Two recent ‘landmark’ rulings have put a stop to practices that could add to your distress when you default on your repayments. One protects the debtor from excessive charges – especially legal fees – when you default; and the other stops creditors from taking legal action in the High Court instead of a Magistrate's Court, says financial journalist Angelique Ardé, in an analysis in Business Times.

Late last year, in University of Stellenbosch Law Clinic and Others v National Credit Regulator and Others, Western Cape High Court Acting Judge Bryan Hack handed down a declaratory order that ‘collection costs’ – as defined by the National Credit Act (NCA) – include all legal fees incurred by a credit provider before, during and after litigation against the debtor.

Furthermore, these costs cannot be passed on to the debtor unless they have been checked by the court or agreed to by the debtor.

The judgment, says Ardé, will have a significant impact on debtors, especially those paying their debts by emoluments attachment or ‘garnishee orders’.

She notes that Bayport – a respondent in the case – has applied to the court for leave to appeal against aspects of the judgment relating to statutory in duplum rule.

But Clark Gardner, CEO of Summit Financial Partners – an applicant – believes Bayport's appeal concerns only parts of the judgment, so the ruling is still useful to debtors seeking refunds on legal fees that were not taxed.

‘The judgment still forms a valid defence as to why garnishee orders should be stopped once interest and fees match the principal amount at the time of default. It is estimated that at least 50% of current garnishee deductions should be stopped immediately on this basis,’ Gardner said.

The second ruling – made by Eastern Cape High Court (Makhanda) Judge Murray Lowe in Nedbank Ltd v Gqirana NO and Another (which was combined with six other cases) – placed the onus on creditors to use the Magistrate's Court as the court of first adjudication of all NCA matters – and only in exceptional instances referring matters to the High Court.

At the crux of the judgment, says Ardé, is the obligation on financial institutions to consider the cost implications and the access financially distressed people have to justice when a court is considered.

Lowe ruled that provisions of the Magistrates' Court Act – read with sections of the NCA – provide that the Magistrate's Courts have jurisdiction over all NCA matters, whatever the monetary sum.

The banks justified their choice of the High Courts, claiming they were quick and efficient and this limits the costs, achieves more reliable decisions and that defendants usually do not oppose such cases.

But the judge said the fact that debtors do not oppose the cases against them does not relieve either the parties or the court of their obligations to protect their constitutional rights.

The judge said that civil actions or applications arising within the ambit of the NCA – and thus falling within the Magistrate’s Courts’ jurisdiction – should be instituted in the Magistrate's Court.

Full analysis in Business Times

University of Stellenbosch Law Clinic and Others v National Credit Regulator and Others

Nedbank Ltd v Gqirana NO and Another; First Rand Bank Ltd v Cornellisson and Another; Standard Bank of SA Ltd v Msutu and Another; Nedbank Ltd v Gcina; Firstrand Bank Ltd t/a Wesbank v Twynham; FFS Finance SA (Pty) Ltd t/a Ford Credit v Jabanga; FFS Finance SA (Pty) Ltd t/a Ford Credit v Rolomane