a creditor, which a creditor can simply ‘blue tick’.”
FFS’s application to repossess was dismissed.
Says legal consumer advisor Leonard Benjamin: “Receipt of a Section 129 notice is the start of the process, not the end, and consumers must use the opportunity presented by the notice to negotiate with the credit provider to find a way to resolve the matter.
“A plan to catch up payments is only one solution,” he adds.
“Restructuring the loan to avoid the need to catch them up is another. It’s not all about the arrears.”
