The days of your signing an acknowledgment of debt and unwittingly agreeing to a judgment against you may be coming to an end.
If you default on your debt repayments, your credit provider must first inform you of the other options that are available to you, such as debt counselling, before you sign any document in which you consent to a judgment against you.
This follows a recent High Court ruling that in future you will have to sign a clause that states that, although your credit provider has informed you|of the other options available|to you, you still choose to consent to judgment.
The National Credit Regulator (NCR) applied to the High Court for a declaratory order regarding judgments by consent brought by creditors under the Magistrates Court Act and the potential for such judgments to be in conflict with certain aspects of the NCA.
In terms of a ruling handed down by Judge Ben du Plessis recently, when creditors ask you to sign an acknowledgment of debt that includes a consent to judgment, they will have to include a clause that states that you are aware of the other options available to you in terms of the NCA, such as debt counselling, and that you still choose to consent to the judgment.
Paul Esselaar, an attorney who specialises in consumer law at Cape Town-based Dingley Attorneys, says one of the most useful aspects of the High Court judgment is the recommendation that the following words be inserted into a standard acknowledgment of debt letter:
"I have received the attached notice in terms of s129(1)(a) of the National Credit Act. The contents of the notice and the credit provider's proposals have been explained to me in a language of my choice. I understand the credit provider's proposals, but I prefer to consent to judgment as set out herein."
The NCR's application for a declaratory order followed an application by African Bank to the Pretoria magistrate's court in March 2008 for a judgment by consent. The presiding magistrate, AC Myambo, refused to grant the judgment, saying that the concept of a judgment by consent would go against the purposes of the NCA.
African Bank then appealed the case in the North Gauteng High Court, and the NCR applied to be part of the proceedings.
Peter Setou, the senior manager of education and strategy at the NCR, says the High Court's decision is significant, because it ruled that the magistrate's courts must take into consideration the legal relationship between|a credit provider and a consumer when deciding whether to grant a judgment against a consumer.
"The ruling specifically indicated that each aspect in the summons or letter of demand must be dealt with adequately and separately in order to enable the debtor to be fully informed and give proper consent to judgment," he says.
If you consent to judgment in writing when you receive a letter of demand, the summons or letter of demand is submitted to the clerk of the magistrate's court.
The clerk will now be required to consider whether or not:
- The letter of demand complies with the NCA;
- There is a reasonable possibility that the underlying credit agreement involved the reckless extension of credit;
- There are any allegations that you are overindebted;
- The debt was not granted in accordance with the NCA - for example, if it is above the minimum prescribed rate of interest;
- The credit provider is properly registered in terms of the NCA; and
- You fully understood your rights when giving consent to the judgment.
"If the clerk has reason to suspect any of the above, he must refer the matter to a magistrate for interrogation. The magistrate can then call for evidence and decide whether judgment may be granted or not," Setou says.
Magistrates may call for evidence, including documentary evidence, to determine if a credit agreement constitutes a case of reckless lending.
Esselaar says the judgment is likely to increase the workload of magistrates, because it forces magistrates to be more "hands on" than was the case previously and this in turn is likely to slow the rate of default judgments coming out of the courts.
How a judgment by consent works
Your creditor can obtain a judgment with your consent only when you sign a document stating that you consent to the creditor taking judgment against you. This is how the process works:
1
You default on your debt repayment. The creditor will usually notify you that you have missed a payment.
2
If you continue to miss your repayments, the credit provider is obliged to send you a notice of the outstanding debt (known as a section 129 notice or letter of demand) before taking further action.
The section 129 notice will tell you that you can refer your debt to a debt counsellor, an alternative dispute resolution agent or mediator, a consumer court or consumer tribunal, or an ombudsman, so that you can reach an agreement with the credit provider to bring your payments up to date.
The notice will further inform you that you have been in default for at least 20 days and that after 10 business days have lapsed the credit provider will pursue legal action against you.
3
If, after 10 business days, you have still not made arrangements to either meet the arrear payments or restructure your debt, or you have refused to pay, the creditor can issue a summons against you.
Consumers often sign a consent to judgment when they receive a letter of demand or summons in the mistaken belief that they are only acknowledging the debt.
The credit provider can then take the consent to judgment to court and ask the magistrate to grant judgment in its favour.
Judgments against you are reflected on your credit profile for five years, during which time you will probably be unable to access any further credit.
Judgments will also reflect badly on you if you apply for a job and a prospective employer checks your credit profile.
4
Once the magistrate's court has granted the application for judgment, you are still responsible for payment of the debt.
The credit provider can also pursue further legal action to repossess your assets in order to recover the debt if you fail to pay as set out in the consent to judgment. The sheriff of the court will first attach your movable property and, if the outstanding debt is not settled, the sheriff will then attach your immovable property, such as your home.
The credit provider can also apply for a garnishee order, where money is deducted from your salary and paid directly to the credit provider before your salary is paid into your bank account.