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  Legalwise Wiseup  
     
  31 January 2018  
     
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Actual case: Nedbank Limited v Jones and Others
Changing the interest rate during debt counselling – is it allowed?

Facts of the case:

  • Mr and Mrs Jones (“couple”) struggled to repay all of their debts in a timely manner. As part or their debts, the couple had a home loan with Nedbank and they had to pay monthly instalments of R17, 343.75 at an interest rate of 8.9% per year.
  • The couple went to a debt counsellor who determined that they are over-indebted and that their debts should be rearranged.  
  • After concluding the debt counselling procedure and drafting a debt rearrangement proposal (“proposal”), the couple’s debt counsellor applied in the Magistrate’s Court that they be declared over-indebted and that the proposal be made an order of court.
  • The proposal stated that Nedbank will receive a monthly payment of R4 007.06 at an interest rate of 10.4% per year until the outstanding home loan is paid in full.
  • The Magistrate’s Court granted the application and made an order that the couple is over-indebted, and approved the proposal.
  • Nedbank realised that the new payments no longer even cover the interest instalments on the home loan, with the effect that the home loan will never be repaid in full.
  • Nedbank approached the Western Cape High Court (“High Court”) to reconsider the decision of the Magistrate’s Court.

What the court said:

  • The High Court emphasised one of the main purposes of debt counselling – to prioritise the eventual satisfaction of all debts of the consumer (person who owes money to credit providers).
  • The National Credit Act provides that if a debt counsellor made a proposal, the Magistrate’s Court is only allowed to grant that proposal as far as it extends the repayment period and reduces the repayment amounts of a certain debt.
  • The Magistrate’s Court did not have the power to approve a proposal that changes the interest rate to something different as what was agreed to in the credit agreement between the consumer and credit provider.
  • The Magistrate’s Court is also not allowed to approve a proposal that reduces the repayment instalments to such a point that they are less than the amount of interest that accrues on the outstanding balance of the debt.
  • In light of the above, the High Court held that the proposal was invalid.

Conclusion:

  • A Magistrate’s Court is not allowed to grant a debt counsellor’s proposal where the interest rate agreed upon in a credit agreement is changed or removed, or where the repayment amount is reduced that it does not even cover the interest accrued on the outstanding balance of a debt.
 
 
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  Inside this Issue no 12  
 
Letter from the CEO
Legal Expenses Accidental Death Benefit
Getting to know the debt counsellor and the consumer
Actual case: Nedbank Limited v Jones and Others
Exit this way:
can you cancel debt counselling?
What is an Administration Order?
What is an Emoluments Attachment Order (“EAO”)?
What is a Will?
Empowering the community of Zandspruit through financial literacy
Frequently asked questions
Making it easier for you to keep in touch
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