Access to credit enables people to spend money that they don't have right now. Which can be very useful if applied and managed responsibly. However, sooner rather than later the use of credit coupled with poor planning or the lack of proper budgeting or money management skills can throw debtors into a situation of over-indebtedness. Where they are unable upkeep payments in terms of credit agreements entered into. 

So, what do you do when you receive a summons in the mail or otherwise and the threat of a permanent judgment is suddenly hanging over your head, while you were genuinely unaware thereof that you are a payment or instalment behind?

In South Africa we have legislation protecting the rights of consumers in these instances.  The National Credit Act 35 of 2005 as amended (hereafter “the Act”) was specifically enacted to protect the consumer against unscrupulous credit providers and “loan sharks”.  It applies to all credit agreements entered into between parties in South Africa or that will have an effect in South Africa and furthermore applies to all natural persons and some juristic persons (in particular smaller juristic persons as measure by turnover).

The purpose of the Act is to promote fair and non-discriminatory access to consumer credit but also to regulate credit and provide for debt re-organization in case of over-indebtedness by a consumer.

The Act lists a number of consumer rights which are protected, for example the consumer has the right:
• To apply for credit
• To be protected against discrimination in the granting of credit
• To be informed why credit has not been granted, should you ask
• To receive a free copy of your credit agreement
• To receive a credit agreement in plain and simple language
• To have your personal and financial information treated confidential
• To understand all fees, costs, interest rates, the total instalment and any other details
• To say no to increases on your credit limit
• To decide whether or not you want to be informed about products or services via telephone, SMS, mail or e-mail campaigns
• To apply for debt counselling should you be overwhelmed by debt

The example of receiving a summons might more often than not affect a consumer in the normal course of applying for, obtaining and maintaining credit.  A credit provider indeed has the right to proceed with legal action and issue a summons against a consumer if such a consumer has defaulted on the credit agreement entered into between the parties.  However, the consumer has the right to receive a written notice when defaulting on a payment before this step is taken.  This right does not automatically fall away when the consumer defaults on a credit agreement and is enforced strictly by the Act and our courts.

In terms of Section 129 of the Act, this notice serves to warn the consumer of oncoming litigation and a possible judgment being taken against them.  This notice should assist the consumer in planning a way forward and also allows them to remedy the default in a timely manner to avoid further legal steps which are expensive, time consuming and ultimately extremely stressful for the consumer. 

In terms of the Act, a Section 129 notice must always precede any litigation involving the enforcement of a credit agreement.  This means that a credit provider cannot simply issue a summons when the consumer defaults or even attach the notice to the summons, as this would defeat the purpose for which the notice is sent to the consumer.  This position was also held by the Court in the cases of ABSA Bank Ltd v Mkhize and Another, ABSA Bank Ltd v Chetty and ABSA Bank Ltd v Mlipha (heard concurrently by the said Court) and the request for default judgment was postponed for the credit provider to send a new Section 129 notice to the consumer.

A typical Section 129 notice should notify the consumer that he or she is in default with obligations under the credit agreement and should propose that the consumer refer the credit agreement to a debt counsellor, alternative dispute resolution agent, consumer court or ombud with jurisdiction.  The intention hereof, is for the parties to try to resolve any dispute under the credit agreement or to develop and agree on a payment plan to bring the payments or installments up to date without incurring any further unnecessary and expensive legal costs.

In the case of Sebola and Another v Standard Bank of South Africa Ltd and Another the Constitutional Court held that the construction of Section 129(1)(a), which entails that the credit provider must make the consumer aware of the default and of the proposal contemplated in Section 129(1)(a), accords with the language of the provision, is fair, gives effect to the purpose of Section 129 and gives appropriate weight to the Legislature’s intention to make cancellation and judicial enforcement of credit agreements measures of last resort that must be resorted to when the dispute resolution mechanisms prescribed by the Act have been exhausted and the consumer has been afforded an opportunity to avoid such steps.

Despite the fact that the consumer has these rights under the Act, it remains important to always remember that if you are indeed in default, a failure by the credit provider to give you this notice does not extinguish their ultimate claim against you or excuse the default in any way.  It will merely delay the enforcement of their rights under the credit agreement against you and it would be wise to rather act fast and efficiently to remedy your breach as soon as you receive a Section 129 notice, as the next step will be a summons and may possibly end in a permanent judgment against your name. 

To help enforce your rights as either a credit provider or a consumer in this instance, it would be ideal to approach an attorney for assistance to ensure that you are and duly remain within the ambit of the law.

Written by Arinda Truter, Junior Associate LLB (US), Schoeman Law