Banks slapped down over home repossessions in Joburg court

Written by Ciaran Ryan. Posted in Journalism

 

 

 

 

 

 

 

 

 

This article first appeared in Moneyweb.

A full bench of the Johannesburg High Court ruled on Wednesday that repossessed homes must be sold with a reserve price in all but exceptional circumstances. This puts an end to illegal bid-rigging by syndicates operating out of sheriffs’ auctions. It also means repossessed properties must be sold close to market price, rather than for R10 or R100, as has happened in the past.

The court also ruled that when banks bring legal action against defaulting clients, the money judgment and sale in execution order (allowing the property to be sold at auction) must be issued at the same time. Some banks argued that these should be split, though for reasons that were not always clear – other than that it suits the banks’ lawyers to milk a case for as much in fees as possible by having the same facts heard twice.

Standard Bank in its court papers argued that the money judgment issued separately from the sale in execution (SiE) order placed pressure on the defaulting client to catch up on arrears. The court took a different view and wants the matters heard together. This reduces the legal costs for consumers, but may make it more difficult to delay justice.

As Moneyweb previously reported, Gauteng judge president Dunstan Mlambo ordered a full bench of the High Court to decide on four cases involving Standard Bank and Absa. The full bench of three judges was asked to decide on several issues, including the setting of reserve prices to avoid homes being sold at auction for a trifling amount, and whether banks should be awarded a money judgment at the same time as an SiE order.

Court rules were recently changed to allow for judges to set reserve prices. However, some judges applied the new rules while others did not. This case was about setting a standard across the entire court.

Advocate Douglas Shaw, one of the architects of the recent change in court rules allowing for the imposition of reserve prices, says the ruling is a major victory for bank clients: “It is unbelievable in this day and age that the banks would continue to argue for the right to sell repossessed properties without a reserve price, but this is what they have done. This ruling changes that by forcing judges to impose reserve prices except in exceptional circumstances.

“A second major victory for mortgage bond holders is that once you pay off your arrears, your mortgage contract automatically revives, and this is not something that is at the discretion of the banks.”

In its papers before the court, the Lungelo Lethu Human Rights Foundation (LLHRF), which defends people against eviction, says in hundreds of cases it has seen, there is nothing left for clients once a property is sold at sheriffs’ auctions. The practice of allowing properties to be sold without a reserve price meant these auctions became nesting grounds for bid-rigging syndicates, who have been able to pick up properties for a pittance and then on-sell them for massive profits. Once the lawyers had taken their share of the spoils, the plate was licked clean, leaving nothing for the dispossessed homeowner.

The court ruled that the power to reinstate a credit agreement lies with the consumer, not the credit provider, once the arrears and “reasonable” costs have been settled.

King Sibiya, co-founder of the LLHRF, says the ruling will make it extremely difficult for banks to evict clients from their primary residences. Eviction, be it voluntary or by force, is the inevitable consequence of an SiE order. He says upwards of 100 000 families have been evicted from their homes since the Constitution came into effect. “In their papers before the court, the banks claimed they use sale in execution orders only as a last resort. We say they are lying, and we presented abundant evidence to prove they are lying.”

The court also dismissed the banks’ claims that by setting a reserve price, there would be less interest from prospective buyers. “A reserve price will balance the misalignment between the banks and the debtors where execution orders are granted,” says the court ruling. “It ensures that the debtor is not worse off due to unrealistically low prices being obtained and accepted at sales in execution.”

Says Sibiya: “This ruling makes it more difficult to evict people from their primary residences, and the setting of reserve prices means they get to keep most of the equity in the home that they have built up over the years.”

The Legal Resources Centre, which represented the LLHRF in the case, says in a statement “we are hopeful that the setting of reserve prices in sales in execution will stop the practice of homes being sold on auction for next-to-nothing and create the possibility of a debtor recovering some money from the sale.”

Though the ruling applies to the South Gauteng High Court, other courts around the country will be under pressure to apply the same judicial standards.

The court made no ruling on at what level reserve prices should be set, other than to say that information about market valuations must be placed before the court when a bank is seeking judgment against a client. The reserve price will be based on all relevant information placed before the court.

Judges grill banks on home repo practices

Written by Ciaran Ryan. Posted in Journalism

This article first appeared in Moneyweb.

 

 

 

 

 

 

 

 

 

 

 

A full bench of the Johannesburg High Court sat last week to deliberate on how and when reserve prices should be applied before repossessed homes are sold at sheriffs’ auctions. The three judges presiding in the case wanted to know why the banks habitually arrive in court without proper paperwork and expect to be given judgments against clients in arrears.

For several legal and human rights groups admitted as friends of the court, this is a pivotal case to decide whether the banks’ right to recover a loan supersedes constitutional protections to dignity and property.

Things did not go well for the banks, who were berated by the judges for arriving in court without proper paperwork, expecting the courts to grant judgments against clients who were behind on their mortgage payments. This follows a number of cases where homes were repossessed by banks for as little as R10 and then on-sold at auction for a substantial profit, leaving the defaulting client with a shortfall to the bank.

The judges wanted to know why the banks habitually arrived in court expecting a sale in execution judgment (allowing the property to be sold at auction) without sufficient information to allow the courts to make an informed decision, such as whether the home was a primary or secondary residence, who lived in the house, and what steps the bank had taken to reach an accommodation to allow the customer time to catch up on the arrears. The banks have repeatedly insisted they apply for sale in execution orders only as a last resort.

Gauteng judge president Dunstan Mlambo ordered a full bench of the High Court to decide on four cases involving Standard Bank and Absa. The full bench of three judges was asked to decide on several issues, including the setting of reserve prices to avoid homes being sold at auction for a pittance, and whether banks should be awarded a money judgment at the same time as a sale in execution (SiE) order.

Advocate Steven Budlender appeared for Standard Bank and advocate Wim Trengrove for Absa. The banks argued that reserve prices should only be set by judges in exceptional circumstances, and want the court to split the awarding of the money judgment from the sale in execution order. Budlender argued that the reason for this was that once a money judgment was awarded against a defaulting client, this placed pressure on the client to catch up on arrears. Experience shows that very few homes in arrears end up being sold at sheriffs’ auctions, usually because defaulting clients reach an accommodation with the banks.

The arguments in court were largely technical, but several legal and human rights groups admitted as friends of the court seem baffled by the banks’ insistence on splitting the money judgment from the SiE order. It would save them time and money if both were granted at the same time. One observer suggests the banks are putting up a faux fight by insisting on reserve prices only in exceptional circumstances, and on terms decided by themselves. He says what they really want is a money judgment since this triggers a financial benefit to the banks in terms of credit default swaps. These are a type of insurance policy which protect bondholders against default. A large percentage of mortgage bonds in SA are securitised, meaning they are packaged into a bond and on-sold to investors. This point was not argued in court.

The banks’ counsel was further grilled by the full bench on their defective paperwork when approaching the court, resulting in a large percentage of cases being postponed. The banks attempted to remedy this by filing supplementary affidavits in the four cases mentioned above and to address the issues raised by Mlambo.

The war between environmentalists and coal miners in Mpumalanga

Written by Ciaran Ryan. Posted in Journalism

 

 

 

 

 

 

 

 

 

 

 

This article first appeared in Moneyweb.

Environmental groups determined to block a coal mining project on protected land have had to step up security for their employees.

South Africa has a shocking history of mines scarring the landscape and then being abandoned by the owners and left to nature’s slow but inexorable healing.

No more, says a group of eight environmental organisations, led by the Centre for Environmental Rights (CER), which is attempting to stop Atha-Africa Ventures, backed by Indian investors, from commencing underground coal mining on a protected environmental area in Mpumalanga.

The Yzermyn Colliery in the Mabola Protected Environment, near Wakkerstroom in Mpumalanga, was due to commence underground mining more than a year ago, until the CER applied to the Pretoria High Court for an interdict to freeze activity until the mining group had complied with various laws. CER claimed Atha-Africa did not have a valid environmental authorisation, nor did it comply with the Spatial Planning and Land Use Management Act, in terms of which the proposed mining site could only be used for agriculture and conservation.

Atha-Africa defended the action, claiming it had secured its licence before the Mabola Protected Environment, a portion of which covers the proposed mining site, was declared a protected environment. It also pleaded that the mine was designed to ensure minimal damage to the environment, with surface infrastructure located away from environmentally protected areas

The outcome of this case was that Atha-Africa agreed to give CER three weeks’ notice before commencing any mining activities in the area. More than a year later, mining has still not commenced, but the environmental groups are determined to make this a test case for environmental versus mining rights. If they fail in this case, they believe the door is thrown wide open for other mining groups to trample environmentally sensitive areas.

Atha-Africa argues that it is providing nearly 600 jobs, benefiting many more dependents, and will benefit the economy by selling a portion of the coal to Eskom, with the balance being exported.

“The impact of the unlawful commencement of mining activities on the Mabola Protected Environment and surrounding areas will be environmentally catastrophic and will cause irreparable harm to the environment and local communities,” said the CER in an affidavit to the court. The Mabola Wetlands was proclaimed a protected environmental area in 2014, in recognition of its importance in feeding the Limpopo, Tugela, Vaal, Usutu and Pongola Rivers. The environmental groups say the Mabola Wetlands is a strategic water source generating critical water supplies for downstream agriculture, industrial and human uses. It also falls within the National Freshwater Ecosystem Priority Area, and has been deemed a ‘high importance’ biodiversity area.

Questions over the ease with which mining licence was granted

How then, did Atha-Africa manage to get a licence to mine coal in such a sensitive area?

It’s a question that has environmentalists scratching their heads. The reported backlog of mining licence applications at the department of mineral resources seems to have presented little trouble to Atha-Africa, which secured mining and water use licences with evident ease under then mines minister Ngoako Ramatlhodi.

At a press briefing in Johannesburg yesterday, CER executive director Melissa Fourie said Atha-Africa had allocated just R5.7 million for mine rehabilitation, which was nowhere near enough to remediate the expected damage to the surrounding water systems through acid drainage. Mining would also drain the wetlands and impact farming in the area.

The CER has launched a string of legal challenges against the mining group, including:

– appealing the department of mineral affairs’ decision to grant it a mining licence

– appealing the water tribunal to revoke the issue of a water use licence, and

– a judicial review of the decision by the ministries of environmental affairs and mineral resources to allow mining in a protected area.

Threats against environmental activists 

Fourie says the CER has stepped up security for its staff after heated exchanges between pro- and anti-mining activists, both physical and online. On one occasion a group of pro-mining activists were bussed in to the site and disrupted an environmental briefing. Some members of the pro-mining group apparently became threatening, claiming the environmentalists were preventing jobs from being created in the area. The threats have been reported to the Minerals Council of SA. Environmental activism has its dangers: Pondoland community activist Sikhosiphi ‘Bazooka’ Rhadebe was gunned down two years ago by unknown assailants, which some environmentalists believe was related to his opposition to mining mineral sands in the Eastern Cape.

An ecological assessment by Natural Scientific Services recommended against proceeding with the mining project, based on the threat to surface water resources and potential groundwater contamination. The damage would extend far beyond the proposed mining area, due to the likely dewatering of wetlands and acid mine drainage seeping into the water system.

The CER argues that the damage to water resources and farming in the area and downstream far outweighs any potential benefits from mining. “The organisations opposing this particular mine do so because the proposed mine would be inside a declared protected area and a strategic water source area,” says the CER in a statement. “It will threaten water security not only in the local area, but in the region. The damage that this mine would do to water resources cannot be undone. All these organisations are deeply committed to job creation and improving the quality of life of local people, but we also know that coal mining has devastated the lives, health and well-being of communities across the highveld.”

Says one environmentalist: “We haven’t seen one community that has benefitted after 150 years of coal mining in SA.”

The country has seen many coal mines come and go, but the environmental scabs they leave behind are often left for others to tend. The profits are privatised, the environmental costs are socialised. That may be about to end, if the CER and the eight environmental groups its represents have any say in the matter.

Strange weather we’re having

Written by Ciaran Ryan. Posted in Journalism

 

 

 

 

 

 

 

 

 

 

 

 

This article first appeared in Moneyweb.

Whether you believe in man-made climate change theories or not, what is undeniable is that extreme weather events are on the increase.

We don’t have to look too far for evidence. In SA alone, there were three main catastrophic events over the last year – the fires in Knysna, the drought in the Western Cape, and storms in Gauteng and Kwazulu-Natal (including a tornado near Johannesburg). The average for much of the last decade has been one such event a year.

JSE-listed Santam is a reasonable proxy for the short-term insurance sector. The accompanying graph shows a marked spike in catastrophe claims in 2017, relating mainly to the aforementioned floods, storms and fires. The insurer incurred gross claims of R823 million from the Knysna and Western Cape fire, and R1.1 billion from storms in Kwazulu-Natal and Gauteng.

Santam catastrophic claims 2017

Source: Santam analysts presentation 2017

What is more interesting about the graph is the trend since 2012. It clearly shows a fundamental change in the overall level of catastrophe claims in the last six years. Something is clearly going on with the weather.

Nor are these trends confined to SA. Last year was the worst on record for weather-related insurance losses globally, according to global risk and insurance giant Aon. Its Weather, Climate & Catastrophe Insight 2017 reports that weather-related losses totalled US$344 billion, more than double the previous year. “The third quarter of 2017 was the second-costliest quarter ever registered at US$261 billion due to catastrophic damage caused by a trio of major hurricanes and flooding across Asia,” says the report.

Source: Aon’s Weather, Climate & Catastrophe Insight 2017

At a recent panel discussion on how extreme weather is affecting insurers, hosted by Norton Rose Fulbright in Sandton, Professor Coleen Vogel of the Global Change Institute at Wits University presented evidence that Africa is experiencing more extreme weather changes than the rest of the world: average temperatures on the continent are rising 0.11 degrees centigrade each decade, double the rate of the rest of the world.

“When you get an average two-degree rise in temperatures, you have problems. If it hits five degrees, we’re in real trouble,” she said.

These temperature rises create feedback loops that impact drainage and wetland systems and infrastructure. Urban over-crowding and bad construction practices, such as dumping rubble alongside the Jukskei River, aggravate an already fragile natural balance. Vogel says extreme rainfall is projected to increase in southern Africa, creating more intense thunderstorms that will degrade roads and dwellings.

Source: Aon’s Weather, Climate & Catastrophe Insight 2017

Michael Chronis, director of Norton Rose Fulbright, points out that engineers may have to look at how they design roads and other infrastructure in light of extreme weather event statistics. “I think we are looking at an increase in the number and the value of claims based on these trends,” he says.

Simon Robinson, head of specialist property at Bryte Insurance, says based on these trends, insurers may in future be asking clients for risk improvement actions such as retrofitting buildings to withstand more extreme storms. So far, there is little evidence of future expected extreme weather events priced into premiums, as these are largely based on historical data. “The solution is to take a proactive approach to limit the likelihood of catastrophic damage by engaging with clients and making sure that they are prepared for these kinds of events. What we need to work on is early warning systems, so we have better predictions when extreme weather events are likely to occur,” he says.

Though extreme weather events might be localised, what happens in Europe or the US impacts the price of insurance in SA, since all insurers are required to purchase reinsurance, which reflects global rather than local events.

Aon’s Weather, Climate & Catastrophe Insight 2017 says there were 330 natural catastrophe events in 2017 that generated economic losses of US$353 billion, of which 97% were weather-related. These events included Hurricanes Harvey, Irma and Maria in the US and Caribbean, Typhoon Hato in China, and Cyclone Debbie in Australia. Natural catastrophe losses in 2017 were 93% higher than the 2000-2016 average.

Panelists at the Norton Rose Fulbright discussion argued that no single entity, least of all insurers, could solve the problems of extreme weather alone. What’s needed is a coordinated approach with city and provincial planners to better predict adverse weather events, and provide better pre-emptive action when such events occur.

One need only look at the potholes that mark the roads after a severe thunderstorm. Or roof collapses. This is likely to be the pattern going forward. Road builders, engineers, and architects are going to have to get in on the act if the weather of recent years is any prediction of what is to come.

Court to decide on how to handle home repossessions

Written by Ciaran Ryan. Posted in Journalism

This article first appeared at GroundUp. Pictured: King Sibiya, founder of the Lungelo Letho Human Rights Foundation.

A landmark case to decide how banks should deal with home repossessions will be heard on 28 and 29 August in the South Gauteng High Court. 

This follows a directive by Gauteng Judge President Dunstan Mlambo, who ordered a full bench of the court to sort out the tangle of inconsistent home repossession judgments. Mlambo also wants the court to establish under what circumstances judges should set reserve prices on repossessed homes.

Court rules were changed late last year to allow judges to set reserve prices when homes are sold at sheriff’s auctions to stop them being sold for a fraction of their worth. Despite this, some courts in Gauteng continue to authorise the auctioning of houses (known as “sale in execution”) without reserve prices. The forthcoming case will clarify how and when judges should set reserve prices.

GroundUp reported the court case of Given Nkwane, whose home, valued at R470,000, was sold for R40,000 at auction by Standard Bank after he defaulted on his home loan.

This prompted former Public Protector Thuli Madonsela to tweet, “With due respect to the court, I consider this judgment to be grossly unjust and inequitable. It is a setback regarding social justice. Should this matter be taken on appeal, it would be great if all those concerned about social justice join in as amicus curiae (friend of the court).”

Lungelo Lethu Human Rights Foundation, represented by the Legal Resources Centre, has been admitted as a friend of the court (there is no applicant in this case, only friends of the court). Lungelo Lethu founder King Sibiya (pictured above) argues in an affidavit that there should be clearer directions for judges in setting reserve prices, and only in exceptional circumstances should a home be sold without a reserve price.

Lungelo Lethu wants the court to appoint an independent panel to advise on the matter. Sibiya cites several alleged abuses of the court process in his affidavit, including that of Mapule Molokomme whose home was sold at auction for only R10, and then on-sold by the new owner for a substantial profit. She was evicted from the home when she was eight months pregnant, and soon after the death of her husband. Lungelo Lethu says many of the 900 cases it has attended to over the years involve abuses of the court processes, where defaulting clients only discover judgment has been taken against them when the new owner arrives to assume possession of the property. This is because they were not properly notified of the legal action being taken against them by the banks.

Sibiya also states that while Lungelo Lethu educates borrowers on their obligations to repay loans, in hundreds of cases abuse of the court processes by lenders has affected the constitutional rights of the debtor to housing, dignity, safety and security, and access to adequate water and food. This abuse has also affected the rights of children. For many poor people, their home is their sole investment. “The current system, when the home is sold for nominal amounts of money, means that people do not get a cent from the sale of the house,” Sibiya says.

Lungelo Lethu’s arguments are supported by economist Dr Sean Muller, who disputes claims from the banks that the setting of reserve prices would reduce interest in the auction, and therefore make it less likely to find a buyer.

Landmark court case seeks to stop over-charging by creditors

Written by Ciaran Ryan. Posted in Journalism

 

 

 

 

 

 

 

 

 

 

This article first appeared in Moneyweb.

Court papers filed in the Western Cape High Court last week by University of Stellenbosch’s Law Clinic and Summit Financial Partners make for disturbing reading. They are asking the court to stop creditors from loading unlawful costs onto the accounts of distressed debtors, which they reckon has cost debtors R1 billion in unlawful fees.

The so-called in duplum (‘double’) rule was written into the National Credit Act (NCA) in 2007, and means that once a borrower is in default, the outstanding amount payable can never be more than double the outstanding debt at the time of default. If you borrow R1 000, repay R400 of this and then default, the outstanding amount is R600. Under law, you are not obliged to pay more than double this amount (ie. R1 200) no matter how much interest supposedly accumulates, as long as you remain in default.

Some creditors saw what looks like a loophole in the NCA, and added service, administration and legal fees, claiming these fell outside the Act.

Take the example of Edgar Arnolds of Somerset West, one of the applicants in the case. He borrowed R12 000 from Bayport Financial Services in April 2011 at an interest rate of 34.4% a year for 36 months. This meant he had to repay R745 for 36 months, coming to a total of R26 837.

He defaulted later in 2011 and Bayport secured an emolument attachment order (EAO), also known as a garnishee order, against his salary. Arnolds’ employer was ordered to deduct R732 a month until the outstanding debt of R11 685, plus costs, was extinguished. As an aside, the garnishee order was obtained in the Randburg Magistrates Court, in Johannesburg, even though Arnolds lives in the Cape. This is unlawful, as garnishee orders must be obtained in the jurisdiction in which the borrower lives or works.

Six years later, in 2017, Arnolds wondered why his employer was still deducting R732 a month from his salary. Bayport informed him that he still owed more than R7 400. Arnolds discovered that after six years of dutifully paying his monthly debit, he still owed more than half the original amount borrowed. He asked Bayport for a reckoning, which it duly supplied.

In addition to the interest charges of R21 019, Bayport had loaded services, legal and other charges of nearly R6 500 onto his account. Had he paid this outstanding amount, he would have forked out R33 000, nearly three times the amount he borrowed. Another applicant in the case ended up repaying R5 100 on an initial debt of R600.

This is when the Law Clinic and Summit Financial Partners decided to step in on behalf of Arnolds and nine other clients with similar stories. It wants the court to rule that the services, legal and other fees should form part of the in duplum definition – in other words, the defaulting client should never have to pay more than double the outstanding debt at the time of default, even after accounting for all costs.

“The problem that debtors are facing is one of inconsistent judgments around the interpretation of the National Credit Act,” says Stephan van der Merwe, senior attorney at the Law Clinic. “We are not asking for a change in the law. The law, in our view, is clear enough. You cannot load these unlawful charges onto a client’s account as a way of side-stepping the in duplum rule.

“We need a healthy credit industry in SA, and we support those who abide by the rules. This case is aimed at those who do not.”

Dr Theo Broodryk, head of the Law Clinic, adds: “The fact that 49 respondents, including all the main banks and major lending institutions, have been joined to the application, is indicative of the impact that this case could have on the South African credit market.”

This is not the first time the Law Clinic has taken on what it sees as abusive practices by lenders. In 2016 the University of Stellenbosch Law Clinic took on the micro-lenders on behalf of 15 low income clients whose salaries were being siphoned off by garnishee orders. The Western Cape High Court and Constitutional Court found in favour of the Law Clinic.

In that case, lenders were found to be skirting the law by having garnishee orders stamped by a clerk of the court, rather than a magistrate, and often in courts far away from where the borrower lived. These practices were declared unconstitutional.

“Two years on, the applicants have approached the court regarding what they identify as the unilateral, unregulated manner in which creditors and collection agents add costs, including legal fees, to debtors’ accounts both before and after judgment,” says the Law Clinic in a statement.

In an affidavit before the court, van der Merwe says section 103(5) of the NCA places a limit on the costs a creditor can claim in enforcing its agreement. “Consumers are no longer at the mercy of credit providers, who often have unlimited resources to pay legal fees to recover their debts which costs are the simply passed onto the consumer.”

Business rescue practitioners face down 42 court cases from Gupta associates, creditors

Written by Ciaran Ryan. Posted in Journalism

This article first appeared at Moneyweb.

The business rescue practitioners trying to save the eight Gupta-owned companies placed under business rescue in February have had to face down 42 court cases in less than four months. That works out at more than 10 a month. The Gupta family from India has been implicated in corruption of state-owned companies through its close ties with former President Jacob Zuma, who now faces corruption charges of his own.

The blizzard of litigation kicked off within days of business rescue practitioners being appointed in February. Several of the cases came from liquidation practitioners seeking to liquidate rather than rescue the crown jewel in the portfolio, Optimum Coal Mine (pictured above), after getting legitimate creditors to sign over their claims. All of these attempts to liquidate the companies failed.

The motivation to liquidate rather than rescue the companies is obvious: the liquidators stand to make 10% on any monies raised from the sale of assets, which could amount to anything between R300 million and R500 million. Attorney Bouwer van Niekerk from law firm Smit Sewgoolam, which is representing the business rescue practitioners, says the litany of court cases was clearly stage-managed by previous managers to the prejudice of the companies, staff and creditors.

In April, several directors of the Gupta-owned Oakbay denied business rescue practitioners (BRPs) access to the company’s Sandton offices. The directors claimed that Oakbay, the Gupta-owned company that controlled the eight companies in rescue, had not itself been placed under business rescue and therefore the BRPs had no right to enter. The court threw out the claim, and forced Oakbay to open its doors to the practitioners. Many of the court cases against the Gupta companies involved appeals against decisions handed down by the North and South Gauteng High Courts. All of these appeals went in favour of the business rescue practitioners.

In recent weeks there was an attempt to sabotage Optimum Coal Mine when overhead cables supplying power to trains transporting coal from the mine were cut. Optimum had to replace the cables at a cost of more than R3 million.

All this pales alongside the damage wrought by the Guptas themselves, who appear to have drained the company of cash – to the point where miners were sent underground without protective gear and machines were left to rot.

Within 24 hours of taking over as business rescue practitioner for the Gupta companies, Louis Klopper testified before the Parliamentary Portfolio Committee. “I told the committee that the Guptas had pillaged the companies and treated them as their own personal piggy banks. I still stand by those comments,” he says, adding that a more detailed picture of the causes of failure at the businesses will soon be available.

Confessions of a debt counsellor

Written by Ciaran Ryan. Posted in Journalism

This article first appeared at Moneyweb.

Seventy-seven-year-old former stockbroker and debt counsellor Fanie Grove has spent most of his life in financial services, but what he saw as a debt counsellor turned him against credit forever. His advice: avoid credit altogether, but if you must dip your toes in this sewer, be aware of the scams and tricks.
Seventy-seven-year-old former stockbroker and debt counsellor Fanie Grove has spent most of his life in financial services, but what he saw as a debt counsellor turned him against credit forever.

One client borrowed R4 000 from a cash loan company and ended up paying back more than R60 000. That wasn’t the end of it. Lawyers for the loan company still pursued the client for a further R29 000, until Grove told them to take a hike.

After nearly a decade as a debt counsellor, Grove has become a whistleblower against abusive lending practices. He has written scores of complaints to the National Credit Regulator (NCR) since 2007, detailing how creditors are miscalculating interest on car loans and other debts, as well as loading unauthorised insurance charges onto clients’ accounts.

“People are living from pay cheque to pay cheque. More than 80% of their working lives go to repaying debts. What worries me is where we will be in 50 years’ time unless we change people’s spending and savings habits, and bring greater accountability to the lending industry.”

The country is swimming in debt, he says. It usually starts with a month-end cash crunch. The first port of call is the bank. When that source of credit is tapped out, people move onto the loan sharks and things rapidly spiral out of control.

Lawyers involved in debt recovery also see an opportunity for illicit profit. In one case lawyers attempting to recover debt on a R3 000 fridge claimed the purchase price was R18 000. “I have seen numerous instances where lawyers inflated the capital amount of the loan by 50%, and then added 30% a month interest on top of that.

“People are encouraged to borrow without asking too much about the interest rate. This is the first mistake. Once they enter the debt system they are trapped, having to borrow more to cover the interest bill. There are hordes of vultures, many with bibles under their arms, that are making fortunes in the cash loans business. In hundreds of cases I have seen, people end up in the hands of the debt counsellors, a new concept introduced under the National Credit Act (NCA), to assist debtors to reschedule their debts and gradually pay them off.”

The banks have learned to game this system, declaring the very act of going under debt review as an act of insolvency – precisely what the act was intended to prevent. The result was that banks were foreclosing on people’s houses and cars as soon as they went under debt review.

“Fortunately, the act was amended a few years ago to prevent creditors from doing this. In other words, it is no longer an act of insolvency to go under debt review, but it speaks volumes about the ethics of banks that they would circumvent the spirit and intent of the NCA, knowing that it was attempting to protect debtors from such predatory behaviour,” adds Grove.

Out of this melee arose the garnishee crisis, throwing millions of people in SA into a debt crisis. This is when lenders extended credit and obtained court orders to deduct repayments from workers’ monthly salaries – known as garnishee or emolument attachment orders (EAOs).

According to NCR figures, more than four out of ten people in SA have impaired credit records. The Magistrates Court Act was amended in 2017 so that no more than 25% of a worker’s salary may be garnished (deducted from the payroll). Another change to the law requires magistrates rather than court clerks – as was previously the case – to authorise emolument attachment orders.

The Magistrates Court Act requires that EAOs are issued in the jurisdiction in which the employer resides. To get around this, lenders simply apply for a garnishee order in another jurisdiction far from the borrower’s place of work. “We see many instances where people borrowed in Cape Town but the creditor approached a magistrate in Joburg or Polokwane for judgment. Such judgments are in fact illegal, but again, it shows the deviousness of those engaged in this kind of reckless lending and recovery. Loan sharks have their own Magistrate’s Court and sheriff’s stamps so they can create fraudulent court orders.

“Sadly, most people do not check the correctness of their account statements. Some years ago I started to interrogate close to 100 vehicle purchase statements that clients had asked me to look at. I ran my own reconstruction of the statements and found staggering errors. In virtually every case, the accounts were wrong. Interest was miscalculated and unauthorised charges were added on top,” says Grove.

“Here’s the problem with vehicle purchases. Firstly, more than half the vehicle purchase agreements I have seen are not signed by the purchaser, something the courts tend to overlook, probably out of laziness. Secondly, the car salesman is not authorised in terms of the NCA to offer financial advice. This is often when the problem starts. Buyers are taking the car salesmen at their word when they ask what the monthly repayments will be, but then the actual bank statement arrives and it reflects a different amount. The salesman tells the car buyer he is free to choose an insurance provider of his choice, but then the bank statement shows an unauthorised deduction for insurance from a provider of the bank’s choosing.

“People will first borrow from the banks, then when that source is exhausted they start borrowing from loan sharks. I had one client earning R55 000 a month who was so deep in debt he was approaching me at the end of every month to pay his electricity bill.”

In another case, a client borrowed R3 000 from a loan shark at 30% monthly interest. When the borrower could not keep up with the repayments, the loan shark then offered an even larger loan of R10 000 to cover the outstanding loan. The client accepted, and the situation repeated. “It was at this point that he approached me to bail him out,” says Grove.

“Once these matters go legal, the lawyers are next in line to claim their share. Here it starts getting ridiculous. I have seen numerous cases where lawyers’ fees were larger than the original capital amount borrowed.

“Government needs to realise [this] debt recovery business is rotten with vultures and scammers.”

Suggestions for reversing this debt spiral:

  • Monthly salaries to be paid weekly, in ratio of 20% in the first two weeks, and 60% at the end of the month. This spreads cash flow through the month.
  • Only registered credit providers to be allowed to issue garnishee orders (to eliminate the loan sharks).
  • Once a consumer is placed under debt review, attorneys and debt collectors should be prohibited from adding legal and collection charges.
  • Establish a dedicated tribunal, separate from the National Credit Regulator and ombud, to rule on cases of reckless lending.

Home repossession mess gets its day in court

Written by Ciaran Ryan. Posted in Journalism

This article first appeared at Moneyweb.

Lawyers defending clients against the banks say the Gauteng Judge President’s recent directive can be used to freeze home repossessions and evictions.

Gauteng Judge President Dunstan Mlambo wants a full bench of the High Court to sort out the mess of inconsistent judgments over home repossession cases.

In a recent practice directive, Mlambo says he also wants a full bench of the court to decide on the setting of reserve prices when properties are sold at sheriffs’ auctions. Until recently, repossessed properties were sold at auction without reserve prices, resulting in some homes being sold for as little as R10. A recent change in High Court rules now allows judges to set reserve prices. But this has also caused confusion. Some judges have dismissed banks’ applications to declare properties “specially executable” without a reserve price, while others have done the opposite.

In April, former public protector Thuli Madonsela highlighted the injustice of selling properties for a fraction of their market worth, after the Pretoria High Court decided it was legal for Standard Bank to sell a R470 000 house for R40 000 to recover a mortgage debt.

She tweeted: “With due respect to the court, I consider this judgment to be grossly unjust and inequitable. It is a setback regarding social justice. Should this matter be taken on appeal, it would be great if all those concerned about social justice join in as amicus curae (friend of the court)”.

Cases such as this have embarrassed the banks and the legal profession. Following Madonsela’s advice, the Lungelo Lethu Human Rights Foundation (LLHRF), represented by lawyers at the Legal Resources Centre, has been joined to the proceedings as a friend of the court, and will be making written and oral submissions.

LLHRF president King Sibiya sees the directive from the Judge President as a major victory against creditor abuse: “It effectively amounts to a freeze on evictions in Gauteng, which is exactly what we have been campaigning for all these years. There are more humane ways for banks to recover debts than throwing families onto the street. We say the Constitutional rights to dignity, property and justice must be given due weight by courts when hearing cases involving the recovery of debts by banks.”

Sibiya is one of the architects of the R60 billion class action suit being brought against the major lending banks for selling repossessed properties below market price.

“There is an epidemic of evictions in the townships in recent years, with gross abuse of court procedure. We recently surveyed several hundred evictees and more than half were not properly notified by the banks of their intention to bring legal action. How can you defend yourself when you do not know the bank is bringing legal action? It is time for the courts to sort out these inconsistent judgments and abuse of court processes by creditors.”

Alexandra Ashton, an attorney with the Legal Resources Centre, says the Judge President’s directive can’t be used to stop the sale if an order for execution has already been given. “But in cases which are pending before the court in which banks have applied for sale in execution, the directive is a reason for the matter to be postponed until the full court has given its judgment.”

Legal advisor to the LLHRF, Leonard Benjamin, argues that a special tribunal needs to be set up to hear home repossession cases. “The adversarial nature of the court process and the winner-take-all result – usually in favour of the banks – is not always in the best interests of justice. In some of the cases we have seen, the banks are getting away with murder, claiming legal and administration fees to which they are not entitled, and often incorrectly calculating interest and outstanding loan amounts. The courts are not the right forum for this. We need a specialised forum where these cases can be aired in a spirit of finding resolution and allowing debtors time to recover from a financial setbacks without losing their homes.”

Moneyweb approached Standard Bank for comment on the directive. Ross Linstrom, spokesman for the bank, replied: “As you are aware the matter is currently sub judicaeand we therefore cannot comment on the questions that you have posed. Suffice for us to say that Standard Bank has duly served and filed its papers and we await the hearing of the matter.”

The Judge President’s directive references four cases involving Absa and Standard Bank to be decided by the High Court. It highlights inconsistencies in judgments by the court, particularly where banks apply for default judgments against debtors and at the same time ask the courts to declare properties executable (authorising them to be sold at sheriffs’ auctions). For banks, this expedites matters and allows them to auction properties without having to approach the court twice: once for a money judgment, and again to declare the property executable.

Mlambo’s directive says the practice of the court is to postpone applications such as these to allow the debtor time to catch up on the arrears. “If upon the postponed date the arrears will have been brought up, the agreement would be reinstated (in terms of the National Credit Act) and the debtor will not lose her home,” says the directive.

Divergent practices have entered the court system over the years. Mlambo wants the court to decide what, if any, discretion judges should have in granting judgments for the full accelerated balances on mortgage debts. Most mortgage bonds have “acceleration clauses” which allows banks to call up the full outstanding loan even though the debtor may only be three or four months in arrears.

“A person’s home is their most important asset and it should not be possible to have it so easily removed from them,” says Benjamin. “If a person is three months in arrears, the law as it stands allows for the bank to attach movables, such as furniture and sell these items to catch up on arrears. Why go straight for the house as the first option?

“This directive is a vitally important step in establishing uniformity in the way courts treat home repossession cases and, hopefully, to bring greater justice and respect for the Constitution to such cases.”