Why consumers seldom win in legal battles against the banks

A Pretoria couple recently had a victory against FirstRand Bank (FRB) in the Pretoria High Court when they argued that the bank had not properly notified them that they were in arrears on two mortgage loans.

The court agreed and dismissed the bank’s attempt to recover its alleged arrears because it had not given the couple “proper and timeous notice of their default and statutory rights” in terms of sections 129 and 130 of the National Credit Act (NCA)”.

Read: Widow faces eviction despite claim she settled bond arrears

The court pointed out that FRB could fix the defects in its court application and bring a new one. In other words, it could still attempt to recover its alleged arrears, but not by circumventing proper legal processes.

Instead, FRB chose to appeal the ruling. That means more legal costs for the couple (the Reineckes) – money that could be used to pay down the mortgage bonds.  

Banks flexing their financial muscle

Consumer advocates have long campaigned for “equivalence of arms” when it comes to consumer rights.

Banks have huge funds at their disposal to pursue legal cases, even badly-argued ones. Bank customers simply run out of funds and throw in the towel.

Most mortgage agreements are further tilted towards the banks by allowing them to load legal and other costs onto customer accounts, thereby driving them further into arrears. It’s a losing proposition.

Consumers who feel they have a good case against the bank face an uncomfortable dilemma: either pay the bond or use the money to fight the case in court.

Should they choose to continue fighting the legal battle, they will fall further into arrears.

Another aspect of this case worth mentioning is the impact of Covid on the couple’s income. Courts are now backlogged with cases of debtors unable to keep up with loan repayments due to the 2020 Covid lockdown. In this case, the bank notified the couple in October 2020 that they were in arrears of R70 412 and R153 843 on the two mortgages. 

That was just a few months after the three-month loan repayment holiday announced by the banks that was intended to steer the country through the Covid shock. 

Read: You don’t qualify for bank assistance? Good, you’ve dodged a bullet [Apr 2020]

Their business had been gutted by the Covid lockdown, and they were now required to catch up on the alleged arrears (alleged because they asked the bank, without success, to account for how it came to these arrears figures).

When it came to issuing the Section 129 notice in terms of the NCA, which is a demand to settle the arrears or face litigation, the bank claimed the whole outstanding loan amount of nearly R2 million, not just the amount in arrears. 

The couple’s victory, in this case, was a technical one.

The court dismissed the bank’s case seeking to declare the residential property “executable”, where a property is put up for auction due to a loan default. The couple claimed the bank had not complied with the rules of the court by setting down a date for a court hearing, nor did it alert them of their rights to oppose the matter and make submissions to the court.

Among the other technical objections raised by the couple was the bank’s failure to provide a complete breakdown of the alleged arrears. The court judgment points out that the bank did not argue the missing set down date and defective notice of motion other than by way of denial.

Another defeat for the banks

Another home loan case, this time involving Nedbank, was decided this month in the Pretoria High Court. Again, the homeowner emerged victorious after falling into arrears on two mortgage loans over two properties.

This homeowner told the court he would sell one of his properties and use the proceeds to settle the arrears on the other.

In June 2021, the arrears amounted to R29 000 on the second property, and the homeowner paid over R60 000 to the bank. On this basis, he argued, his mortgage loan had been reinstated, and the bank had no right to execute against (auction) the property as this would amount to arbitrary deprivation of property.

Read: When it comes to home repossessions, judges are all over the place

In February 2023, the bank issued a fresh Section 129 notice (as required under the NCA) to the homeowner demanding R154 571.

The homeowner paid over R150 000 to the bank on 8 March. Despite this, the bank continued to pursue him in court, seeking a default judgment against the second property, claiming he was now still R75 000 in arrears.

Nedbank’s accounting was all over the place, and the judge rightly called it out on this, particularly on the addition of untaxed (unauthorised) legal fees being added to the client’s account.

The homeowner relied on the famous Nkata v FNB case, which ruled in 2016 that credit agreements are automatically reinstated on payment of the arrears and reasonable, agreed costs. The homeowner does not need to go to court to assert this right.

In this case, the legal fees were not agreed upon or taxed (authorised), and the bank had not notified the homeowner of the “nature, extent or balance of legal costs” on the date he made the R150 000 payment.

Nedbank’s case was dismissed, and costs were awarded against it.

Certificate of balance

Consumer advocates complain that the banks simply refuse to provide a proper breakdown of the claimed arrears. This violates the “equivalence of arms” principle that undergirds our legal system.

Banks can sometimes obtain judgments based on incorrect “certificates of balance”, relying on the public’s lack of knowledge of legal and accounting processes.

Another prejudicial practice is allowing banks to sue clients in the (more expensive) high court rather than the magistrates courts. Lawyers earn far less in the magistrates courts than in the high courts, but judges still allow these cases to be heard in the higher courts – for the ultimate cost of the debtor.

Read: Pretoria High Court says banks are abusing the justice system

The refusal of the Supreme Court of Appeal (SCA) to force the banks to sue out of the (cheaper) magistrates courts has come home to roost. It forces consumers to defend their cases in the high court, leaving them in the unenviable position of either paying their debts or paying lawyers’ fees to defend.

The SCA ruled in Standard Bank and Others v Thobejane in 2021 that regardless of which court a case is argued, the poor require appropriate expertise.

That ruling goes on to argue:

“The subject of how to enable poor folk to use the courts effectively implicates the role (and funding) of Legal Aid South Africa, and the several NGOs which give assistance to the poor to litigate, no less than the exercise by a plaintiff of a choice of venue.”

Read: Standard Bank blown in home repo case, referred to banking ombud

This raises the ‘equivalence of arms’ principle – the idea that the rights of the parties must be represented equally in court.

The SCA’s reliance on NGOs and legal aid bodies to remedy this wholly unequal fight is not realistic.

To truly level the playing field, debtors need highly specialised legal counsel with deep banking and consumer law knowledge. You can be sure that lawyers with this level of knowledge are virtually all in the employ of the banks. And they need to be able to argue their cases in the magistrates courts, not the high courts.

On to the appeal …

For the Reineckes, their legal victory is far from decisive. They must now deal with the bank’s appeal and, should they win, another possible appeal to the SCA. All of which comes at tremendous cost. The bank has far from exhausted its legal options in this case.

Another aspect of this is worthy of a separate article: why are the banks going to court to claim rather than allow customers to pay off the full outstanding amount over the remaining term of the loan? That’s a subject for another day. 

Read:
Lawyers blocked from trying to side-step courts in selling repossessed homes [Mar 2022]
Evidence of repossessed homes sold for a pittance can be used in R60bn class action suit – court [Jul 2022]
Evidence that banks sell repossessed houses for cents in the rand [Jan 2021]