Knowing What’s Written – Part I

Anyone who has ever had to sign a finance agreement with a bank to purchase goods will know how that shiver of new-buyer’s excitement rapidly transforms to a shiver of dread when confronted with the hefty volume of terms and conditions that you are expected to sign before the money can be released. If you’re a university graduate and fluent in the language in which the credit agreement is written, you would no doubt find that reading the myriad of terms is a chore to say the least. If reading cannot be listed as one of your favourite hobbies, this chore becomes somewhat more tedious. Reading a contract written in a language not your own? There’s a challenge. Now let’s up the ante a bit: what if a man walks into a used-car dealership and wants to buy a car on finance. He’s gainfully employed. He has the requisite cash deposit available. His credit record is good. His income comfortably exceeds his expenses. Every bank’s dream customer. Let’s face it, with the current economic climate, this pool of dream customers is rapidly dwindling. He selects his new-used car, his credit application is approved, and the obligatory tome of terms is placed into his hands. Just one teensy little problem: he’s a functionally illiterate Zulu speaker who doesn’t understand a word of English. This is exactly what happened in a case that came before the court in KwaZulu Natal*. Dlamini bought a car from a second-hand car dealer, and financed it through his bank. In this digital age banks no longer have branches in every town, village and dorpie, so here’s how the banks work with car dealerships: the dealer is appointed as the bank’s agent to finalise the paperwork. The dealership gives the application for finance to the customer to complete, collects together all the supporting documents, KYCs the customer in terms of FICA, sends the application to the bank, and if approved, gets the customer to sign the finance agreement. The bank pays the dealer, the dealer hands over the keys, and one times satisfied customer drives off into the sunset. Or not. Four days later Dlamini was back at the dealership. One furious Dlamini. It transpired that the vehicle was so seriously defective that in no time it irreparably broke down. Dlamini returned the defunct vehicle to the dealer and demanded that his deposit be refunded. The dealer refused. And this was only the start of Dlamini’s headache. He saw no reason to pay the bank for a car that was not only no longer functional, it was also no longer in his possession. Needless to say, the bank didn’t take too kindly to this – and sued him.

The Law

In order to make its determination, this is the legal framework that the court was required to work with. How credit agreements work: You see a car you like. But you can’t afford to buy it outright, so you ask your friendly bank manager for some assistance. The bank buys the car from the dealer. The bank then sells the car to you, on the basis that the purchase price is repaid in monthly installments. With interest, of course. The bank remains the legal owner of the car until the car is fully paid off. If, down the line, you find that you can no longer afford the installments, one of the options available to you is a “voluntary surrender” where you return the car to the bank. The bank arranges for the sale of the car - usually by way of an auction. It’s highly unlikely that the sale price will cover everything that you owe the bank, which means the bank is then entitled to claim the shortfall from you. While it appears at face value that the bank holds all the cards, this is not entirely true. By virtue of this structure, the bank takes on both the rights and the obligations that come with being the seller of the vehicle. Not to mention the various statutory obligations that the bank needs to comply with.

• Section 3 of the NCA: Amongst other things, this section establishes the right of consumers to education and information.

“The purposes of this Act are 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…addressing and correcting imbalances in negotiating power between consumers and credit providers by providing consumers with education about credit and consumer rights, providing consumers with adequate disclosure of standardised information in order to make informed choices, and providing consumers with protection from deception, and from unfair or fraudulent conduct by credit providers.”

• Section 63 of the NCA: A consumer is entitled to be informed of his rights in his own official South African language.

“A consumer has a right to receive any document that is required in terms of this Act in an official language that the consumer reads or understands, to the extent that is reasonable having regard to usage, practicality, expense, regional circumstances and the balance of the needs and preferences of the population ordinarily served by the person required to deliver that document.”

• Section 64 of the NCA: A consumer is entitled to receive the document in plain and understandable language.

“The producer of a document that is required to be delivered to a consumer in terms of this Act must provide that document in plain language.” “A document is in plain language if it is reasonable to conclude that an ordinary consumer of the class of persons for whom the document is intended, with average literacy skills and minimal credit experience, could be expected to understand the content, significance and import of the document without undue effort.”

• Section 121 of the National Credit Act: In terms of this clause, a customer is entitled to return the goods and claim a refund. But before this comment sparks a wide-scale stampede on banks by consumers eager to return their aged vehicles and claim full refunds, there are a few conditions attached to this, which serve to level the playing fields somewhat.

Section 121 (1) “This section applies only in respect of a lease or an instalment agreement entered into at any location other than the registered business premises of the credit provider.” Section 121 (2) “A consumer may terminate a credit agreement within five business days after the date on which the agreement was signed by the consumer, by (a) delivering a notice in the prescribed manner to the credit provider; and (b) tendering the return of any money or goods, or paying in full for any services, received by the consumer in respect of the agreement.” Section 121 (3) “When a credit agreement is terminated in terms of this section, the credit provider: (a) must refund any money the consumer has paid under the agreement within seven business days after the delivery of the notice to terminate; and (b) may require payment from the consumer for the reasonable cost of having any goods returned to the credit provider and restored to saleable condition; and a reasonable rent for the use of those goods for the time that the goods were in the consumer’s possession, unless those goods are in their original packaging and it is apparent that they have remained unused.” Section 121 (4) “A credit provider to whom property has been returned in terms of this section, and who has unsuccessfully attempted to resolve any dispute over depreciation of that property directly with the consumer… may apply to a court for an order.” Section 121 (5) “If a court concludes that the actual fair market value of the goods depreciated during the time that they were in the consumer’s possession, a court may order the consumer to pay to the credit provider a further amount not greater than the difference between the depreciation in actual fair market value and the amount that the credit provider is entitled to charge the consumer in terms of subsection (3)(b).” If you were the judge and you were tasked with adjudicating on the bank’s squabble with Dlamini, what decision would you hand down? And before you act too severely bear in mind that your judgment needs to fit within the legal framework, so lynching all used-car salesmen and criminalising the charging of interest would be incorrect answers. Sorry. Consider this your brainteaser this fine day. The solution follows in the next instalment.

To be continued…

* Standard Bank of South Africa v Dlamini 2013 (1) SA 219 (KZD)  

Please note that this information is supplied for general information and does not constitute legal advice. It is advisable for you to contact a legal practitioner for guidance in respect of your unique requirements.