The National Credit Act's remedies for reckless credit in the mortgage context

Abstract

The National Credit Act prohibits the granting of reckless credit and also provides for certain remedies that courts can grant to consumers who have fallen victim to reckless lending practices. Depending on the circumstances, these remedies are the partial or full setting aside of the consumer's rights and obligations under the agreement; the temporary suspension of the effect of the agreement; and the restructuring of the consumer's obligations. This article investigates these remedies with a focus on the effect that they would have on a creditor provider under a mortgage agreement. The argument is made that the contractual and security rights of creditor providers amount to "property" for purposes of section 25(1) of the Constitution (the property clause) and that, to some degree or another, each of these remedies involve a "deprivation" (limitation or modification) of the creditor provider's rights (property). The consequence is that, when one of these remedies is granted to a consumer, the court must tailor the remedy in such a way that the effect on the credit provider is not "arbitrary" as meant in the property clause. Therefore, the proposal is that there must be a sufficient relationship between the purpose of the remedy (to discourage reckless lending and to rectify the damage caused) and the effects thereof on the credit provider. In general, the remedy should not go further than what is necessary to rectify the prejudice suffered by the consumer due to the credit provider's conduct. The formulation of the remedy should accommodate considerations such as whether and to what extent either or both parties have already performed under the agreement, and it should accordingly ensure that the consumer will not be unjustifiably enriched. The remedy should also account for the effect that it would have if the consumer is permitted to keep the property that was subject to the reckless credit agreement. The article furthermore raises doubts regarding the recent high court judgment in ABSA v De Beer, where all the consumer's rights and obligations under a mortgage agreement were set aside due to the credit provider's reckless conduct. Remedies like this have serious consequences and therefore it is imperative that courts carefully investigate all the effects that the order would have, so that a just and reasonable outcome is achieved. This articles accordingly aims to provide some guidance with reference to the principles of constitutional property law.