The Turmoil: Cost of credit, charges & enforcement

The CheeseIn terms of sections 100 and 101 NCA there are only 3 possible ways to yield a profit on a credit agreement:

Initiation fee maximum set in reg 42(2) AND reg 43(3)

Interest maximum set in reg 42(1)

Service Fees maximum set in reg 44

The Maze

Matter: Relates to:

“Bitline” RATES & FEES

“Barko” EDO COSTS

“Impala Platinum” COLLECTION PROCEDURES (EAO’s)

“Stellenbosch Legal Aid Clinic”

COLLECTION PROCEDURES (EAO’s)

Bitline SA 510 CC t/a Loan Tech Financial Services & 6 others / The National Credit Regulator & 4 others, High Court, GD, Pretoria, 62367/2013

1. Bitline: H/C for declaratory order for:• Regulations to be declared invalid (ultra vires)• Service Fees (reg 44) to be reviewed• Interpretation on how “monthly” service fee may be charged

3. Parties reached a settlement: prosecutions were stayed4. Court Order:

• Service fees must be reviewed within 9 months’ from 4 June 2014: 4 March 2015

• NCR & Minister ordered to pay the applicants’ legal costs

RATES & FEES

RATES & FEES

BITLINE CASE

Legal Opinion:“service fee” means a fee that may be charged periodically by a credit

provider in connection with the routine administration cost of maintaining a credit agreement.” (s1 NCA)

No definition of “month” in NCA

Max Service Fee The maximum monthly service fee, prescribed in terms of section 105(1) of the Act, is R50.00… (reg 44)

Charge R50 for every calendar irrespective of the number of days. Ex: Loan agreement on 17 February 2015, repayment date 3 March 2015 then service fees = R100.

Cheese

RATES & FEES

BITLINE CASE

Impact on industry Cheese?• 4 March 2015

• How must it be reviewed? Ito Reg 45: “…when making a recommendation to the Minister in terms of this regulation, consider:

(a) ruling interest rates and fees;(b) cost of providing such credit;(c) the choice available to consumers in the particular category of credit

agreements between different products and different credit providers; and (d) the impact upon access to finance for persons referred to in section 13(a) of the Act.”

• What has been done so far? No one knows• MFSA: Econometrix Study: September 2014

What the report saysProposes the all max fees be given a one-off boost to compensate for the 7 years’ inflation since 2007 – and then automatic adjusted in the future. This includes the “initiation fee”.

RATES & FEES……. (b) cost of providing such credit;

s105(2): must consider:• The need to make credit available to

persons in s13(1)• Prevailing conditions, including cost of

credit & optimal functioning of market• Impact on low income consumers

S13(1) • Historically

disadvantaged• Low income persons• Remote communities

s3: Purpose of NCA:• Promote credit market and protect

consumers• Balancing of rights• Etc

Barko Financial Services (Pty) Ltd v National Credit Regulator (415/13) [2014] ZASCA 114, 18 September 2014

1. Barko contracted with NuPay: EDO for repayments2. The Court found:

• Barko was passing its liability towards NuPay onto the consumer in conflict with Section 101(1)(c) NCA

• Barko induced the consumer to enter into a supplementary agreement

EDO COSTS

EDO COSTS

BARKO CASE

Impact on industry• Other attorneys: 2 separate & distinct agreements (credit agreement &

agreement between SP and consumer for EDO costs) and consumer not induced – may still hold consumer liable for EDO transaction costs.

Legal Opinion:Interpretation / construction of judgment in Barko

AD 16: “The simple expedient of two agreements could hardly have rendered lawful what would have been unlawful in terms of a single agreement.”

Substance over form (common law)looks like duck, quacks like duck, walks like duck…

CAUTION !! - CP TO RATHER PAY EDO TRANSACTIONAL COSTS- DO NOT CHARGE TO CONSUMER

Mouse trap!

- Stellenbosch Legal Aid Clinic & others / Minister of Justice & others

- Impala Platinum / CG Steyn & 24 others

• Impala: North West Division• SLAC: Western Cape Division• Applications to declare s65J (EAO’s) unconstitutional• Both opposed• Support from industry to respondents’ case important• Possible impact on industry: no way of recovering bad debt directly from

salary of debtor• Impala hearing date: 26 March 2015• SLAC hearing date: this week

COLLECTION PROCEDURES

2014 2015

Edo costs charged to consumer Barko judgment created case law: • Depends on whether court finds Barko judgment

binding on specific case. • My opinion: substance over form, will be binding

in most instances. Don’t charge EDO to consumer.

Service Fees at R50 per month• Review ordered - BITLINE

Review period expires on 4 March 2015.• New fee unknown

EOA’s as standard practice for collection 2 pending matters might change position completely – SLAC & Impala Platinum• Constitutionality of EAO’s challenged• If found unconstitutional, CP’s can only execute

ito attachment of property (writs), agreements to pay off, section 65 financial enquiries, garnishee orders against bank account, monies or debt

2014:“They keep moving the cheese”

2015:“Get ready for the cheese to move… again”

Thank youRonél de Klerk - DirectorLewies Prokureurs l Attorneysronel@lewies.co.za+27 79 696 2524 l SA (m)+264 81 034 2988 l Nam (m)