Summit Financial and 10 of its indebted clients have challenged lending industry bodies and regulators in court about the manner in which debt collection practices unfairly prejudices credit consumers who have a debt judgment. Photo: Pexels

CAPE TOWN – Summit Financial and 10 of its indebted clients have challenged lending industry bodies and regulators in court about the manner in which debt collection practices unfairly prejudices credit consumers who have a debt judgment. 

The judgment, likely to be delivered before year-end after evidence was received by Acting-Judge Bryan Hack, has the potential to dramatically impact the financial landscape and economy, by immediately releasing millions of credit consumers from their debts, and injecting more than R1 billion into the economy, Summit chief executive Clark Gardner said at a briefing yesterday.

Almost every judgment collected via garnishee deductions – there are about 1.3 million in force currently – has breached one of the laws being challenged, meaning almost every consumer in this position could be due for a refund, he said. 

The judgment’s outcome will hinge on two possible outcomes: the first would be around the interpretation of common law relating to the maximum repayable on a debt, by a consumer with a debt judgment.

Summit interpreted the law as stating the maximum is two times the debt, from the time that the debt was incurred, while the National Credit Regulator (NCR) and other industry bodies such as the Banking Association of South Africa (Basa), interpret the law as meaning that the recoverable debt maximum also becomes applicable on the day of the debt judgment, thus making it possible for creditors to claim up to more than four times the original debt from the consumer.

Some even interpret the laws on the maximum recoverable amount as more than four times the actual debt value, excluding legal fees.

Neither NCR or Basa could be reached for further comment yesterday.

The second part of the court application, said Gardner, involved requiring the legal industry to first apply for debt collections fees through existing court taxing masters, rather than just applying these fees themselves. 

In many cases, legal fees were being “abused”, and the charges form the largest part of a consumers’ final bill, after legal debt recovery. 

“We as a business haven't wanted to take this to court. This is a regulators' job to fight for the consumer. We really would like to know why a regulator such as the NCR, which purports to be acting in consumer interests, is opposing our legal application. We are doing this only in the interests of the consumer,” said Gardner.

He said that if their court action was successful, it was likely that 80 percent of all existing garnishee orders would be stopped. 

It would also likely render short-term debts difficult to collect on in future, “which we think is a positive development, as we would much rather have a consumer sign up for 24-month debt repayment plan than have them lending R1 000 mid-month with a promise to repay it next month."

BUSINESS REPORT