National Credit Act matters must go through the much cheaper – and more accessible – magistrates’ courts.

A recent judgment by a full bench of the Grahamstown High Court makes it unlawful for banks to bring National Credit Act matters before the high court instead of the much cheaper magistrates’ courts.

Lawyers have complained for years that banks were attempting to financially ruin their customers by forcing them into the high courts in an effort to collect on outstanding debts. They also argue that forcing customers into high courts – often far from where they live, a practice known as ‘forum shopping’ – is a further prejudice intended to stack the deck against a customer in default.

Apart from being financially ruinous for customers, it is also a denial of access to justice.This recent judgment means lenders no longer have that luxury of suing in high courts.

Easier and less costly to mount a defence

Disputes over credit agreements must now be argued in magistrates’ courts, where the allowable scale of legal costs are a fraction of that in the high court. Customers being sued by the banks can argue their own cases without legal representation in magistrates’ courts and will not get lumbered with huge legal bills from the opposing side should they lose the case.

The banks argued – without success – that in matters where the magistrates and high courts had “concurrent jurisdiction”, forcing them to bring matters to the magistrates’ courts would infringe their right of access to justice. The judges did not agree.

‘Major victory’

Consumer lawyer Leonard Benjamin says the judgment is a major victory for consumers and tilts the scales of justice in their direction. “A majority of foreclosures and repossessions are unopposed, which allows banks to get judgments which could be based on defective cases and incorrect information.

“I believe that the main reasons why consumers do not oppose the banks are because of their use of the high court. They are inaccessible because they have unfamiliar procedures, are intimidating and located far away.”

Most consumers do not put up a fight against the banks, believing they do not have a defence. But this is incorrect. 

Benjamin says when it comes to foreclosures, not opposing a claim by the bank is a waiver of your constitutional rights. “Where your primary residence is under threat, even if you are in default, the court must consider relevant circumstances before granting the bank an order that will allow it to sell your home to recover its debt. The court must give special consideration to how granting the judgment will impact on children, the aged, the sick and disabled, and women-headed households.

“The court does not know what your circumstances are unless you tell the court. Hopefully, for consumers who defend themselves it will be easier and less intimidating to appear in the magistrates’ courts.”  

The NCA came into effect in 2007 with the clear intention that all NCA matters (credit agreements) should be dealt with in the magistrates’ courts. The Magistrates’ Court Act was amended to allow all NCA matters, regardless of the amount claimed, to be heard in the lower rather than the higher courts.

Although they could easily have brought foreclosures and repossessions in the magistrates’ courts, for more than a decade the banks sued consumers in the high courts. There is little doubt that this was a strategy employed to make it as intimidating and expensive for consumers to oppose the litigation.

The reason is not difficult to fathom: the banks’ lawyers make little or no money arguing cases in the lower court.

For those defending themselves, this adds a layer of unnecessary and unwelcome expense: a round trip just to serve and file court proceedings costs between R200 and R300 each time. This is quite apart from the costs of hiring lawyers, which left consumers in a dilemma: pay the lawyers’ fees or try to catch up on the bond and forestall legal proceedings?

The high costs of mounting a legal defence means most cases involving the banks go undefended. After this recent judgment, that should no longer be an issue.

The original version of this article first appeared In Moneyweb on 4 December 2019.