It has become much more difficult to sue consumers in bankruptcy

One of the most shocking legal abuses in the country is the practice of suing consumers in high courts for the recovery of outstanding loans. Customers are sued by banks in these courts for amounts of arrears as low as R6,000, and High Court judges have complained long and loudly about the unnecessary traffic this brings them.

It’s not so much the loan arrears that kill you, it’s the legal bill.

The National Credit Act (NCA) requires disputes over credit agreements to be brought in magistrates’ courts, where deductible court costs are only a fraction of those in high courts. The editors of the NCA did this to make justice accessible and affordable to all.

But this does not happen in practice. Banks and their lawyers take cases that rightly belong from the magistrates’ courts to the High Court where they can bundle obscene legal charges on consumers’ accounts.

The high courts are where the money’s gotta be made

There’s just no money for lawyers fighting in the magistrates’ courts, so they use every trick in the book to make sure their cases make it to the high court. Most of the time they seem to get away with it, and some judges seem oddly more inclined to play with this than others.

Moneyweb is in possession of information on a case, where a consumer was bundled up by the bank with a legal bill of R180,000, all on the collection of arrears of around R20,000 (and even that is in dispute ). The legal bill is nine times greater than the arrears claimed, but that’s a story for another day. If this case had gone to the magistrates’ court instead of the high court, the legal bill would have been less than R15,000.

Consumer activists have argued for years that the practice of high court litigation violates constitutional rights of access to justice and that the intention is to put consumers out of business through litigation.

It will now become much more difficult.

A sharp-eyed High Court clerk in the Western Cape recently cornered Standard Bank after suing six customers for the collection of car loans. The Registrar noted that in all six cases, Standard Bank’s own agreements specified that the magistrates’ court had jurisdiction in the event of a dispute and remanded the case for a public hearing.

Acting Judge Thulare of the Western Cape High Court agreed and transferred the cases to the magistrates’ courts, where they should have been in the first place. “The parties have agreed to protect the defendant against the unnecessary use of the most expensive forum (court), that is, the difficulty of being subjected to unnecessary and costly procedures often far from the city”, reads -on in the report. judgement.

Stephan van der Merwe, senior counsel at the University of Stellenbosch Legal Clinic, says this is a major victory for consumers: “It is heartening to see that the Registrar has refused to automatically approve a judgment by default. [where the consumer puts up no defence] without applying [their] attention to the question, as has so often been the case in the past. One of the main reasons we’ve seen such endemic debtor and consumer abuse in this country is because unscrupulous creditors exploit the good nature – or lack of legal knowledge – of clerks and court clerks to get these judgments without any real scrutiny on the merits or for any due process.

This is not the first time that banks have had to be reminded at which table they can eat.

Given the choice between KFC and Tasha’s, they consistently chose Tasha’s, leaving the consumer to foot the bill. Van der Merwe says Thulare’s latest ruling follows a similar 2019 ruling by the Eastern Cape High Court in the case of Nedbank v Gqirana, which determined that “the magistrates’ courts will be the trial court of all NCA cases excluding the High Court”. as a court of first instance, except where unusual or extraordinary factual or legal questions arise which, in the opinion of the High Court, warrant that they be heard in the first place in the High Court”.

Breach

But in the Western Cape High Court judgment last month, Standard Bank was found to be in breach of its own written agreements by choosing to take the cases to the High Court, let alone the NCA.

Consumer and legal activist Leonard Benjamin says there remains considerable confusion about which court has jurisdiction in credit contract disputes, but that this “confusion” is being deliberately propagated by banks. In truth, the law is very clear, he says.

Lily: Gone are the days of banks suing you

“Essentially, section 29 of the NCA provides that a magistrate’s court has jurisdiction over any matter involving the performance of a credit agreement. It doesn’t matter how much you claim,” says Benjamin.

“The mere fact that it is a credit agreement means that it must be heard in the criminal court. In other words, even a credit agreement in which the remaining amount claimed is R10 million can be heard in the Magistrate’s Court. The so-called “Magistrates’ Court Jurisdiction Consent Clause” is a throwback to pre-NCA times, when the clause was actually required. In a credit agreement, this is simply superfluous.

Logic

“In my view, the agreement is about the forum to be used by the parties. This is similar to an arbitration clause in an agreement. If one of the parties files a lawsuit instead of submitting the case to arbitration, the other party to the agreement can legitimately ask the court to order that the case be resolved by arbitration”, explains Benjamin.

“This approach recognizes that the parties must be bound by their contracts, which is exactly what the judge did in this case.”

The competent court in matters of credit agreements is not an easy task.

Tens of thousands of homes and vehicles have been seized since 2008, as the exorbitant costs associated with litigation in high courts have deterred consumers from objecting.

It turns out that these cases shouldn’t have gone to the high courts in the first place. This has made it unaffordable for consumers to dispute issues, especially when relatively small amounts of arrears form the basis of the claim.

Van der Merwe says this latest ruling is another victory for consumers, even if it begs the understanding that disputes over court jurisdiction need to be fought.

The Law Clinic at the University of Stellenbosch has successfully taken several legal actions on behalf of consumers and in December 2019 won a landmark case in the Western Cape High Court that prevents credit providers from illegally charging accounts consumers with interest and other charges. The case also provides legal certainty as to the permissible charges.

The next time you are summoned to a high court for a credit agreement, show this decision to the judge. It might just save your bacon.

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