“Credit” law concepts and General drafting principles
3 Overview 1. Garnishee orders / Emolument orders 2. Sale in execution 3. Maximum interest rates 4. In Duplum 5. Installments 6. Administration orders 7. General drafting principles 8. Amendments to be considered on NCAB
4 Credit Law: “Garnishee order” vs “Emoluments Attachment order” Magistrates' Courts Act, 1944 (Act 32 of 1944): 61. Definition.—In this Chapter— “emoluments” includes— (i) salary, wages or any other form of remuneration; and (ii) any allowances, whether expressed in money or not; and “debts” includes any income from whatever source other than emoluments. Emolument Attachment order: (S65J) Attachment of emoluments at present or in future owing or accruing to the judgment debtor by or from his or her employer. Garnishee order: (S72) Attachment of any debt at present or in future owing or accruing to a judgment debtor. Both sections refer to the debtor as the “garnishee”.
5 Credit Law: Sale in Execution Can Banks sell property and claim the shortfall? Magistrate’s Court Act 1944 (Act 32 of 1944) 66. Manner of execution. (1) First to sell movable property. If none left / available, then only immovable property; (2) Immovable property subject to a preferent claim (mortaged) may only be sold in execution if the preferent creditor - has been notified; and - the proceeds of the sale are sufficient to satisfy the claim of such preferent creditor in full or the preferent creditor agreed to accept the proceeds of the sale in full settlement of his claim.
6 Credit Law: Sale in Execution Can Banks sell property and claim the shortfall? RULES OF COURT (Magistrate’s Court) GNR.740 of 23 August 2010 44. (10) A sale in execution of immovable property shall be by public auction without reserve and the property shall, subject to the provisions of section 66 (2) of the Act and to the other conditions of sale, be sold to the highest bidder. (14) (c) After deduction from the purchase money of the costs of execution, the following shall be the order of preference— (i) The claims of any creditors ranking in priority to the judgment debt in their legal order of preference; (ii) the claim of the execution creditor to the extent of his judgment plus costs and the claims of other execution creditors who have lodged warrants of execution in terms of rule 39 (2) plus costs; and (iii) the claims of creditors secured in respect of that property in their legal order of preference.
7 Credit law: Maximum interest rates Regulations: Part C - Table A Mortgage agreements[(SARB Repurchase Rate x 2.2) + 5%] p.a. Credit facilities[(SARB Repurchase Rate x 2.2) + 10%] p.a. Unsecured credit transactions[(SARB Repurchase Rate x 2.2) + 20%] p.a. Developmental (small business)[(SARB Repurchase Rate x 2.2) + 20%] p.a. Developmental - low income housing (unsecured) [(SARB Repurchase Rate x 2.2) + 20%] p.a. Short term credit transactions5% per month Other credit agreements[(SARB Repurchase Rate x 2.2) + 10%] p.a. Incidental credit agreements (A “cash” sale, but with cost being added if payment is late.) 2% per month
8 Credit law: Maximum interest rates Before NCA, 2005 - Interest uncapped for credit under R10,000 NCA: all capped in Regulations; - Other costs were inflated to allow “compliance” with maximum interest Ultra Duplum rule applied S 103(5)
9 Credit Law: “Ultra duplum” rule Common Law: Interest may not exceed capital – the moment the amount of unpaid interest reaches the principal debt, it stops accruing. - Future / paid / capitalised interest not taken into account. - Payments are applied to interest first. S103(5) National Credit Act: “Despite any provision of the common law or a credit agreement to the contrary, the amounts contemplated in section 101(1)(b) to (g) that accrue during the time that a consumer is in default under the credit agreement may not, in aggregate, exceed the unpaid balance of the principal debt under that credit agreement as at the time that the default occurs.” 101(1)(b) – (g): initiation fee; service fee; interest; credit insurance; default administration charges and collection costs.
10 Credit law: What does an instalment consist of? S101 restricts what can be charged (“cost of credit”): - The principal debt (PrD) plus - If an instalment or mortgage agreement; secured loan or lease: - Initiation fee (prescribed relative to the amount of the PrD); - Costs of an extended warranty agreement; - Delivery, installation and initial fuelling charges; - Taxes, licence or registration fees; - Premiums of any credit insurance payable. - Service fee (monthly, annually, per transaction - prescribed relative to the amount of the PrD); - Interest (may not exceed maximum prescribed rate – s105); - Default administration charges and collection costs (may not exceed prescribed maximum for the category of credit).
11 Credit law: Administration orders Magistrates’ Court Act, 1994 (Act No. 32 of 1944) 74. Granting of administration orders.— - Where a debtor cannot pay a judgement / cannot meet his / her financial obligations (which do not exceed a prescribed amount) - And the debtor do not have sufficient assets capable of attachment to satisfy the judgment / obligations: A court may, on application or ito S 65I, make an order (“administration order”) providing for the administration of that estate and for the payment of his debts in instalments or otherwise - The court may place conditions on the order regarding security, preservation or disposal of assets, realization of movables subject to hypothec or otherwise. - Cost: Legal fees (unless done in person) / Court fees / Administrator’s fees
12 General Drafting Principles Dealing with proposed “Bills” / “Regulations” / “guidelines”: Unless a coordinated project with multiple Bills – ignore.
13 Amendments to be considered on NCAB Definitions “lease”, “mortgage”; “mortgage agreement”; “secured loan” to be revisited New definitions: ‘payment distribution agent’ Consequential amendments: S46, Clauses 15; 17; Clause 6 “probity” v “fit and proper” test Clauses 8 and 15 – similar consultation (in / after) process Clause 11 – Spelling of “ceased” Clause 16: Transitional provisions (Tribunal to consider reckless credit agreements) Clause 20 – revive v reinstate Schedule amending Insolvency Act – Full reference to NCA