From payment holidays to allegations of reckless lending – legal expert Don Bosman provides valuable insight

There is no doubt that the Covid-19 crisis has absolutely changed life as we know it. However, in addition to the panic and unrest with which we now associate these times, the crisis has brought about something else – an overwhelming amount of questions regarding contractual agreements, financial obligations, credit repayment, the role and responsibility of financial institutions and ultimately, the legal position governing all of the aforesaid. As time passes and questions go unanswered, the uncertainty and anxiety gripping so many consumers has turned into anger and, in some instances, allegations of reckless lending by financial institutions. Biznews spoke to Don Bosman, a legal expert and Senior Director at Klagsbrun Edelstein Bosman Du Plessis to shed some light on the legal position governing relief measures such as payment holidays granted by financial institutions, and provide essential insight into the legal implications applicable in these trying and unprecedented times. – Nadya Swart.Is it possible for contracts to be placed in a suspensive state pending the reopening and understanding of a 'new' economy in South Africa? .___STEADY_PAYWALL___.We need to examine each particular contract on its own merits. One of the contracts which has come under the spotlight is the contract of the leasing of business premises. The answer I'm giving to you is based on the opinion of a number of pre-eminent advocates who arrive at the same conclusion, which is that if it is that a lease for business premises is of such a nature that the reciprocal obligations of landlord and tenant are so closely aligned and that it can be held that there is a prohibition resulting from the announcement of government preventing the conducting of business from such premises – it would be force majeure and both parties would be excused from performing their reciprocal obligations. That is a very brief summary of the kind of opinions which have been prepared by advocates, which are in excess of 41 pages. .However, this does not apply to residential premises, because the occupation of residential premises has not been prohibited by government in terms of the legislation governing the lockdown period. The issue of the new economy, that in itself is something we will have to wait and see. And with respect, it relates to new circumstances which would not of necessity apply to that which has been agreed in contract previously. .Taking into account that consumers are unable to enter into personal transactions to alleviate the financial strain of lockdown (such as selling personal assets) – does it not follow logically that their other financial agreements should also be frozen pending their ability to mitigate their financial losses?.Now, if you are in this question alluding to the impact and continued impact pre and post the lockdown period – you would be dealing with the National Credit Act. That which was envisaged by the National Credit Act – with all its iterations, regulations etc. – was that a lender and borrower would contract on the basis of information provided by the borrower to the lender within a framework of requirements set out in governing legislation. If it were that at the time of lockdown a credit lender would have granted credit in theory to the borrower, but had not advanced it, it may very well be that that credit lender should not have advanced that money before taking into account the personal circumstances of the borrower which result from the stress and strain imposed by Covid. If there is a material change in the circumstances of the borrower then a reassessment may reveal that the borrower would not be able to repay any form of loan and this could amount to reckless credit. The same thing would apply if credit were considered during the lockdown period; if you were to apply for a loan, would you or wouldn't you be able to repay that debt? This would need to be considered. .Covid-19 is not the coat hanger on which you can hang everything that you would like to in order to avoid the payment or repayment of your financial obligations..Then, one might add pragmatically that in the current state – the courts are closed, summonses cannot be issued and the debt collecting process is, as a result of this, in a suspended state. However, when the courts reopen, that will change. But you need to then also see what the court's reaction will be generically with regard to granting judgment and execution against people's property after this period and arising from the whole Covid scenario. Our estimation as lawyers is that the courts will be relying on equities, as opposed to just the law, and favouring the debtor. .Are consumers who are agreeing to new terms by accepting payment holidays effectively losing their right to request termination of these contracts due to force majeure or supervening impossibility? .Okay, what I say to you here is to go back to what was said in regard to the first question – can it or can it not be that their contract is cancelled for the duration of the lockdown or this disaster period or in totality? In all probability, it is only for the period where the pronouncement of government would be the supervening impossibility, and it would only be for the term that lockdown would endure – thereafter, normal rules would apply. So, it's not a complete cancellation unless there is something which permits that or was contracted to by the parties at the time. But, it should be within the realms of human contemplation at that particular time and then you would go to the terms of the specific contract. .So, if one talks of payment holidays, you need to determine the nature of a payment holiday – is it out of generosity or moral obligation by the creditor to the borrower or is it something that the borrower can rely on going forward to say, forever and a day and claim they have new terms for repayment.'? It's highly unlikely that, other than affording the borrowers an opportunity during the lockdown period to re-arrange their finances. But you need to in each matter assess the position of each contract in relation to the parties and what is said. And it may be that new legislation would be forthcoming, but we are not aware of it at this moment in time, so we cannot at this stage give you a definitive answer insofar as that question is concerned and particularly the issue relating to termination of contracts. .Is it more than just irresponsible and negligent for financial institutions to be pushing 'measures of last resort' such as payment holidays as the primary relief for consumers during this time? .The question should be should credit granters, such as banks or financial institutions, not be writing off all or a part of the financial obligations of borrowers towards them? Can they be excused from repaying, whether it be interest or the capital amount? If we go back to the analogy of the lease agreement; it is only force majeure relating to supervening impossibility for the period that the occupant or tenant is able to conduct business and or the landlord is able to give the tenant occupation. So, you need to then see whether that is something which would render the lender irresponsible or negligent. However, if the lender is assisting the borrower without legal obligation, then it can never be said that it is irresponsible or negligent. And why should it have written off in totality what there is, with due regard to the National Credit Act and any supervening new legislation? So, the likelihood that you could simply just say across the board that it is negligent or irresponsible of these institutions would not hold much water and I don't think would be successful as an argument in court pertaining to a contract. .Are financial institutions not under a fiduciary duty to ensure responsible lending? .Again, the National Credit Act prescribes what there is and it gives them a form of discretion, which would normally be applied by them insofar as a scorecard and a credit policy is concerned. So, you cannot simply now say that Covid renders financial institutions negligent for having – pre-Covid or pre-lockdown period – advanced money to a borrower. But, post the announcement and commencement; if there is no reassessment of the borrower's position and the borrower is then unable to pay – it's likely that they could be found to be reckless and then, that which is contained in the National Credit Act, applies, which may be that they are excused in whole or in part from the indebtedness to the lender..Is the cash flow relief plan offered by FNB less detrimental to consumers in the long term or simply another form of reckless lending?.I haven't had the opportunity of acquainting myself with the FNB relief plan. It would not be based on any form of legal obligation between lenders and borrowers, and if one were to have a look at it, I think only time will tell. Nobody has experienced an economic meltdown of the nature occasioned by a pandemic like this. And therefore, it would be difficult for somebody now to start saying that it would be another form of reckless lending, because that presupposes that previous lending by FNB would in all instances be reckless, which – with respect – can only be described as a figment of the imagination and somewhat a reckless statement (if one were to make a statement of that nature)..As South Africans have not been allowed to use their vehicles much, surely insurance companies should have rebated the bulk of their premiums? By their failure to do so, are car insurance companies not profiteering from the current Covid-19 crisis?.The issue of motor vehicle insurance is a vexed question. The premiums are calculated following actuarial projections relating to risk and each individual is considered in their own circumstances in most instances. But it seems as if the general public feel that they are being exploited by having to pay insurance premiums in the quantum that they are in respect of the risk covered in relation to their motor vehicles as driven by them or those others permitted under the policy. The question of whether the premiums be rebated in bulk; it would then mean that you would have to have agreed that the motor vehicle could only be used within certain parameters commensurate with the risk and the reward for risk (being the insurance premium). .When it comes down to the issue of profiteering from the current Covid-19 crisis, one needs to understand and say that Covid is not the solution to all people's financial troubles. And it's not the coat hanger on which you can hang everything that you would like to in order to avoid the payment or repayment of your financial obligations. If you go out and you seek and are given credit within the legal parameters, then you have the reciprocal obligation to repay that – unless you are excused by virtue of that which has been said before..Those that are more dapper in their approach may find that they won't survive. It's a question of: the public in general has to do what they have to do and that is understand that this is a pandemic or an infection war and an economic war – you've got to take the appropriate steps to pull in your belt. But I do think – and this is just an aside – that all institutions, all lenders will be – and if they aren't, they should be – receptive to people coming to them and saying to them, 'I have trouble, assist me', and that we follow this sort of 'ubuntu' proposition that government has made where the parties take hands and they try and find a solution which they normally would not. But in these circumstances, they should do so to avert economic disaster in small and in big ways..Zivana Edelstein is an Associate at Klagsbrun Edelstein Bosman Du Plessis. Zivana, what are your thoughts on the manner in which the current Covid-19 crisis is going to shape the future of public policy regarding financial agreements?.So, it is in my opinion that the impact of Covid-19 on your ability to repay your debt or your ability to perform in terms of a financial obligation may have an impact on what is determined to be public policy and what is seen to be public policy. So the courts would have to then decide; is it in public policy and is it seen to be within what we consider public policy to expect your borrower to be able to perform in these times (financially) and to be able to repay and to perform the obligations in terms of their agreements with financial institutions.. Only in time will we be able to see this, because the courts will have to make this decision for us. We can speculate now what the courts may or may not decide, but this is something that will have to happen in time – there has to be a test case for this, which will happen once the courts reopen.

From payment holidays to allegations of reckless lending – legal expert Don Bosman provides valuable insight

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