Post Office mix-up may change debt rules
Johannesburg - A mix-up at the Post Office might change the way banks and other companies foreclose on people heavily in debt, following a Constitutional Court hearing in Johannesburg on Tuesday.
The case centres on a notice Standard Bank said it sent to Mashilo and Nombeko Sebola. Due to a "mistake" at the Post Office, it was sent to the wrong place and they did not receive the letter.
As a result, they did not contact the bank about the legally required debt resolution proposals that banks, and other credit providers, have to send to a customer.
This gave the bank the right to get a default order against them, which meant they would lose their property, for defaulting on their bond of just over R1 million.
They applied to the High Court in Johannesburg for the judgment to be rescinded, saying they had not receive the notice or the summons from the deputy sheriff informing them of court action. The deputy sheriff did not file an affidavit disputing their claim.
According to the bank's papers, it did not take action against the couple for a year, and they had that year to take steps to rectify their situation, but did not.
The court heard that in terms of section 129(a) of the National Credit Act, the required procedure before debt enforcement is, if a consumer is in default for 20 days, to "draw the default to the notice of the consumer in writing".
The bank must propose that the consumer refer the credit agreement to a debt counsellor, alternative to a dispute resolution agent, consumer court or ombud with jurisdiction for a chance to resolve the dispute or develop and agree on a plan to bring payments up to date.
Matthew Chaskalson, for the National Credit Regulator, said the success rate with this process was high although many people did not know they had this right.
He said the poor stood to lose the most in terms of executions.
In the first nine months of 2011, 77% of the credit provided was to people who earned less than R10 000 a month.
They were less likely to receive a notice of execution because of service delivery issues.
The court also heard that the Post Office could not be seen as an agent for debt collection.
If nothing is done within 10 days of the proposals being sent, the credit provider can take action.
The bank believes that the act does not require it to make sure the recipient receives the notice, and that it has to prove only that the notice was sent.
Hundreds of thousands of these notices were sent in bulk and there was an assumption that in 99% of cases, the Post Office would do its job, the bank's counsel Chris Loxton said.
"The question is then, who bears the risk?" Loxton asked.
To make sure the recipient got the notice would be onerous and expensive and could actually raise the cost of credit and lessen the chance of poorer people getting access to loans.
The bank believes the act actually impedes credit providers.
Friend of the court, the Socio-Economic Rights Institute of SA (Seri), believes this approach is unconstitutional because it infringes on people's rights to fair procedure and to not be arbitrarily deprived of their homes.
Seri proposed that the court amend section 129(1) of the act to require that the notice issued in its terms "comes to the attention of the consumer".
It submitted that in cases where the customer did not receive the notice, another 10 days be allowed for the consumer to exercise his or her options.
Justice Edwin Cameron wanted to know what the risk would be to the credit market, which was "worth trillions", if banks could not exercise their rights.
His colleagues on the bench wanted to know how consumers and credit providers would be protected if the consumer did not respond because of circumstances.
"I am not going to open this thing because the bank is probably after me," suggested Judge Johan van der Westhuizen as a possible response by a consumer.
"Or, I have taken refuge in alcohol because my position is too bad," suggested Judge Zac Yacoob.
Other scenarios included the notice being thrown away by someone else.
"Or a consumer who can't see," continued Yacoob, who is blind.
Judgment was reserved.