The National Credit Act's remedies for reckless credit in the mortgage context

Keywords: National Credit Act, reckless credit, remedies, mortgage, constitutional property law

Abstract

The National Credit Act prohibits the granting of reckless credit and also provides for certain remedies that courts can grant to consumers who have fallen victim to reckless lending practices. Depending on the circumstances, these remedies are the partial or full setting aside of the consumer's rights and obligations under the agreement; the temporary suspension of the effect of the agreement; and the restructuring of the consumer's obligations. This article investigates these remedies with a focus on the effect that they would have on a creditor provider under a mortgage agreement. The argument is made that the contractual and security rights of creditor providers amount to "property" for purposes of section 25(1) of the Constitution (the property clause) and that, to some degree or another, each of these remedies involve a "deprivation" (limitation or modification) of the creditor provider's rights (property). The consequence is that, when one of these remedies is granted to a consumer, the court must tailor the remedy in such a way that the effect on the credit provider is not "arbitrary" as meant in the property clause. Therefore, the proposal is that there must be a sufficient relationship between the purpose of the remedy (to discourage reckless lending and to rectify the damage caused) and the effects thereof on the credit provider. In general, the remedy should not go further than what is necessary to rectify the prejudice suffered by the consumer due to the credit provider's conduct. The formulation of the remedy should accommodate considerations such as whether and to what extent either or both parties have already performed under the agreement, and it should accordingly ensure that the consumer will not be unjustifiably enriched. The remedy should also account for the effect that it would have if the consumer is permitted to keep the property that was subject to the reckless credit agreement. The article furthermore raises doubts regarding the recent high court judgment in ABSA v De Beer, where all the consumer's rights and obligations under a mortgage agreement were set aside due to the credit provider's reckless conduct. Remedies like this have serious consequences and therefore it is imperative that courts carefully investigate all the effects that the order would have, so that a just and reasonable outcome is achieved. This articles accordingly aims to provide some guidance with reference to the principles of constitutional property law.

Author Biography

Reghard Brits, University of Pretoria
Senior Lecturer, Department of Mercantile Law

References

Bibliography

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Case law

ABSA Bank Limited v Kganakga (26467/2012) 2016 ZAGPJHC 59 (18 March 2016)
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ABSA Bank Limited v Potgieter (2344/2013) 2017 ZAECPEHC 8 (31 January 2017)
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African Banking Corporation of Botswana Ltd v Kariba Furniture Manufacturers (Pty) Ltd and Others 2013 6 SA 471 (GNP)
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Kilburn v Estate Kilburn 1931 AD 501
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SA Taxi Securitisation (Pty) Ltd v Melaphi (2656/14) 2014 ZAWCHC 47 (2 April 2014)
SA Taxi Securitisation (Pty) Ltd v Nako and Others (19/2010, 21/2010, 22/2010, 77/2010, 89/2010, 104/2010, 842/2010) 2010 ZAECBHC 4 (8 June 2010)
SA Taxi Securitisation (Pty) Ltd v Xolile 2012 JOL 29510 (ECM)
Shoprite Checkers (Pty) Ltd v MEC for Economic Development, Eastern Cape and Others 2015 6 SA 125 (CC)
Standard Bank of South Africa Limited v Dlamini and Another (42232/2015) 2016 ZAGPPHC 26 (22 January 2016)
Standard Bank of South African Ltd v Kelly and Another (23427/2010) 2011 ZAWCHC 1 (25 January 2011)
Thienhaus NO v Metje & Ziegler Ltd and Another 1965 3 SA 25 (A)
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Troskie v Von Holdt and Others (2704/2012) 2013 ZAECGHC 31 (11 April 2013)
Tshwane City v Link Africa and Others 2015 6 SA 440 (CC)
University of Stellenbosch Legal Aid Clinic and Others v Minister of Justice and Correctional Services and Others 2016 6 SA 596 (CC)
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Legislation

Constitution of the Republic of South Africa, 1996
Credit Agreements Act 75 of 1980
Deeds Registries Act 47 of 1937
Hire-Purchase Act 36 of 1942
Insolvency Act 24 of 1936
National Credit Act 34 of 2005
National Credit Amendment Act 19 of 2014
Uniform Rules of Court: Rules Regulating the Conduct of the Proceedings of the Several Provincial and Local Divisions of the High Court of South Africa (cited as "High Court Rule")
Usury Act 73 of 1968
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2018-01-15
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