Weighing the rights of consumers against credit providers – aspects of debt review

Abstract

The influence of the Nation Credit Act should not be underestimated as it has shifted the focus from contractual freedom between parties to protecting consumers. The Act changed the entire approach when contracting parties enter into credit agreements from initially doing so spontaneously, to now contracting with the utmost care whilst taking the protection of consumers into account. The Act provides specific protection for consumers by enabling those who seek debt relief measures, to apply for a debt review order to restructure their debt by means of a court order or negotiation talks with credit providers. Although protection of consumers is much needed in today’s economic climate the reality of the matter is that a valid agreement came into being between the consumer and the credit provider and by protecting the consumer and not enabling the credit provider to enforce its rights against a consumer brings an imbalance in the contractual relationship between the two parties. This dissertation focuses on the balancing of rights between the consumer and credit provider in the event where the consumer applies for debt review and the credit provider terminates the debt review in order to enforce the agreement. Initially two schools of thought, with contradicting viewpoints, were formed with regards to this issue by means of case law and addressed the question whether the consumer or the credit provider’s rights should be the determining factor when it comes to the enforcement of a credit agreement. The Supreme Court Appeal gave legal certainty on how the rights of the two parties need to be balanced by focussing on procedural correctness, good faith and honouring the agreement between the parties and giving absolute discretion to the courts in weighing the parties’ rights and bringing them into balance. Debt review is an improvement on previous debt relief measures in South Africa and especially in today’s economic climate the debt review procedure enables consumers to financially survive over-indebtedness, however, the relief brought to consumers by the debt review process is not absolute as credit providers’ rights need to be taken into account to balance the financial relationship between the two parties and will always have to take into account that a valid agreement came into being between a credit provider and consumer. Although the Act assists consumers who find themselves in an over-indebted situation by possible restructuring of obligations, the credit provider’s rights will have to be taken into account. Although protection of the consumer is priority section 3(d) of the Act states that one of the purposes of the Act is to promote equity in the credit market between the credit provider and consumer and balancing their respective rights and responsibilities. Only by means of balancing the rights of consumers and credit provider’s we will establish a sound credit market. Copyright