RL Daly Inc. is an Attorney firm specialising in call centre debt collection. With one foot in business and the other “in the clouds”, we post some deeply profound (some not so profound) insights into everything related to the industry.
This blog was started in March 2007 by Desiree Robert as a way to extend her research at RL Daly Inc. The goals were to provide more timely insights into the industry and to engage blog readers in a conversation about topics ranging from credit and debt to news related to Call Centres.
Comment policy We welcome your thoughts, ideas, suggestions, and of course, criticisms. Comments on this blog are posted immediately, but we do read every single one of them and will delete comments that are vulgar, defamatory, clearly spam, or in general, not contributing to the ongoing discussion. We may unfortunately be forced to close individual posts to new comments because of the influx of spam.At any point, we welcome your comments via email — feel free to reach out to Desiree directly.
September 14, 2007 at 4:14 am |
“THE TIMES THEY ARE A CHANGING”
The new National Credit Act No. 34 2005 (“NCA”) came into operation in March 2006 and into full effect on 01 June 2007.
The NCA is possibly the most radical piece of legislation since the new constitution. Not only does it repeal the Usury and Credit Agreements Acts which have been in operation since 1968 and 1980 respectively, the Act also affects or amends either in whole or in part a host of other pieces of legislation.
The widespread publicity given to the NCA has been misunderstood by a great many debtors who incorrectly view the Act as granting some form of indemnity excusing them from their current financial obligations. This impression may to some extent have also been created by the strictures which the Act places on the Credit bureaus and in particular the limited time periods that an adverse listing or record can be published.
MEDIA QUOTES
If a consumer has not paid an outstanding debt for two years up until September 2006, and the credit grantor has not handed the account over to attorneys for collection or judgement, then all the information relating to that account will also be removed come June this year.
Furthermore, judgement information, which the credit bureau received from the courts, may be removed for debt of up to R500, unless the consumer has more than two unpaid judgments on his or her credit record.
Judgement information, which the credit bureau received from the courts, may also be removed in respect of a debt of up to R5 000, if the judgement is older than 18 months as of September 2006. This is unless the consumer has more than two unpaid judgements on his or her credit record.
In both instances, there is no pre-requisite for the debt to be paid in full for the information to be removed from the credit bureau – the information will be removed automatically without the consumer having to apply for its removal.
“It is very important for the consumer to understand that only the judgement information will be removed from the credit bureau and that consumers still have an obligation to repay the outstanding debt to the credit grantor as the credit grantor can still exercise his rights for example to repossess furniture or to garnish the consumer’s salary,” Van Schalkwyk said.
Any judgement under R50 000 which has been paid or will be paid by September 2007 will not be displayed on the credit bureau for a period of five years.
The NCA also introduces various compliance issues which are designed to control and regulate responsible lending as well as to protect the credit consumer from his own financial indiscipline.
In the 24 months leading up to the operation of the Act (01 June 2007) we have seen:
• a massive drive by all credit providers to grow their books
• a huge take on of “high risk” debt particularly by the banks
• the employment of unlawful marketing and sales tactics
• generally all manner of practices prohibited by the Act
Time will tell what the full impact of this lending frenzy will be but it is interesting to note how the banking industry has joined the fray. Previously this industry was not geared to handle the volumes of accounts or the risks associated with this type of debt. Now we see ABSA, Standard Bank, FNB and others all devising microloan products to sell to the masses.
When one considers that 80% of the South African population fall between the LSM 1 – 7 groups earning between R2000 and R10 000, it is not surprising that the banks have joined the microlenders and retailers in extending low value credit to the masses.
This week the Business Day carried stories about the “Black Diamonds” and the substantial growth in the buying power of our black population as compared with the white spend which has shown only marginal growth.
The upshot of this is clear to see.
• An increase in the amount of personal debt
• An increase in competition between all the various credit providers for the debtor’s disposable income
• An increase in the number of civil judgments
• A slow down in the service of our courts (who are already struggling to cope)
• An increase in the number of debtors being placed under debt review
• An adoption of new collection strategies by credit providers who:
struggle to contain the default rates of their debtor’s books
strive to comply with the NCA and its regulations
strive to compete with other credit providers
COLLECTION STRATEGIES
Before the NCA came into operation, microloans (or low value debts) were perceived by most credit providers to be uneconomical to chase through the legal system. The threat of legal action and the adverse listing system provided by the National Credit bureaus were seen as the only viable means of enforcing compliance.
Debt collectors / attorneys who took legal action did so at their own cost and risk. When one considers the disbursement costs (approx R120) associated with the institution of legal action (revenue stamp and sheriff’s fees) it is little wonder that credit providers of high volume / low value debt regard the cost of legal action to be prohibitive.
The NCA in sections 129, 130 as read with section 168 now requires that before any form of legal action can be instituted the credit provider (or his attorney) must first draw to the notice of the debtor (either delivered to the debtor (personally I presume) or sent by registered mail to the debtor’s last known address) the particular default and propose to the debtor that he refer the credit agreement to a debt counselor, alternative dispute resolution agent, consumer court or ombudsman.
Both the cost of personal hand delivery and registered mail is again prohibitively expensive in relation to high volume / low value micro loan debts and must now be added to the aforementioned disbursement costs if legal action is to be resorted to.
Fortunately for litigation lawyers the draftsmanship of the NCA is in many instances far from perfect and may generate a fair amount of litigation regarding the intention of the legislature and the interpretation of various sections and regulations of the Act.
For Example
Question: Will the courts insist on the written notice contemplated in section 129 being delivered to the debtor personally or by registered mail to his last known address as contemplated by section 168 or accept one of the mechanisms for delivery chosen by the debtor as set out in section 65(2)?
Can it be argued that:
1. section 168 only becomes prescriptive in the absence of any other manner for service of a notice. (“unless otherwise provided in this Act”)
2. section 129 provides that the credit provider “may draw the notice of the debtor to the default in writing and propose …”
3. section 65(2) states that “if no method has been prescribed for the delivery of a particular document to a consumer, the person required to make delivery of that document (ie the credit provider) must make the document available to the consumer using one of the following mechanisms:
3.1 personal delivery at the credit provider’s business premises; or
3.2 at any other location designated by the consumer at the consumer’s expense; or
3.3 by ordinary mail;
3.4 by fax;
3.5 by e-mail; or
3.6 by printable web-page;
and deliver it to the consumer in the manner chosen by the consumer from the above options.
Although it can be argued that ordinary mail or one of the other abovementioned chosen mechanisms complies with the wording in section 129 ….“may draw the notice of the debtor to…”, I am of the view that the courts will opt for section 168 for the sake of certainty. The wording of section 129 also leaves open whether it is just the notice of the default which needs to be in writing or whether both the notice of the default and the proposal to refer the credit agreement to the debt counselor etc needs to be in writing.
Question: How is the wording in section 130(1) of the NCA to be interpreted?
The section reads:
“Subject to subsection (2) a credit provider may approach the court for an order to enforce a credit agreement only if, …..”
The words “may approach the court” is language not found in either the Magistrate or High court Acts and accordingly, in the absence of any definition in the NCA, may mean that:
1. a substantive application (Notice of Motion supported by affidavit) is necessary for an order declaring the credit agreement to be enforceable before summons; or
2. a substantive application (Notice of Motion supported by affidavit) for the granting of an appropriate order or for competent relief under the credit agreement (ie a request for judgment for the amount due on application); or
3. a substantive Ex Parte application (without notice to the debtor) for the relief referred to in either 1.or 2. above is sufficient; or alternatively
4. a summons is the appropriate or competent manner in which the court should be approached
In my view options 1 – 3 are impractical and the summons process will be the accepted method of “approaching the court”.
THE PROS AND CONS OF LEGAL ACTION
It is above all important to focus on the value add to be gained by instituting legal action.
CAUTION
There is absolutely no point in proceeding with legal action unless there is a realistic expectation that such action will result in a recovery either via judicial execution alternatively voluntary payment (motivated by a need for creditworthiness).
The NCA stipulates that:
• a judgment (unless for an amount of R500 or less) will be maintained on the records of the National credit bureaus for a period of 5 years or until rescinded whichever is the sooner.
• adverse listings other than a judgment debt will be maintained on the records of the National credit bureaus for 2 years or less.
PROS: VALUE OF JUDGEMENT
The value of a judgment therefore lies in the 5 year listing as well as the fact that it interrupts extinctive prescription from running for a period of 30 years from the date of the judgment. Unless there is an intention to execute, the benefit of obtaining judgment lies only in the long term prospect of the debtor requiring a rescission in order to rehabilitate his creditworthiness.
CONS: LEGAL COSTS
From the attorney’s perspective, legal costs comprise of his professional fees (varies from attorney to attorney but generally equates to some form of time billing) and the disbursements which he is expected to make on behalf of his client such as:
• revenue stamp (R20)
• sheriff’s fees (R50 and R200)
• tracing fees (R250 – R300)
• cost of registered mail (+/-R15)
WASTED COSTS
Recently an attorney colleague of mine, advised that he received a sheriff’s fee of R670 in respect of Return of Non-service to a summons which the sheriff attempted to serve in Kuruman. The sheriff claimed that he had to travel more than 300 kilometers to the address.
There is always the risk of wasted sheriffs costs where:
(a) the address in the summons is NOT the debtor’s chosen domicilium citandi et executandi or address stipulated in the written credit agreement (“CA”) (being the service address of all legal notices or processes arising out of the CA).
(b) the address contains an error (wrong street number or street spelling)
(c) the sheriff is unable to find or locate the service address
Where any relief is claimed in a summons which arises out of a contractual term or condition the court will generally not grant judgment unless the relief claimed is pleaded in the summons and the original credit agreement is lodged at court together with the Request for Judgment
RECOVERY OF LEGAL COSTS FROM DEBTOR
Generally an attorney is entitled in law to obtain judgment against a debtor for payment of the capital amount of his client’s claim, interest thereon and such costs as:
• are prescribed by the relevant tariff (including disbursements); and
• he is able to tax before the taxing master
Should the debtor offer to pay off his debt over a period of time or by way of instalments it is permissible for the attorney (on behalf of his client) to accept such offer on condition that the debtor agrees to pay all legal costs, collection commission and interest. The amount of collection commission is limited in law (the rules to the tariff) to 10% of the instalment amount paid or R300 whichever is the greater.
The tariff costs prescribed in the Magistrate’s Court Act are generally less than 50% of the usual rate charged by most attorneys for their professional time. Consequently, unless the attorney processes large volumes of collections and is able to achieve an economy of scale he will not be able to perform collection work profitably.
We recently instructed a JHB based litigation attorney to issue summons, to take judgment and to serve a writ of execution (claim was for R11 814.24). The writ costs amounted to R640.05 which together with the claim totals R12 454.29.
The attorney invoiced us R6 259.61 for his fees and costs, leaving us with R6 194.65 for our client. These fees were unexpected and we had to fund them without recourse to our client who simply paid us a commission on the amount recovered which was approx 50% of the attorneys charges to us.
Andy McNabb
January 27, 2008 at 8:47 am |
I found this information to be very helpful and educational. Thank you for taking the time to write this. I look forward to you writing in the future.
February 17, 2008 at 7:30 pm |
I wanted to thank you for taking the time to write this post. I found it to be very helpful as I can relate to this very well. I look forward to you writing again. Thanks.