Study Theme 13: The early termination of credit agreements

Question 1

common law right to settle the agreement.

Answer 1

❖ Debtor is entitled to advance payment of a debt if the date
for payment was postponed in his interest.
❖ If the future date for payment was set in the interest of the
creditor (or of both parties),
❖ The debtor may not prepay the debt without the creditor’s
consent (usually when debt is interest-bearing).
❖ According to the general principles, debtor may only prepay
the whole debt if he also pays all future interest.

Question 2

❖ NCA legislation

Answer 2

❖ S125 of the NCA:
❖ A consumer is entitled to settle any credit agreement at any
time, with or without advance notice to the credit provider,
❖ By paying the settlement amount.

Question 3

Settlement
amount
❖ Small and intermediate credit agreements:

Answer 3

❖ With or without advance notice to the credit provider:
➢ The unpaid balance of the principal debt at the time of
settlement, or
➢ The unpaid interest charges and all other fees and
charges payable by the consumer to the credit provider
up to the settlement date (in other words no future
interest, fees and charges)

Question 4

❖ Large credit agreements:

Answer 4

❖ The unpaid balance of the principal debt at the time of
settlement,
❖ The unpaid interest charges and all other fees and charges
payable by the consumer to the credit provider up to the
settlement date (in other words no future interest, fees and
charges)

Question 5

An early termination charge

Answer 5

❖ Calculation of early termination charges:
❖ Calculated at the same interest rate as the interest rate
agreed on in the credit agreement, e.g. 14% per year.
❖ Over a period of:
❖ 3 months minus the period of notice of settlement, if any,
given by the consumer:
➢ 3-3 months’ notice = 0 early termination charge
payable
➢ 3-2 months’ notice = 1 month’s early termination
charge @14%
➢ 3-1 month’s notice = 2 months’ early termination
charge.

Question 6

Advantages

Answer 6

❖ The consumer gets rid of an interest-bearing debt
❖ The consumer becomes the owner of the leased goods
❖ The consumer becomes the owner of goods bought in terms
of an instalment agreement.

Question 7

Surrender of
goods

Answer 7

❖ The NCA gives the consumer an extraordinary right, namely,
to rid himself of his agreement.
❖ When goods are involved, by unilaterally deciding to return
the goods to the credit provider so that they can be sold by
the credit provider again in order for the account to be
settled.

Question 8

Application:

Answer 8

❖ The right to surrender only applies to instalment
agreements, leases or secured loans.

Question 9

❖ Notice to surrender:

Answer 9

❖ A consumer may notify a credit provider in writing to
terminate a lease, instalment agreement or secured loan;
❖ And may return the goods involved to the credit provider (or,
if the credit provider is already in possession of the goods,
require the cp to sell the goods).

Question 10

❖ Botha case:

Answer 10

❖ It does not suffice for the consumer to simply return the
goods.
❖ The notice to the credit provider is important to effect an
effective surrender of the goods.

Question 11

❖ S127(2) notice

Answer 11

❖ The credit provider must subsequently notify the consumer
of the estimated value of the goods.
❖ The purpose of this notice is to inform the consumer what
the goods will probably be sold for.

Question 12

❖ Edwards v Firstrand Bank t/a Wesbank

Answer 12

❖ Delivery of the S127(2) notice per ordinary mail is sufficient,
but the courts move in the direction of delivery per
registered mail.

Question 13

❖ Withdrawal of surrender:

Answer 13

❖ Must distinguish between a consumer who was in default
when surrendering and a consumer who was not in default.
❖ The consumer not in default:
❖ Upon receipt of the S127(2) notice (stating the estimated
value of the goods),
❖ The consumer may withdraw the notice to the credit
provider to terminate the agreement and
❖ May resume possession of the goods and continue with the
credit agreement (or this consumer can elect for the S127
process to run its course).
❖ The consumer in default:
❖ Does not enjoy the extraordinary right of continuing with the agreement despite his own earlier notice to the credit
provider to terminate it.

Question 14

❖ Selling the goods, and settlement:

Answer 14

❖ If the consumer does not respond to the S127(2) notice:
❖ The credit provider must sell the goods as soon as
practicable for the best price reasonably obtainable (to
another person).
❖ After the sale the consumer must be informed of:
➢ The settlement amount in terms of the agreement
before the sale
➢ The proceeds of the sale and
➢ Whether there is a surplus or shortfall

Question 15

❖ If surplus:

Answer 15

❖ The credit provider must pay any surplus after the sale to
the consumer, upon which the credit agreement is
terminated

Question 16

❖ Surplus example:

Answer 16

❖ R10 000 initial debt
❖ R2 000 paid by consumer in instalments
❖ R8000 outstanding, goods surrendered and sold
❖ R9 000 proceeds of sale
❖ R1 000 surplus (R9000- R8000) must be paid to the
consumer by the credit provider
❖ Credit provider gets R10 000 (R2000 paid by consumer +
R9000 (sale) – R1000 paid to the consumer)

Question 17

❖ If shortfall

Answer 17

❖ The credit provider must request the consumer in writing to
pay the shortfall (voluntarily).
❖ If the consumer does not pay the shortfall, the credit
provider can institute action in the Magistrate’s Court to
enforce the payment of the shortfall.
❖ Upon payment of the shortfall the credit agreement is
terminated.

Question 18

❖ Shortfall example:

Answer 18

❖ R10 000 initial debt
❖ R2 000 paid by consumer in instalments
❖ R8000 outstanding, goods surrendered and sold
❖ R7 000 proceeds of sale
❖ R1 000 shortfall (R8000- R7000) must be paid by the
consumer to the credit provider
❖ Credit provider gets R10 000 (R2000 paid by consumer +
R7000 (sale) + R1000 paid by the consumer)

Question 19

Repayment of
debt
❖ Position if early payments are made

Answer 19

❖ S126 of NCA
❖ A consumer may prepay any amount under a credit
agreement at any time without notice or penalty, and the
credit provider must accept such a payment.
❖ Example: Pay an instalment which is due at the end of the
month on the 20th of the month.
❖ Includes the right to pay bigger instalments than the agreed
instalments,
❖ Because if the consumer pays a bigger instalment than
agreed on the consumer prepays part of the debt

Question 20

❖ Advantages of repayment

Answer 20

❖ As a result of regulation 39(1)(b):
❖ (The deferred amount is reduced by any amount paid
towards the settlement of the deferred amount at the time
that such a payment is made)
❖ Any early payment shortens the lifespan of the credit
agreement resulting in a saving in interest and costs for the
consumer