There have been two important case law developments under the National Credit Act, 2005 (NCA). We set these out below:
Capitec Bank Limited v Mahlangu and Another (A16/2020) [2021] ZAMPHC 28 (25 October 2021)
This decision is an appeal against the judgment of a Magistrate's Court. The magistrate found that the credit agreement between Capitec and Mr Mahlangu was reckless in terms of section 81 of the NCA. Capitec applied to the Mpumalanga Division of the High Court (the Court) for an order setting aside the decision of the magistrate.
The case provides guidance on a credit provider's obligation pursuant to section 81 of the NCA to assess a consumer's ability to afford credit, as well as clarification on the application of a credit provider's defence in section 81(4).
On the obligation of a credit provider to assess a consumer's ability to afford the proposed loan, the Court held that where a consumer discloses a source of household income as part of its affordability assessment, a credit provider should include in its calculation an assessment of the household income. In particular, there should be an inquiry into:
- proof of the household income;
- the relation between the consumer and the contributor of the household income; and
- the household’s living expenses which would be impacted by the household income.
It is not enough for a credit provider to rely on a consumer's individual stated income if a consumer has indicated that there is household income.
Regarding the application of section 81(4) of the NCA, which provides a complete defence to an allegation that a credit agreement was reckless if the consumer failed to fully and truthfully answer any request for information by the credit provider as part of the assessment, the Court held that, for a credit provider to be able to rely on this defence, there has to be a finding that the consumer failed to answer questions fully or truthfully. Without that, the defence does not arise. The section 81(4) defence does not extinguish a credit provider's obligation to assess a consumer's financial means. An interpretation which allowed the defence to take away the credit provider's obligation to assess a consumer's financial means would negate the purpose of the NCA.
The facts were as follows. Capitec and Mr Mahlangu entered into a credit agreement in May 2013. The credit agreement was for ZAR 98 728.34 and a period of 64 months, with a monthly instalment amount of ZAR 2 782.39. According to the affordability calculation done by Capitec preceding the signing of the loan agreement, Mr Mahlangu's salary was ZAR 8 111.00 and his household income was ZAR 5 000.00. Mr Mahlangu's disposable income was determined to be ZAR 5 656.58 and the combined household’s disposable income was ZAR 6 574.00 after all calculations were done. The loan was approved based on Mr Mahlangu's disposable income of ZAR 5 565.58, the lesser of the two amounts. Capitec did not ask Mr Mahlangu for any documentary proof of the household income of ZAR 5 000.00.
Mr Mahlangu approached a debt counsellor in 2018 to investigate his over-indebtedness. In August 2018, the debt counsellor sent notices to all Mr Mahlangu's creditors, as envisaged in section 86(4) of the NCA, and requested copies of all the documents relied upon in granting credit to Mr Mahlangu. Capitec (being the appellant in the present case) had not provided the debt counsellor with any documents when the debt review application was launched in April 2019. Without having reference to the outstanding documents, the debt counsellor proceeded to make a preliminary finding that the credit agreement entered into between Mr Mahlangu and Capitec was reckless. The debt counsellor only had sight of the documents she had requested in terms of section 86(4) in July 2019, when Capitec filed its answering affidavit in the Magistrate's Court. Capitec provided no explanation for its failure to comply with the debt counsellor's previous request for the documents.
Relying on sections 81 and 78(3) of the NCA and Regulation 23A of the Affordability Assessment Regulations, the magistrate held that Capitec was obliged to include in its calculation any other adult person within Mr Mahlangu's immediate family or household, to the extent that Mr Mahlangu or Mr Mahlangu and that other person customarily: (i) share their respective financial means and (ii) mutually bear the respective financial obligations.
Capitec argued that it had used the client-level calculation rather than the house-level calculation when deciding to grant credit to Mr Mahlangu. In light of this, it contended that it was not necessary to obtain any proof of household income because the credit was approved based on the individual-level and not the household-level. For this reason, it was argued that there was no need to assess the household affordability or require proof of household income. Capitec argued that the magistrate erred in finding that Capitec was obliged to do a household income assessment in calculating Mr Mahlangu's ability to afford the loan, as Mr Mahlangu had qualified for the loan based on an assessment of his own individual income. In addition, Capitec argued that the magistrate erred in relying on the Affordability Assessment Regulations, as they were not in effect at the time the credit agreement was entered into. Capitec further sought to rely on the complete defence found in section 81(4) of the NCA.
The Court found that the debt counsellor could not have accessed the documents requested under section 86(4) unless Capitec provided them. In terms of section 86(5) of the NCA, Capitec had a statutory obligation "to comply with any reasonable requests by the debt counsellor". Although Capitec argued that there was no sanction provided for in the NCA for failing to co-operate with a debt counsellor's requests, the Court rejected this argument. It found that if credit providers were allowed to ignore requests made by debt counsellors in terms of the NCA and were excused from providing an explanation for their failure to co-operate, this would defeat the purpose and scope of the NCA.
The Court held that the powers of a court to declare a consumer over-indebted and to make consequential orders under the NCA are only triggered by a finding by that court that a credit agreement was reckless. The Court noted that Capitec's challenge in the present matter was aimed at the process through which the outcome was triggered and not the determination of recklessness. Capitec was not challenging the decision that Mr Mahlangu was over-indebted.
The Court accepted that the Affordability Assessment Regulations were not in effect when the credit agreement was entered into. However, it found that the magistrate's judgment was correct based on the NCA itself and an application of the existing case law principles.
The main issue in dispute was whether the credit provider had an obligation to assess and investigate the consumer's disclosure that there was household income. The Court held that Capitec did have this obligation. The Court noted that the Magistrate’s Court did not find that Mr Mahlangu had failed to answer questions fully or truthfully. Without such a finding, the defence in section 81(4) does not arise. Capitec's duty to properly assess the consumer's financial means exists irrespective of whether a consumer answered any questions fully or truthfully.
The appeal was dismissed.
Bayport Securitisation Limited and Another v University of Stellenbosch Law Clinic and Others (507/2020) [2021] ZASCA 156 (4 November 2021)
This decision of the Supreme Court of Appeal (SCA) provides guidance on the approach to be taken in interpreting the provisions of the NCA. It is an example of the SCA's attempt to strike a balance between providing consumers with protection and securing the interests of credit providers under the NCA.
The appeal from a decision of the Western Cape Division of the High Court turns on the question of whether "collection costs", as referred to in section 101(1)(g) read with section 103(5) of the NCA, include all legal costs pre- and post-judgment. The case provides clarity on the difference between collection costs and legal costs under the NCA. The SCA held that collection costs as referred to in section 101(1)(g) do not include legal costs.
The SCA concluded that a finding that collection costs included legal costs would oust or severely fetter the discretion of a court to make court orders, including sometimes-necessary punitive costs orders. The SCA rejected the interpretation of the NCA which placed a maximum limit on legal costs as this would 'lead to some glaring absurdities'.
The SCA noted that if the intention was for legal costs to be included in the definition of collection costs, then the legislature would have made it clear in the text of the statute when the NCA was enacted. Attention must be paid to the language in the statute. In this regard the SCA followed the approach enunciated by the Constitutional Court in S v Zuma [1995] (2) SA 642 (CC) at paragraph 18: 'If the language used by the lawgiver is ignored in favour of a general resort to "values" the result is not interpretation but divination'.
The Court relied on well-established precedents, in particular that of Innes CJ in
D & D H Fraser Ltd v Waller 1916 AD 494, which draws a distinction between collection costs and litigation costs. The SCA did not agree with the lower court's reasoning that the precedents were not relevant because they predated the Constitution.
The SCA reiterated that collection costs are distinguishable from litigation costs as the two types of costs relate to two different processes. "The assistance of the Court is invoked after the collector has failed". The SCA noted that the distinction between collection costs and legal costs is made clearer in that legal costs are subject to prescribed maximum tariffs as set out in the Superior Courts Act, 2013, the Magistrates' Court Act, 1944 or the Debt Collectors Act, 1998. Simply put: "Legal costs are regarded as commencing with the summons and do not as general rule allow for pre-litigation costs to be recovered from the losing litigant."
The SCA rejected the High Court's conclusion that section 103(5) of the NCA continues post-judgment to the cost of credit referred to in section 101(1)(b)-(g) of the NCA. Section 103(5) does not apply to the costs of credit referred to in section 101(1)(b)-(g) after judgment has been granted.
Section 101(1)(g) of the NCA states that a credit agreement must not require payment by the consumer of any money or other consideration, except collection costs, which may not exceed the prescribed maximum for the category of credit agreement concerned. They may be imposed only to the extent permitted by Part C of Chapter 6 of the NCA which deals with collection, repayment, surrender and debt enforcement.
Section 103(5) of the NCA provides for a statutory limitation on the escalation of costs under the NCA. Section 103(5) states that, despite any provision of the common law or a credit agreement to the contrary, the amounts contemplated in section 101(1)(b) to (g) that accrue during the time that a consumer is in default under the credit agreement may not, in aggregate, exceed the unpaid balance of the principal debt under that credit agreement at the time that the default occurs.
Section 103(5) provides that the aggregate interest, fees and charges (including collection costs) referred to in section 101(1)(b)-(g), which accrue during the time that the consumer is in default, may not exceed the unpaid balance of the principal debt at the time of the default.
In particular, the SCA found that after a judgment has been granted against a consumer, only interest accrues on the judgment debt (except for necessary disbursements and charges allowed in terms of the relevant tariff). That is: "The judgment entered is thus for the capital sum fixed at a particular date together with interest". The SCA found that the remaining charges contemplated in section 101(1)(b)-(g) are not post-judgment charges.
The appeal was upheld and the order of the High Court was set aside.
