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Watch out for a repo frenzy

A blizzard of summonses has hit consumers who fell into arrears during lockdown. The advice from consumer advocates: defend these and tell your side of the story to the court.
Start paying whatever you can as soon as you can – judges view such attempts in a very positive light. Image: Shutterstock

There won’t be much Christmas cheer for thousands of South Africans who fell into arrears on their mortgages and vehicle payments through no fault of their own.

The banks extended a three-month repayment holiday at the start of the lockdown, but started cranking out the summonses as soon as it was over. Household incomes across the board have been hammered by the lockdowns and there’s little prospect of catching up on these arrears.

Government appears to have little concern for the plight of South Africans now at risk of losing their houses and cars.

It was disclosed in Transaction Capital’s recent year-end results that as at June 2020, 23% of vehicle and mortgage accounts were in arrears, as were 77% of unsecured lending accounts.

‘Humanitarian crisis’

“This is a humanitarian crisis and yet we continue like it’s business as usual, as if consumers fell into arrears out of their own neglect,” says King Sibiya, CEO of Lungelo Ditokelo Human Rights Foundation, which provides legal defence against unlawful evictions by the banks.

Sibiya says the foundation has seen a spike in attempts to repossess homes in the last few months.

“People have lost their jobs, or suffered a drop in income, and now they are supposed to be able to catch up on arrears or face eviction. Where is the justice in all this?”

Sibiya is lobbying to prevent any South African facing foreclosure from having their cases heard without legal representation.

He says more than 80% of repossession cases result in default judgments – meaning the person puts up no legal defence.

One of the reasons for this is that the banks are still up to their old tricks of suing customers in the high court, despite being ordered by judges to take their cases to the much more affordable magistrates’ courts. Consumer advocates say the practice of banks suing in the high courts is a denial of access to justice, and it’s time for judges to stop this practice.

As Moneyweb previously reported in The days of banks suing you in the high court are over, there’s simply not enough money in it for banks’ lawyers to pursue cases in the magistrates’ courts. If Sibiya gets his way, so-called default judgments may become a thing of the past.

“This has got to stop, and it’s got to stop now,” he says.

The global response to the threat of evictions posed by lockdowns

Research by DIW Berlin analysed the worldwide response to rents and mortgages to the Covid crisis.

“At least 25 countries have introduced or announced measures at national or regional level worldwide to protect tenants and property owners who have been badly affected by the coronavirus pandemic.

“The most popular measure is the suspension of evictions (19 countries), followed by the suspension of mortgage interest and principal payments (15 countries),” it states.

“In 12 countries, the moratorium on evictions is accompanied by mortgage approvals. Rental stops are only available or planned in nine countries. Subsidies to tenants or landlords are granted in four countries.”

The suspension of evictions in SA lasted just three months and has since been lifted.

If everyone being sued defends against foreclosure, the legal system will change

The advice from consumer advocate Leonard Benjamin: use the opportunity that has been presented by being summonsed to have your day in court.

“The foreclosure process requires the banks to bring an application for foreclosure before a judge,” he says. “The application must be served personally on the consumer, unless a court allows some other manner of service.

“This allows every consumer the opportunity of placing evidence about their circumstances before a judge,” says Benjamin.

“They can do so by filing an affidavit, or even attending the court on the day of the hearing to tell their side of the story.

“At the hearing the judge is required to consider all relevant circumstances before granting an order that allows the bank to sell the consumer’s home. If the consumer does not use the opportunity, all the court has before it to make a decision is what the bank tells it, which is understandably self-serving and paints the consumer in the most unfavourable light.”

The court has to listen

He adds: “People were pushed into arrears through no fault of their own as a result of the lockdown and that is a factor that the court has to take into account, particularly when the conduct of their account was exemplary prior to the unprecedented events of the past few months.

“In addition, if their finances have recovered even partially, they must start paying what they can, as soon as possible, even if they cannot pay the arrears that the banks are demanding.

“In fact, this is probably the single most important bit of advice that I can give consumers, since judges view such attempts in a very positive light.”

Benjamin adds that the three-month repayment holidays announced at the start of the lockdown were nothing more than a PR stunt. “Three months’ relief in the context of a 20-year bond is meaningless. In addition, because, with the frequency of the interest rate adjustments during lockdown, missed instalments were rendered nugatory [of no importance].”

Read: The ‘cheapest’ way to finance a payment holiday

Banks are double-dipping

With each change in interest rates, debts are automatically restructured in a way that effectively eliminated any accumulated lump sum of arrears. In other words, the debt to the bank will be settled if you pay only the new, adjusted instalment. The banks do not tell consumers this but hold the consumer liable for payment of the adjusted instalment, as well as the accumulated lump sum of arrears – an abusive practice known as ‘double-dipping’, which is charging twice for the same thing.

Read: Standard Bank accused of ‘double dipping’ in home repo case

“What the banks should have done was make a blanket announcement that they would defer any legal action during the lockdown and that people should pay what they can.

“At the end of the day, the many interest rate changes during the public holiday would have taken care of the ‘arrears’, if the banks were honest,” adds Benjamin.

SA banks have denied double-dipping, though Benjamin says the evidence that this is standard practice is overwhelming.

What UK courts say about double-dipping

Here’s what the UK courts ruled in Bank of Scotland v Rae: “[Bank of Scotland’s] practice of restructuring mortgage accounts so that arrears of monthly instalments are included in increased monthly instalments so that they will be paid over the remainder of the mortgage term constitutes capitalisation or consolidation of such arrears. This is so whether or not [Bank of Scotland] does this with the consent of the borrower and whether or not it is done as an act of forbearance.”

In spreading the arrears over the remaining term of the loan, the bank has “waived its expectation and right to demand earlier payment of the capitalised arrears, which must be eliminated from the computation of subsisting arrears,” reads the judgment.

That’s a clear instruction to banks to stop running two sets of books: one showing the arrears have been capitalised and therefore wiped out, and another claiming the arrears are still owed – which is exactly the practice pursued by SA banks, says Benjamin.

Formal changes to loan agreements could fall foul of the National Credit Act

A Moneyweb reader adds another aspect to the so-called repayment holidays, most of which were arranged telephonically, and apparently often without supporting paperwork.

The reader explains that despite making payments after arranging repayment holiday, debt collectors arrived several times, threatening to take his car if he didn’t pay up the arrears. The same reader had funds deducted from his positive home loan balance, despite arranging a payment holiday.

Benjamin says he is not surprised that banks avoid formally varying loan agreements for the simple reason this could fall foul of the National Credit Act and would therefore be illegal.

Listen to Nompu Siziba’s interview with TransUnion SA’s Carmen Williams (or read the transcript here):

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First, the Insurance companies balked at paying out for income loss due to the pandemic, and now banks are trying to pull the rug out from under the battered consumer. The common denominator seems that big business feels safe from retaliation when kicking the man who’s down. They don’t seem to realize that when that downed man gets up again he is going to bite them hard because some have long memories.

Generally Banks are heartless. They will destroy a family’s life in the pursuit of a few rand. The courts generally lean towards being more humanitarian, so the advice above is definitely the way to go. When the banks facilitate fraud and corruption, VBS, the major S.A. banks involved in the Gupta scandal, Steinhoff, etc. etc, billions are involved, and nothing happens other than a few slaps on wrists. The culprits who score millions, even billions, walk around brazenly flouting their ill gained wealth. Where is the justice ?

This is the early sign, a water-swell before the final Tsunami that will be en-masse credit-retraction by the financial sector. Like a lurking extinction.

If your organic- no need to panic. But if you owe- the house/ car/ boat etc will go!

Mr Sibaya is 100% correct. This is indeed a humanitarian crises and the banks tick box departments are doing the country no good. For 18 months they can afford to take some pain e.g. interest only at repo plus 1% on arrear loans etc. Their executives can also contain costs starting with their scandalously high incomes.

The existing approach of the banks( despite lies to the contrary by them) simply contributes to social issues and fuel for the extremists. With the exception of Capitec, describing the other five banks management teams as mediocre would be unduly generous.

@Sam The Taxman.
And to add to your comment I am sure you might have come across this article on Moneyweb about FirstRand Bank’s generous COVID plan to reward Bank Execs for simply doing what they are paid to do. Here is an extract:
FirstRand’s ‘Covid instrument’ proves not to be the most generous executive pandemic perk made available to the top echelon at JSE-listed companies.
And then it will become very obvious that we weren’t all in this together. In the medium- to longer term executives of listed companies will emerge considerably better off than most of us.
https://www.moneyweb.co.za/news/companies-and-deals/firstrand-exposes-a-vulnerability-in-south-africas-financial-system/

If the volumes are significant there might be a negative impact on certain segments of the property and used car markets.

Well unfortunately business is business for the banks and while it truly is sad I cannot blame the banks for putting business first.

The issue of repossessions in the economic downturn is a global one, the stark difference between SA and the west is that western governments actually care and have the capacity to try and assist those in desperate need. In SA both the government really doesn’t care and they do not have the capacity to help anymore.

But hey at least the beaches are closed for the remainder of the year, I guess this is the government’s way of “protecting” its citizens.

For survival the main object should be a healthy bank balance and not a unpayable debt balance. So for you overindebted stop looking down on unindebted cash flush individuals and stop moaning if the tides turn.

Boots put it better than I could have : Frankly sick and tired of seeing the Prudent Savers having to subsidise the over Borrowed : Dont buy what u cant afford to pay for !!!
The Banks should never lend on an unsecured basis anyway : part of the problem .
Well said Boots .

Maybe boots but one would expect a healthy bank balance to be attracted by healthy interest rates. I say not so; one is very lucky if straightforward interest, particularly after taxation, keeps pace with inflation. Little wonder SA is a nation of borrowers, not savers. The only succulent (for intermediaries) niche to possibly show real returns is financial “products” where old time lobbying gave big business some breaks.

Not healthy at all.

True, yet borders on “blaming the addict” rather than the Drug dealer..

The financial industry is over loaded with “credit dealers” pushing their “products” on the productive engine.

The biggest con, fin gurus “doing gods work” telling the world they know best how to allocate capital..

China has shows competent government can out perform the Western bankers in capital allocation

Another brazen action by an industry that should know better about how lives can be wrecked by financial difficulties. Then again, is this not something that the banking Ombudsman could preemptively address in the middle of a pandemic?

Dear Mister and Missus Jones, hope you are well because these days the colour in your faces don’t look too well. Remember the days when you looked down on me while you pulled into your driveway, the golden era before lockdown started? Those where the days, with regular brand name empty boxes of all your new toys at the gate. The new shiny BMW, the house that gets constantly renovated, with the garden landscaped shortly afterwards. The upper crust citizens visiting you on weekends, the row of takealot LDVs doing weekly deliveries. And now, what happened? Puff…upper crust citizens are gone, no more mountains of empty boxes at the gate, BMW gone like your jobs after lockdown, the envelopes stuck to your gate with masking tape…..yep, the seven thin years have arrived. Debt is not your friend, the bank neither, and so the upper crust crowd as well.

End of comments.

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