The right to be issued with a clearance certificate and the cancellation of the debt review process

Section 21 of the National Credit Amendment Act amended section 71 of the principal Act to provide as follows:

71. (1) A consumer whose debts have been re-arranged in terms of Part D of this Chapter must be issued with a clearance certificate by a debt counsellor within seven days after the consumer has –

( a ) satisfied all the obligations under every credit agreement that was subject to that debt re-arrangement order or agreement, in accordance with that order or agreement; ⁹³ o r

( b ) demonstrated –

(i) financial ability to satisfy the future obligations in terms of the re-arrangement order or agreement under –

( aa ) a mortgage agreement which secures a credit agreement for the purchase or improvement of immovable property; or

( bb ) any other long term agreement as may be prescribed;

(ii) that there are no arrears on the re-arranged agreements contemplated in subparagraph (i); and

(iii) that all obligations under every credit agreement included in the re-arrangement order or agreement, other than those contemplated in subparagraph (i), have been settled in full.

Should a debt counsellor decide not to issue or fails to issue a clearance certificate as contemplated above, the consumer can apply to the National Consumer Tribunal, on the prescribed Form TI.71(3), ^93a to review the debt counsellor’s decision not to, or failure to, issue the clearance certificate. If the Tribunal is satisfied that the consumer is entitled to the clearance certificate, the Tribunal may order the debt counsellor to issue a clearance certificate to the consumer. ⁹⁴ In Andrew Lloyd Govender v Sebastien Alarik Alexanderson , ^94a 94a it was held that the applicant’s request for a clearance certificate to be issued was unwarranted since section 71(3) of the NCA only allows the Tribunal to order the debt counsellor to issue a clearance certificate if the Tribunal is satisfied that the consumer is entitled to the certificate in terms of section 71(2)( b )(i). In terms of this section, the requirement would be that the consumer has satisfied all the obligations under all the credit agreements that were subject to the debt re-arrangement. In this case, the applicant still had three accounts which needed to be settled.

Further, the debt counsellor is obliged to file a certified copy of the clearance certificate with the national register of credit agreements and all registered credit bureaux within seven days after issuance of the clearance certificate. ⁹⁵ Where a debt counsellor fails to file a certified copy of a clearance certificate, the consumer may file a certified copy of the clearance certificate with the National Credit Regulator and the consumer may also lodge a complaint against the debt counsellor with the National Credit Regulator . ⁹⁶ It is important to note that prior to the National Credit Amendment Act, the debt counsellor was not obliged to submit the clearance certificate to the national register and to the credit bureaux.

In practice, a person who qualifies for a clearance certificate would obtain the clearance certificate from the debt counsellor and present it to the credit bureaux. Upon receipt of a copy of a clearance certificate, a credit bureau, or the national credit register, must expunge from its records: ^96a

(a) the fact that the consumer was subject to the relevant debt re-arrangement order or agreement;

(b) any information relating to any default by the consumer that may have –

(i) precipitated the debt re-arrangement; or

(ii) been considered in making the debt re-arrangement order or agreement; and

(c) any record that a particular credit agreement was subject to the relevant debt re-arrangement order or agreement.

In Thizwilondi Ananuas Magadze and Adcap and Others ; Soyaphi Green Ndlovu and Bernice Koekemoer and Others , ^96b Judge AJ Neukircher delivered a combined judgment as the applications sought were virtually mirror images of each other, other than specifics pertaining to each applicant. The applicants, not being entitled to a clearance certificate, as per section 71, sought to terminate the debt review process and be declared no longer over-indebted. The question as to whether a court order, declaring the applicants no longer over-indebted ⁹⁷ has the same effect as a clearance certificate, as detailed above, was considered. The learned judge pointed out that section 88(1) does not have a similar proviso to section 71(5) which is the expunging of the credit bureau records. However, it was held that to “grant an order that falls short of failing to expunge the consumer’s credit record in toto would effectively mean that section 71 would carry more weight than an order issued out by the High Court and that situation would be untenable”. ⁹⁸ The NCA is “geared towards the protection of the consumer, and where relevant, the fiscal rehabilitation of the consumer”. ⁹⁹ The purposes of the NCA include the protection of consumers by promoting the development of a credit market that is accessible to all South Africans, and in particular to those who have historically been unable to access credit under sustainable market conditions. ¹⁰⁰

Judge Binns-Ward disagreed with the decisions in Magadze v ADCAP, Ndlovu v Koekemoer; Phaladi v Lamara and Another ; Moshesha v Lamara and Others ¹⁰¹ and held that where consumers do not qualify for issuance of a clearance certificate in terms of section 71 of the NCA, the consumers “are remediless”. ¹⁰² As such, consumers who are flagged as being under debt review would only be entitled to be “released” from the debt review process and its notation removed from their credit reports to the extent of the relief provided for in terms of section 71. The aforesaid Gauteng decisions have been overturned in the much anticipated full bench decision Hermanus Adriaan Janse Van Vuuren and Neil Frans Roets and Other ; Fabian Matthias Nel and Neil Frans Roets ¹⁰³ regarding whether a high court can make an order confirming that an applicant is no longer over-indebted, which was delivered on 3 September 2019. In short, it has been held that the high court cannot make an order that confirms that an applicant is no longer over-indebted as no such power exists, and overrule a decision in the Gauteng division holding that such power exists. Rather, where a consumer’s debt review is not subject to a court order, the consumer can present the debt restructuring proposal and details of new financial circumstances with the request that the magistrate rejects the debt restructuring proposal and finds the consumer not over-indebted. Where a consumer’s debt review is subject to a court order, the consumer has only the relief that section 71 of the NCA provides, i.e. a consumer must wait until such time as the consumer is entitled to issuance of a clearance certificate.

In Regard du Toit and Benay Sager and Others ¹⁰⁴ Thulare AJ was of the opinion that the applicant had approached the debt counsellor for a clearance certificate in terms of section 71(1)( b ) and that the debt counsellor had decided not to issue the applicant with the clearance certificate. If it is accepted that the applicant had indeed approached the debt counsellor for a clearance certificate, then it was correctly accepted and held that the applicant ought to apply to the National Consumer Tribunal to review the debt counsellor’s failure to issue the clearance certificate. However, arguably, the applicant had not approached the debt counsellor for a clearance certificate in the first instance because the applicant was not entitled to a clearance certificate in terms of section 71 as the applicant still had an outstanding creditor, which did not qualify entitlement of issuance of a clearance certificate, and the outstanding credit agreement was neither a mortgage agreement nor was it a prescribed long-term agreement.

Arguably, the NCR only provides for the cancellation of the debt review process in instances where a consumer, having been previously found to be over-indebted by a debt counsellor, qualifies for issuance of a clearance certificate in terms of section 71. In Rougier v Nedbank Ltd ¹⁰⁵ the debt counsellor subsequently withdrew the debt review application apparently due to the consumer’s uncooperativeness. Justice Nobanda found that in purporting to withdraw the debt review instituted by the consumer in terms of section 86(1) of the NCA, the debt counsellor acted ultra vires. It was further noted that section 86(7) provides for only three possible findings that a debt counsellor can make as a result of an assessment concluded pursuant to a debt review application. Such findings do not include the debt counsellor’s right or power to withdraw a debt review application.

However, a debt review application can be withdrawn as per the National Credit Regulator’s Withdrawal Guidelines, which allow for such a withdrawal where the consumer is no longer over-indebted. In terms of the NCA, a court can only declare a consumer over-indebted or not over-indebted in the following circumstances:

( a ) “… in any court proceedings in which a credit agreement is being considered, if it is alleged that the consumer under a credit agreement is over-indebted, the court may … declare that the consumer is over-indebted” (section 85( b ) of the NCA); ¹⁰⁶

( b ) where a debt counsellor has made a finding in terms of section 86(7)( b ) read with section 86(8)( b ), namely that that the consumer is not over-indebted, but is experiencing or likely to experience difficulty satisfying all the consumer’s obligations, the court may reject the recommendation or application (section 87(1) of the NCA).

An anticipated full bench decision regarding whether a high court can make an order confirming that an applicant is no longer over-indebted was delivered on 3 September 2019 in Hermanus Adriaan Janse Van Vuuren and Neil Frans Roets and Other; Fabian Matthias Nel and Neil Frans Roets. ¹⁰⁷ I n short, it has been held that the high court cannot make an order that confirms that an applicant is no longer over-indebted. Rather, where a consumer’s debt review is not subject to a court order, the consumer can present the debt restructuring proposal and details of new financial circumstances with the request that the magistrate rejects the debt restructuring proposal and finds the consumer not over-indebted. Where a consumer’s debt review is subject to a court order, the consumer has only the relief that section 71 of the NCA provides, i.e. a consumer must wait until such time as the consumer is entitled to issuance of a clearance certificate.

Given the recent full bench decision, the instances as to when a consumer who is not entitled to a clearance certificate can withdraw the debt review process are further limited. It appears that the only option that a consumer has to withdraw from the debt review process is as detailed in paragraphs 32 and 54.2 of the full bench decision of Hermanus Adriaan Janse Van Vuuren and Neil Frans Roets and Other; Fabian Matthias Nel and Neil Frans Roets, namely, a consumer who is not the subject of a Magistrate’s order in terms of section 87 may, together with the proposal of the debt counsellor, present the additional facts to bring about the rejection of the debt restructuring proposal.

Section 60 of the NCA entrenches the consumer’s right to apply for credit. The fact that a consumer cannot obtain credit whilst under debt review, albeit that the consumer may no longer be over-indebted as defined in section 79, infringes upon and arbitrarily limits the consumer’s right to apply for credit. For a right to be limited, the limitation must be reasonable and not arbitrary. Arguably, depriving the consumer’s right to apply for credit is unreasonable if the consumer is no longer over-indebted, especially as section 79(2) requires that a determination as to whether a consumer is over-indebted or not, must take into account the criteria as at the time the determination is being made. Therefore, a previous determination of over-indebtedness if based on criteria that is no longer current, ought not to limit the consumer’s right to apply for credit if the consumer is in fact no longer over-indebted, currently.

Section 3 of the NCA entrenches the purposes of the NCA as follows:

“The purpose of this Act is to promote and advance the social and economic welfare of South Africans, promote a fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market and industry, and to protect consumers, by–

( a ) promoting the development of a credit market that is accessible to all South Africans ….”.

In paragraph 18 of Neukircher AJ’s combined written judgment in the matters of Thizwilondi Ananias Magadze v ADCAP (Debt Safe) and Soyaphi Green Ndlovu v Bernice Koekemoer (The Debt Experts 2) , ¹⁰⁸ i t is noted that

“it is clear that the Act is geared towards the protection of the consumer and where relevant, the fiscal rehabilitation of the consumer.”

In Thizwilondi Ananias Magadze v ADCAP (Debt Safe) (case no. 57186/2016) the applicant’s reason for wanting to be declared not over-indebted and no longer in debt review, namely to obtain a loan to further his tertiary studies and the fact that being under debt review also cost him a promotion.

In Soyaphi Green Ndlovu v Bernice Koekemoer (The Debt Experts 2) (case no. 59419/2016), the applicant’s wish to purchase a motor vehicle and enrol his child in a good school, were taken into account in the decisions to grant the said applications.

Section 72 of the NCA gives consumers the right to access and challenge credit records and information. If able to challenge the debt review signifier as per section 72, the credit bureaux would be obliged to take reasonable steps to seek evidence in support of the challenged information, and within the prescribed time after the filing of the challenge, the prescribed time being 20 business’ days (section 72(3) read with Reg 20).

However, it is doubtful that consumers can successfully utilise the dispute mechanism entrenched in section 72 to remove the debt review signifier in the event that the consumer is, in fact, no longer currently over-indebted. Reason being, in the wake of the issuance of the NCR’s Withdrawal from Debt Review Guidelines, the NCR has since amended its status codes to align the Debt Help System with the withdrawal from debt review process as provided for in the Guidelines. In short, the Debt Help System, as managed by the NCR, records details as well as the status of every consumer that has in fact applied for debt review in terms of section 86 of the NCA and the consumer’s record therein can only be changed in limited instances and such permissible changes do not include a finding or determination by the debt counsellor that the consumer is in fact no longer over-indebted.

The NCR has since amended Debt Help System (the “DHS”) to enable debt counsellors, as well as the credit bureaux, to amend consumers’ debt review status codes and to curtail any such amendment thereto to ensure that it is in line with its Withdrawal from Debt Review Guidelines. The aforesaid amendments are contained in the Debt Help System Enhancements, Circular number 7 of 2016. It is important to note that prior to the aforesaid Circular, the debt counsellor could declare the consumer no longer over-indebted and thereby select status “F” on the DHS. However, the DHS only provides for limited instances of withdrawal from debt review and is arguably not adequately designed or rigged to facilitate withdrawal from debt review”. ¹⁰⁹

Currently, once a consumer’s assessment has resulted in a decision that the consumer is over-indebted, status code “C” must be selected and the debt counsellor must issue the Form 17.2(b) to the credit providers and update the DHS accordingly. Once the Form 17.2(b) is issued and the DHS has been accordingly updated, the debt review process remains in progress as per paragraph 1 of the said Circular. Further, as per paragraphs 2 and 3 therein, once status code “C” has been recorded on the consumer’s DHS profile, the consumer’s record can only be changed in limited circumstances and, as stated above, such permissible changes do not include a finding or determination by the debt counsellor that the consumer is in fact no longer over-indebted.

The only instances, other than in instances where a consumer voluntarily withdraws from the debt review process and in turn, has his or her recorded status on the DHS moved, are as follows:

(i) voluntary withdrawal by the consumer after issuance of the Form 17.2, but prior to the granting of the debt review court order. In this case the process to be undertaken is prescribed and requires that a court order is obtained in which the consumer is declared not over-indebted. Once the court order is obtained, the consumer’s status can be updated to Status code “G”;

(ii) voluntary withdrawal by the consumer if the debt review is subject to a court order and this debt review court order is rescinded.

In Tseko Edwin Koli and Nedbank Ltd and Others ¹¹⁰ the Applicant filed an application in terms of section 165 of the NCA with the National Consumer Tribunal. The Applicant sought to rescind a consent order that was granted by the Tribunal on 27 May 2016. The Tribunal granted the rescission on the basis that the information that was submitted to the Tribunal showed that the applicant sent an e-mail to the debt counsellor on 10 February 2016, to request termination of the debt review process. ¹¹¹ The debt counsellor advised the applicant that the debt counselling process could not be terminated until such time as the applicant had settled all his debt. ¹¹² The debt counsellor did not take the matter further and, in May 2016, the Tribunal granted the consent order. Therefore, the Tribunal rescinded the consent order in terms of section 165 of the NCA as this section essentially provides that the Tribunal, acting of its own accord or on application by a person affected by a decision or order, may vary or rescind its decision or order –

( a ) erroneously sought or granted in the absence of a party affected by it;

( b ) in which there is ambiguity, or an obvious error or omission, but only to the extent of correcting that ambiguity, error or omission; or

( c ) made or granted as a result of a mistake common to all the parties to the proceedings”.

In essence, the consent order was deemed to have been erroneously sought or granted in terms of section 165( a ) of the NCA in that the Applicant did not consent to the granting of the consent order as envisaged in terms of section 138. Rather, the evidence placed before the Tribunal showed that the Applicant wished to withdraw from the debt counselling process before the consent order was granted. Similarly, if a Respondent to the consent order did not provide consent, then the consent order can be rescinded on this basis. In The Motor Finance Corporation (MFC), A Division of Nedbank Limited v Benay Sager and Others ¹¹³ MFC’s application to rescind the consent order was granted by the Tribunal on 13 October 2017 as MFC filed a notice of opposition on 19 September 2017. As the notice of opposition was filed before the consent order was granted and this was not brought to the Tribunal’s attention when it granted the order, the Tribunal found that the order was erroneously sought by the debt counsellor in the absence of MFC.

Similarly, the rescission of an NCT order was granted where it was found that a creditor terminated the debt review before the debt counsellor filed the application for debt review with the Tribunal. It was accepted that the debt counsellor was not supposed to file the application for debt review. ¹¹⁴

In Wesbank, A Division of First Rand Bank Ltd v Coetzee and Others ¹¹⁵ the Applicant sought to vary a Tribunal consent order on the basis that the order reflected the incorrect balance and payment details for a Wesbank account that was included therein. The Applicant sought that the order be varied, and that the correct payment details and balance be reflected. The variation was granted by the Tribunal as it found that the error “constitutes an obvious error that stands to be corrected in accordance with section 165 of the NCA. ¹¹⁶ See also Nedbank Limited v Mothobi and Others ¹¹⁷ where the Tribunal granted a variation of a consent order where it failed to state the payment terms in respect of one of the accounts.

However, an application to vary an NCT order based on a new agreement having been reached by the parties after the granting of the consent order in terms of which the payment information was varied, was refused. The limited grounds on which such an order can be varied were reiterated. ¹¹⁸

In ABSA Bank Limited v Mtetwa and Others , ¹¹⁹ the Applicant sought to rescind the debt re-arrangement agreement which had been made an order of the Tribunal on 19 October 2017 under case number NCT/87336/2017/138. The basis for the rescission application was that the order granted by the Tribunal contains an error in respect of the interest rate that the Applicant had accepted. ¹²⁰ The NCT refused to rescind the consent order as it held that the Applicant had not placed before the Tribunal evidence of “any mistake, error or omission which may have occurred” and that simply stating that the Applicant had made an error in its acceptance of the debt counsellor’s proposal is wholly insufficient. ¹²¹

An application to rescind a consent order on the basis that the consumer did not understand the documents that led to the granting of the consent has been refused by the NCT. ¹²² It was found that as the consumer had signed a power of attorney that authorised the debt counsellor to sign the draft consent order when submitting documents to the NCT and that as such, the order was not erroneously sought by the debt counsellor. ¹²³

Further, the rescission of an NCT order was refused where the basis of the application was that the consumer was in default of the restructured payment agreement and that the debt counsellor had failed to retract the main application before it was made an order. ¹²⁴

In Nel v Deerling and Others ¹²⁵ an application to vary a consent order that included an account that was not under debt review was refused. Rather, the Tribunal found that including a loan or account that the consumer is not responsible for constituted an error. As such, the NCT ordered that the consent order is rescinded as opposed to varied.

It is therefore apparent that the Tribunal shall only rescind or vary an order in terms of section 165 of the NCA if the rescission grounds that are relied upon fall squarely in the four corners of section 165. ¹²⁶ The fact that the Applicant’s financial circumstances may have changed since the granting of the Tribunal order and the applicant is no longer over-indebted cannot be the basis upon which the Tribunal shall vary or rescind its order given that the Tribunal is a creature of statute and is bound by the limitations in section 165.

In Capitec Bank Ltd v Alexanderson and Another ¹²⁷ a creditor, namely Capitec Bank Ltd, applied to the Tribunal to set aside a consent order on the basis that it had terminated the debt review process prior to the granting of the consent order in terms of section 165, in terms of section 86(10)( a ). The termination was due to the consumer failing to make any payment in accordance with the accepted payment agreement. The Tribunal found that in this instance, the debt counsellor could not bring an application for the agreement to be confirmed as a consent order as there was no agreement at the time of the application. The application was therefore found to be brought erroneously and the rescission of the consent order was accordingly granted.

In Kgomotso Daring More v Eugene Cilliers ( NCRDC 1636) t/a Pay Plan Solutions & 11 Others , ^127a the majority decision essentially accepted that a consent order ought not to have been granted by the Tribunal as the consumer’s debt review application showed that the consumer was de facto over-indebted. The Tribunal found that the evidence before the Tribunal showed that “the original application for a consent order did not contain the debt counsellor’s recommendation in terms of section 86(7)( b )”. The Tribunal emphasised at paragraph 34 that “the verification of compliance with section 86(7)( b ) is necessary before the confirmation of a consent order in terms of section 86(8)( a ). Failure to verify compliance with section 86(7)( b ) amounts to a mistake in a matter of law in the proceedings. Where the error was not identified and corrected, it will be an error common to all parties to the proceedings”. As a result, the consent order was found to be granted as a result of a mistake common to all the parties to the proceedings as per section 165(1)( c ).

From the above decision, it is evident that although Rule 20 of the National Consumer Tribunal Rules provides that the Tribunal may confirm a resolution or agreement as a consent order on application by the facilitator of that resolution or agreement and without hearing any evidence, the evidence that is presented to the Tribunal by the debt counsellor must be in compliance with section 86(7)( b ).

In Christopher Nkosinathi Khoza v Benay Sager (NCRDC2484) t/a Debt Busters & 4 Others , ^127b the Tribunal found that the debt counsellors’ determination of over-indebtedness prevents them from facilitating a debt re-arrangement agreement between the consumer and all creditors and having that re-arrangement made an order of the Tribunal in terms of section 138(1), as read with section 86(7)( b ). It was further noted that the Tribunal is a creature of statute, and the case law regarding debt review does not provide any basis for the Tribunal to depart from the clear provisions of the Act.