Standard Bank violated National Credit Act, rules SCA

STANDARD Bank bypassed the rules of the National Credit Act (NCA) when it used settlement agreements with a family trust to enforce its debts by obtaining an order that the trust’s 14 immovable properties be declared executable.

The Supreme Court of Appeal also found that settlement agreements supplementing a NCA-governed credit agreement are unlawful and void. It said enforcement requires Section 129 compliance. This section of the NCA requires a credit provider to send a written notice to a consumer in default of a credit agreement before legal proceedings can begin.

In this case, the bank used the settlement agreements to obtain orders from the Bloemfontein High Court to sell the properties in order to recover its debt, without the consumer being afforded the opportunity to oppose the application.

The Wolmarans Kinder Trust and its trustees, Christoffel and Emerentia Wolmarans, turned to the SCA to have the majority of the orders granted between them by the high court overturned. The appeal considered the validity, in light of the provisions of the NCA, of the two settlement agreements.

The trust, over the years, concluded loan agreements as well as overdraft facilities with Standard Bank, running into millions. The debt was repayable, and when the appellants defaulted on the agreements, the bank required them to sign a settlement agreement incorporating a power of attorney.

The appellants defaulted on the first settlement agreement, and the bank consequently required them to sign a further settlement agreement and a power of attorney. In terms of the second settlement agreement, the appellants, whether as principal debtors or sureties, acknowledged themselves to be indebted with interest to the bank.

The settlement agreements recorded that the trust, as owner, had mortgaged various immovable properties as security for its indebtedness. It also provided for the sale of the immovable properties owned by the trust and gave the bank the authority to sell the properties to recover its debt.

The agreements granted to the bank, as sole and exclusive agent, the power of attorney to find a buyer at a purchase price and on such terms and conditions as the bank may decide. It also authorised the bank to sign on behalf of the trust any documents necessary to conclude and finalise the sale of the properties.

In essence, the settlement agreements allowed an extension of time to make payment of the credit extended to the Trust, provided for different interest rates and terms of repayment, facilitated obtaining judgment on shorter notice, and provided for the disposal of immovable properties of the trust without judicial intervention and oversight. This allowed them to obtain an order declaring the Trust’s properties executable without the input of the Wolmarans couple, who were also saddled with inflated legal costs.

Judge Piet Koen, who wrote the judgment on behalf of the five-member Bench, said this conduct violated the NCA, which prescribed how credit providers must treat borrowers. 

He said by permitting credit providers to circumvent statutory requirements through settlement would undermine the purpose of the Act. He overturned the high court orders that made the two settlement agreements legally binding.

Cape Times