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IN THE NATIONAL CONSUMER TRIBUNAL

HELD AT CENTURION

Case Number: NCT/121761/2018/141(1)

In the matter between:

NOMATHEMBA BEAUTY NDIMA                                               FIRST APPLICANT

MYRLENE PIETERSE                                                            SECOND APPLICANT

and

NEDBANK LIMITED                                                               FIRST RESPONDENT

NATIONAL CREDIT REGULATOR                                    SECOND RESPONDENT

 

CORAM:

Ms M Nkomo               - Presiding Tribunal member

Dr L Best                     - Tribunal member

Ms D Terblanche         - Tribunal member

Date of Hearing          - 7 October 2020 held via Zoom electronic meeting platform

Date of Judgment       - 12 October 2020

 

JUDGMENT AND REASONS

 

THE PARTIES

1. The first Applicant in this matter is Nomathemba Ndima, a major female (hereinafter referred to as “the first Applicant”).

2. The second Applicant in this matter is Myrlene Pieterse ("the second Applicant”).

3. In this judgment, the first and second applicants may be referred to jointly as “the applicants”.  

4.  At the hearing the Applicants were represented by Ms Gericke from Carstens Gericke Attorneys.

5. The first Respondent is Nedbank Limited ("the first Respondent" or "Nedbank”), duly registered and incorporated in terms of the company laws of the Republic of South Africa and a licensed financial service provider, with its registered address at 135 Rivonia Road, Sandown, Johannesburg. At the hearing, the first respondent was represented by Ms Abbotts from Hammond Pole Attorneys.

6. The second Respondent is the National Credit Regulator ("the second Respondent") a juristic person established in terms of section 12 of the National Credit Act 34 of  2005 ("the NCA") to regulate the consumer credit market and ensure compliance with the NCA, with its principal place of business at 127 15th Road Randjespark, Johannesburg, Gauteng. The second Respondent did not appear at the hearing and has not opposed the application.

APPLICATION TYPE AND JURISDICTION

7. This is an application in terms of Section 141(1)(b) of the NCA.

8. Section 141(1)(b) of the NCA provides as follows– 

“If the National Credit Regulator issues a notice of non-referral in response to a complaint other than a complaint concerning section 61 or an offence in terms of this Act, the complainant concerned may refer the matter directly to the Tribunal, with the leave of the Tribunal.”

9. The Tribunal granted the Applicants leave to refer the complaint in a judgment dated 20 November 2019.

10. The Tribunal now considers the merits of the main application and whether the first Applicant is entitled to the relief she seeks.

11. In terms of Section 27(a)(i) of the NCA, the Tribunal has jurisdiction[1].

 

BACKGROUND

12. The second Applicant employs the first Applicant as a healthcare worker for the second Applicant’s mother.

13. The Applicants allege that the first Respondent granted reckless credit to the first Applicant when:

13.1. on 7 October 2015 the first Respondent issued a credit card (“credit card”) to the first Applicant under credit agreement number 5898460978295301; and

13.2. on 11 April 2016 the first Respondent granted the first Applicant a personal loan (“personal loan”) under credit agreement number 8002892175301.

14. The second Applicant noticed that the first Applicant was experiencing financial stress and on behalf of the first Applicant attempted unsuccessfully to resolve the matter with the first Respondent. 

15. On or about 8 July 2017 the Applicants lodged an Application for Assistance with the Ombud for Banking Services (“the ombud”). The ombud investigated the matter, which included assessing the first Applicant’s credit report. The credit report revealed that the first Applicant did not appear to have disclosed her debt obligations with two service providers, which may have impacted the outcome of the first Respondent’s affordability assessments. 

16. On 24 November 2017 the ombud informed the Applicants in writing that it was “unable to make a finding in your favour and since there is no reasonable prospect of us being able to take the matter further, we have closed the case.”

17. During February 2018 the Applicants submitted a complaint to the second Respondent in terms of section 136 (1) of the NCA. They alleged that the first Respondent had engaged in reckless lending by concluding several loans with the first Applicant without properly conducting affordability assessments.

18. The second Respondent conducted its own affordability assessments. It concluded that the first Respondent conducted affordability assessments consistently with the NCA; and the preponderance of information available to the first Respondent did not indicate that entering into the credit agreements would make the first Applicant over-indebted.

19. On 27 July 2018 the second Respondent therefore issued a notice of non-referral in terms of section 139 (1) (a) because the complainant did not allege any facts which, if true, would constitute a remedy under the NCA.

THE HEARING

20. As the Applicants had been granted leave to refer the matter to the Tribunal, the Tribunal’s Registrar set the hearing down for 7 October 2020, via the zoom electronic meeting platform.

ISSUE TO BE DECIDED

21. The Tribunal is required to decide whether the first Respondent entered into reckless credit agreements with the first Applicant; and whether the first Applicant may be granted the relief she seeks.

THE APPLICANTS’ SUBMISSIONS

22. The Applicants allege that the first Respondent failed to conduct a reasonable assessment in accordance with Section 80(1)(a) as read with 81(2) of the NCA, before granting the first Applicant both the credit card and the personal loan; and that the first Respondent failed to take the needed steps to make a reasonable and rational determination of the first Applicant’s financial situation.

23. The Applicants submitted that the first Respondent failed to reasonably determine the first Applicant’s financial means, prospects and obligations in terms of section 81(2)(a)(iii) of the NCA, as read with section 80(1)(a) of the NCA.

24. In respect of the credit card application, the Applicants submitted that the first Respondent did not make use of the first Applicant’s latest three payslips when assessing her financial means. These payslips were available to the first Respondent. Specifically, the latest payslip was not considered when determining income for the purposes of the assessment. It is the Applicants’ submission that had this payslip been used, the assessment would have reflected that the first Applicant’s financial means reflected a deficit, once living expenses were taken into account.

25. In addition, it was submitted that the first Respondent included as income a once-off deposit that had been made into the first Applicant’s bank account and was reflected on her bank statement.

26. The Applicants therefore submitted that the first Respondent made use of the incorrect information to determine the first Applicant’s income, on the basis of which the first Respondent proceeded to provide her with a credit card.

27. The Applicants argued that a valid affordability assessment would show, on a preponderance of available information, that the first Applicant would be left with a financial deficit if the credit card was to be granted to the first Applicant.

28. Regarding the personal loan that the first Respondent granted to the first Applicant, the Applicants submitted that the first Respondent failed to reasonably determine the first Applicant’s debt obligations. Specifically, it was submitted that not all of the debt obligations that were active at the time that the personal loan was granted were included in the affordability assessment conducted by the first Respondent.  Four debt obligations reflected on the first Applicant’s credit profile were excluded.

29. The Applicants further submitted that the first Respondent did not sufficiently engage with the first Applicant regarding the contents of the credit report and did not request the first Applicant to further clarify debt obligations and related instalments for credit agreements listed on the credit report. The Applicants argued that this is contrary to section 81(2) of the NCA which states that the person making the determination on whether the credit agreement is reckless or not - in this case the first Respondent - must regard the ability of the consumer - in this case the first Applicant - to understand or appreciate the risks, costs and obligations under the proposed credit agreement at the time the determination is made.

30. The Applicants acknowledged and accepted the obligation the NCA imposes on a consumer to answer fully and truthfully all requests for information by the credit provider, in terms of section 81(4)(a).

31. Regarding whether or not certain debt obligations were not disclosed by the first Applicant to the first Respondent, the Applicants submitted that it is indeterminate as to what exactly was asked from the first Applicant in this regard, as the first Respondent has not provided any evidence supporting the contents of telephonic discussions with the first Applicant in the course of the application for the personal loan.  But moreover that the first Respondent could not merely rely on certain declarations made by the first Applicant, but needed to fulfil their responsibility to conduct a proper affordability assessment in order to make such a determination.

32. The Applicants’ concluding submission was that the affordability assessment was irrational because the first Respondent failed to properly take into account the actual financial information of the first Applicant. The mechanism, model or procedure employed by the first Respondent to conduct the affordability assessment does not result in a fair and objective assessment as required by section 82(1) of the NCA.

33. The Applicants contended that, had the first Respondent done a proper affordability assessment, the first Respondent would not have granted any credit to the first Applicant because she could not afford to repay the credit.

34. Resultantly, the first Applicant contended that she clearly became over-indebted and fell into a debt spiral as a direct result of the first Respondent’s actions/in-actions. Even if the assessments were found to be reasonable, the extension of credit caused the first Applicant to become over-indebted.

 

THE FIRST RESPONDENT’S SUBMISSIONS

35. The first Respondent denied that it entered into the credit agreements with the Applicant recklessly and submitted that affordability assessments were conducted before both of the loans were granted.

36. In determining the first Applicant’s financial means before providing the first Applicant with a credit card, the first Respondent used three months’ bank statements of June, July and August to determine the first Applicant’s income. On its own version, the first Respondent did not consider the first Applicant’s salary information for September 2015. The first Respondent also included a R1000,00 (one thousand rand) deposit made into the first Applicant’s bank account during this time period. Using this financial information, the first Respondent calculated an average income for the first Applicant which was applied during the affordability assessment.

37. As a cautionary measure, the first Respondent explained that it applied its internal evaluative mechanisms which included the use of an internal buffer amount to reduce the first Applicant’s possible available income, in order to determine affordability.

38. On the basis of the average income, and having applied the expenses the first Applicant declared, the first Respondent assessed that the first Applicant had sufficient financial means and issued the credit card accordingly.

39. With regard to the personal loan, the first Respondent submitted that the monthly income and the living expenses utilized in the affordability assessment were not in dispute between the parties. The issue in dispute was the first Applicant’s monthly debt obligations.

40. The first Respondent determined the first Applicant’s debt obligations by conducting a credit bureau search. Inactive debt obligations; paid up and terminated debt were not taken into account by the first Respondent. Also disregarded by the first Respondent was a listed debt obligations where the instalment amount was equivalent to the outstanding balance at the time and the first Applicant did not declare same in her personal loan application. This led the first Respondent to conclude that this particular obligation was either terminated or paid up.

41. The first Respondent submitted that calculations were conducted by taking the necessary information into account in compliance with the provisions of the NCA and applicable Regulations. Accordingly the first Respondent submitted that the credit extended to the first Applicant in the form of both the credit card and the personal loan, was not reckless. Further that same has not rendered the first Applicant over-indebted, which is evidenced from the fact that the first Applicant has not applied for debt review; nor the re-arrangements of her debt repayments.

LAW APPLICABLE TO THE APPLICATION

42. At the core of this matter is the issue of reckless credit. The NCA headlines reckless credit in its preamble, underscoring the importance with which the lawmakers regard it. The preamble provides that the NCA had been promulgated, amongst others, “...to promote responsible credit granting and use and for that purpose to prohibit reckless credit granting;...”

43. Under section 1 of the NCA, “reckless credit” means “… credit granted to a consumer under a credit agreement concluded in circumstances described in section 80.”

44. Section 80 states –

“(1) A credit agreement is reckless if, at the time that the agreement was made, or at the time when the amount approved in terms of the agreement is increased, other than an increase in terms of section 119 (4)—

(a) the credit provider failed to conduct an assessment as required by section 81 (2), irrespective of what the outcome of such an assessment might have concluded at the time; or

(b) the credit provider, having conducted an assessment as required by section 81 (2), entered into the credit agreement with the consumer despite the fact that the preponderance of information available to the credit provider indicated that—

(i) the consumer did not generally understand or appreciate the consumer’s risks, costs or obligations under the proposed credit agreement; or

(ii) entering into that credit agreement would make the consumer over-indebted”.

45. Section 80(2) directs the person making a determination whether a credit agreement is reckless or not, to apply the criteria set out in section 80(1) “as they existed at the time the agreement was made”, and without regard for the current financial ability of the consumer at the time the determination is being made.

46. Section 81(2) provides that –

“A credit provider must not enter into a credit agreement without first taking reasonable steps to assess—

(a) the proposed consumer’s—

(i) general understanding and appreciation of the risks and costs of the proposed credit, and of the rights and obligations of a consumer under a credit agreement;

(ii) debt repayment history as a consumer under credit agreements;

(iii) existing financial means, prospects and obligations; and..,.”

47. Section 82 provides that -

“ (1) A credit provider may determine for itself the evaluative mechanism or models and procedures to be used in meeting its assessment obligations under section 81, provided that any such mechanism, model or procedure results in a fair and objective assessment, and must not be inconsistent with the affordability assessment regulations made by the Minister.”

48. National Credit Act Regulation 23A (4) states…

Existing Financial Means and Prospects…

“(4) A credit provider must take practicable steps to validate gross income in relation to -

(a) Consumers that receive a salary from an employer:

(i) Latest three (3) payslips; or

(ii) Latest bank statements showing latest three (3) salary deposits…”

(emphasis added)

 

ANALYSIS OF EVIDENCE AND REASONS FOR JUDGMENT

49. In order to determine whether credit was granted recklessly by the first Respondent to the first Applicant, the Tribunal must assess whether there was compliance with sections 80, 81, and 82 of the NCA, as well as with the Regulations. In making this determination, the Tribunal must consider not just whether an affordability assessment was undertaken, but whether the steps taken were reasonable.

50. The Tribunal found that the first Respondent did conduct a version of affordability assessments for both the credit card and personal loan applications. However, there were different issues that needed to be considered when determining whether each of these assessments complied with the requirements of the NCA.

51. Regarding the affordability assessment to determine whether to grant the first Applicant credit by the provision of a credit card, the Tribunal found that the first Respondent did not comply with Regulation 23A (4) to validate gross income.

52. It is common cause between the parties that –

52.1. the second Applicant employs the first Applicant;

52.2. the first Respondent considered the first Applicant’s bank statements for the months of June 2015, July 2015 and August 2015, though it appears from the bank statement the first Respondent attached to its answering affidavit that the first Applicant’s pay information for September 2015 was available and known to the first Respondent;

52.3. the first Respondent did not use the latest three (3) payslips or, in validating the first Applicant’s income, did not consider her income for September 2015, which forms part of the “… latest three salary deposits”; and

52.4. when conducting the affordability assessment, the first Respondent included in the calculation of the first Applicant’s income, a R1 000,00 (one thousand rand) deposit that had been made into the first Applicant’s account.

53. The Tribunal has considered what constitutes financial means in terms of section 81(2), in National Credit Regulator v Shoprite Investments Ltd[2]:

“Reading the plain text of this provision [section 81(2)] the word “existing” qualifies “financial means”, “prospects” and “obligations”. It follows that the “existing”, is as at the time of entering into the credit agreement has to be taken into account and not “future” “financial means”, “prospects” and “obligations” i.e. as at the time by when the consumer might have paid up his or her furniture accounts, unilaterally defaulted on their insurance and other month-to-month commitments, or taking into account unverified income without taking into account possible concomitant expenses against such income and taking into account income from another source of credit that might very well increase the consumer’s debt obligations”.

54. The first Respondent did not explain nor provide a valid reason to the Tribunal why it did not consider the first Applicant’s latest three salary deposits.

55. The once-off deposit was unverified, yet it was taken into account by the first Respondent and included in the income calculation.

56. The impact of not using the latest salary deposit information and of including the additional once-off bank deposit amount as income, was that the first Respondent arrived at an affordability calculation which showed that the first Applicant had sufficient financial means for afford the credit card repayments, when in fact the first Applicant did not.

57. Regarding the extension of the personal loan, the parties agreed on the income the first Respondent took into account.

58. The parties did not agree on the expenses the first Respondent considered to determine whether the first Applicant could afford the credit the first Respondent extended to the first Applicant.

59. The first Respondent submitted that it consulted the first Applicant’s credit bureau records but did not take all the records into account in conducting its affordability assessment. The first Respondent conceded that it made unilateral decisions as to which debt obligation listings appearing on the credit bureau records to include in the affordability assessment calculations.

60. The first Respondent submitted that it took into account the expenses the first Applicant allegedly declared telephonically to the first Respondent.

61. The Tribunal has considered the appropriate approach to confirm information to be included in an affordability assessment in Ludick v First National Bank[3]:

“The NCA is peremptory in requiring a credit provider to conduct an affordability assessment. It therefore stands to reason that a credit provider must retain accurate and clear evidence regarding the assessment done.  At the very least, one would expect an assessment document physically signed or confirmed by the Applicant in some way. A telephone recording might also assist”.

62. Whilst both parties confirmed that there was a telephone conversation between the first Applicant and the first Respondent, the first Respondent did not lead evidence regarding the contents of this conversation. There is therefore no evidence before the Tribunal as to what the first Applicant was asked to confirm as debt obligations, or whether in fact the first Applicant made any confirmations what-so-ever. The first Respondent did therefore not prove that it had taken reasonable steps to confirm the first Applicant’s existing obligations.

63. In National Credit Regulator v Shoprite Investments Ltd[4] the Tribunal commented on unilateral adjustments to credit bureau records and expressed its dissatisfaction with this behaviour. The Tribunal said the following:

“80. Considering the apparent position customers now may have found themselves in after the assessment, and without going into extensive detail on this aspect, the Respondent's evaluation mechanisms, or models and procedures do not bring about a 'fair and objective result to all parties concerned-

80.1 Consumers' pre-existing commitments and future commitments are being sacrificed in favour of the consumer entering into a new credit agreement with the Respondent,

80.2 Pre-existing debt obligations are disregarded contrary to the provisions of the Act;

80.3 That credit bureau Information is adjusted by the Respondent to enable it to grant credit where the information points to the contrary.

64. The Tribunal found that in the above circumstances, similar to the circumstances in the matter before the Tribunal regarding credit bureau records, Shoprite extended credit recklessly to the consumers.

65. Janse van Niewenhuizen, J, in Shoprite Investments Limited v National Credit Regulator[5] endorsed the Tribunal’s approach,  and stated that –

“[29] In view of the aforesaid, I agree with the finding of the Tribunal that Shoprite extended reckless credit.”

66. Having considered the submissions made, the Tribunal found that while the first Respondent considered whether or not the first Applicant could afford the credit card and the personal loan, the way in which this was done did not meet the requirements of an affordability assessment in both instances.

67. The Applicants did not place evidence before the Tribunal regarding the first Applicant’s over-indebtedness in terms of section 80(1)(b).

68. The Tribunal finds that the first respondent extended credit recklessly to the first Applicant in the form of a credit card during October 2015, and a personal loan in April 2016,  as proscribed in section 80(1)(a) of the NCA.

69. The Tribunal accordingly declares these credit agreements reckless.

RELIEF SOUGHT

70. The Applicant requested the Tribunal to order the following relief  -

70.1. Declaring the credit card and personal loan entered into between the first Applicant and first Respondent reckless in terms of section 80(1)(a) of the NCA, alternatively section 80(1)(b)(ii) of the NCA;

70.2. Setting aside or suspending the first Applicant’s obligations in terms of the two credit agreements, in terms of Section 83(2)(a) or (b), or, in terms of Section 83(3)(b)(i) of the NCA; and

70.3. Granting the first Applicant such further and/or alternative relief as the Tribunal may deem appropriate, in accordance with the discretion granted to it in terms of Section 83 of the NCA.

71. The overall empowering provision for the imposition of orders by the Tribunal is set out in section 150 of the NCA. Section 150(i) provides that “… in addition to its other powers in terms of this Act, the Tribunal may make an appropriate order in relation to prohibited conduct or required conduct in terms of this Act, or the Consumer Protection Act, 2008.”

72. Section 83 of the NCA was amended by the National Credit Amendment Act (“the NCAA), 19 of 2014. After the promulgation of the amendment, the Tribunal may impose the relief the NCA provides for in section 83(2). The NCAA came into operation on 13 March 2015. All the credit agreements the Tribunal adjudicated on, are subject to the amended sections of the NCA. As set out below -

72.1. Section 83(1) empowers the Tribunal  to declare that a credit agreement is reckless; and

72.2. Section 83(2) provides that  if a court or Tribunal declares that a credit agreement is reckless in terms of section 80(1)(a) or 80(1) (b)(i), the Tribunal may make an order—

72.2.1. Setting aside all or part of the consumer’s rights and obligations under that agreement, as the court determines just and reasonable in the circumstances; or

72.2.2. Suspending the force and effect of that credit agreement in accordance with subsection (3) (b) (i).

73. The Tribunal found that the first Respondent entered into the impugned agreements with the first Applicant recklessly and declared them reckless.

74. Once the Tribunal has declared a credit agreement reckless in terms of section 80(1)(a) or 80(1) (b)(i) it may “… set aside all or part of the consumer’s rights and obligations under that agreement, as the court determines just and reasonable…”

75. The phrase ‘just and reasonable’ is not defined in the NCA. It is for the Tribunal to give content and effect to this phrase within the context of this matter.  There is relatively little guidance available to the Tribunal in the South African case law regarding the content of ‘just and equitable’ in deciding whether to “… set aside all or part of the consumer’s rights and obligations …” under the credit agreements.

76. The Honourable Louw, J in Absa Bank Limited v De Beer and Others[6] in considering what is just and reasonable, amongst others, took into account the extent of the recklessness. In that case the factors taken into account were – “taking the surety's income into account in order to determine whether the principal debtors qualified; the first and second defendants are elderly..; and the property … is the only, and thus primary home of the first and second defendants.”

77. Isser[7] unpacked the concept of ‘just and equitable’ in a detailed treatise and concluded that  “Just and reasonable and public interest are judge defined terms, because they have no definitive meaning outside of that provided through jurisprudence. When Congress used the term “just and reasonable” in the Hepburn[8] Act, it was with the understanding that the courts would provide the actual definition of the term.”

78. The first Respondent, in the view of the Tribunal, displayed a high level of recklessness. The first Respondent should have exercised greater care and caution given that the first Applicant had returned items on her bank account on the statement that the first Respondent had before it, In addition, the first Respondent did not provide evidence that it adequately confirmed with the first Applicant her actual expenses and debt obligations. The first Respondent also did not comply with Regulation 23A to correctly determine the first Applicant’s financial means. This is contrary to the letter and spirit of the NCA.

79. The first Respondent is a major banking institution in South Africa. It can reasonably have been expected to have had good systems in place to ensure it can produce evidence of the assessment done. Whilst it conducted assessments, in the particular circumstances of this matter these were not compliant or in full accordance with the provisions of the NCA. The first Respondent could have settled the matter when the complaint was reported, as this was a matter that affected a vulnerable consumer in a low income bracket. It however continued to dispute the allegations and forced the first Applicant to seek recourse at the Tribunal, incurring legal costs at each step of the process.   

80. In the light of the above the Tribunal finds that it is just and reasonable that it sets aside all of the first Applicant’s obligations under the two credit agreements the Tribunal has declared reckless.

 

ORDER

81. The Tribunal  makes the following order -  

81.1. The following credit agreements are declared reckless and set aside -

81.1.1. credit agreement number 5898460978295301; and

81.1.2. credit agreement number 8002892175301;

81.2. All the first Applicant’s future rights and obligations in terms of the above credit agreements are set aside;

81.3. The first Respondent is to credit the first Applicant’s abovementioned accounts with all payments made on the two credit agreements as from the dates that these were entered into respectively. The accounts must further be credited with all interest fees and charges charged on these accounts; and

81.4. No order is made as to costs.

 

Dated at Centurion on this 19th day of October 2020

 

Dr L Best

Tribunal Member

 

 

Ms M Nkomo (Tribunal member) Ms D Terblanche (Tribunal member) concurring.

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