The tide is turning against the banks - Part 2

Posted 29 October 2013 Written by Arlene Levy
Category Banking

In this second part of our interview with consumer lawyer Robyn Zimmerman, we look at some legal ammunition for those facing harassment by the banks, and delve into the rather fascinating precedent of the Samsodien case, where Zulfa Samsodien - in the Cape High Court - successfully defeated First National Bank (FNB) in its attempt to issue summary judgment and repossess her home. Robyn also points to bigger battles ahead, such as a class action suit against the banks which is currently being formulated. You can read Part 1 of this interview here.   

Acts: Turning now to securitisation, many people reading this will want to know what sections of the law to refer to in formulating a defence against the banks. What are the relevant laws (and sections) that should be examined?

The National Credit Act in its entirety, but more particularly, Sections 3, 40, 54, 65, 69, 89, 129, 130, 169, 170.

The Consumer Protection Act, Sections 3, 4, 5 and 42.  The Law of Cession. The Law of Contract.  The Banks Act, and securitisation regulations.

There is a multitude of case law.

Consumers must beware of traversing defences that will hurt the cause, for example, by raising defences where there is no proof of such a defence. This is why the courts become weary of consumers and lend a better ear to the banks’ attorneys. To cite law is not a defence itself, it is how the law relates to the facts and its effect on these facts that give rise to defences. It is important how one interprets this. Securitisation is not the go-to defence when nothing else exist.  It either is a defence or it is not.  And more importantly you MUST be able to in good faith show the court that this (defence) in fact exists. 
 
Acts: In the Samsodien case, it seems a vital precedent was established by Judge Moosa, wherein the bank's application for summary judgment was thrown out on the basis that FNB could not show that it was in fact the lawful owner of the loan. In your opinion, is this a precedent that should be cited by others in a similar situation?

In the same legal situations, yes, although the facts must not materially be distinguishable from the facts arising in the Samsodien’s case.
 
Acts: The Samsodiens were subsequently sequestrated, and you are appealing this. Can you explain briefly what is the basis of this appeal?

Relating to the securitisation aspect of the defences:

In going through the documentation, we see that in its founding papers for the sequestration application, Ikhaya (the party to which FNB ceded its rights in and to the loan agreement without recourse thereto) has stated that the cession endorsement occurred on the 14 December 2007 (para 3.5), they however failed to draw the court into its confidence by stating the date when the actual cession occurred.

Upon my investigation, I found in the Deeds office the cession (BC108968/07) which caused the endorsement, and the date of the cession is given as 30 October 2007. Therefore the date of cession is earlier than is stated in their papers.

I further filed a complaint for investigation with the NCR (National Credit Regulator) to confirm the date that Ikhaya RMBS 2 limited became a registered credit provider. The NCR responded and confirmed the date of registration as 24 January 2008.

The reason this is significant is that at date of the cession Ikhaya was not a registered credit provider, nor was its application for such registration made within 30 days of acquiring the loan by virtue of its cession.

We can only cede and accept rights through cession if we have the capacity to cede and accept these rights.  Ikhaya could not accept the rights of a credit provider as it did not have capacity to do so.  Whereas the agreement was ceded, the rights in terms of the interest claimable was not.  

The consequence of this is that Ikhaya cannot claim any interest on the loan from the date of the cession. Therefore the amount that Mrs Samsodien’s estate was liquidated for is not correct.  The balances they provided that she owes is not correct.  It is likely in fact that she is not arrears, with her loan to Ikhaya, once all her payments are attributed to the capital balance. 
 
FNB cannot later come and claim the interest portion from her as they sold their right, title and interest to the loan in its entirety to Ikhaya and received value for this. There are other legal aspects of unjustified enrichment which we feel are in her favour.

This is the reason why it is so important for people to investigate traditional securitisation of their loans. The rule of law is there for a reason! It appears that the banks have contracted (in these cases) outside the rule of law and continue to conceal this information (the whereabouts of the loan and the owner of such loan) from its consumers. As such I feel it may qualify as a fraudulent transaction in terms of the Consumer Protection Act, Section 42. We do not know what the consequences of this would be as this aspect has not been tried and tested in our courts. There is a raging debate that if the NCA (National Credit Act) applies, the CPA (Consumer Protection Act) does not, but my deduction is that it is not so. The product that the bank supplies to the market in the form of home loans, and which it sells and advertises, this product in its entirety is subject to the sections of the CPA.

There are other aspects we are taking to Appeal but the above sums up the new evidence therein.
 
Acts: Securitisation seems to operate under very tenuous legal grounds. It is provided for in the Banks Act, but in terms of the Consumer Protection Act, any change in the title of a loan requires the credit provider to do this in an above-board manner, and notify the National Credit Registrar. Most bank loan agreements have a blanket clause allowing them to cede loans to a third party. This is surely a legal grey area. If the banks start to lose cases on the basis of securitisation, the implications are potentially massive. How do you think this will play out?

With traditional securitisation, the banks do not have a claim in contract. The securitised entity (such as a special purpose vehicle) may have a claim, but where it is found they do not, they may assert their right to claim return of the monies from the bank. In this case the bank may have a claim against the consumer in terms of unjustified enrichment, but I fail to see how they can prove clean hands in the entire debacle should they assert this claim.

But we are at early days yet. We are in the process of formulating a class action against certain special purpose institutions which have contravened the laws.  We are however awaiting decisions on other matters before proceeding.  We have case withdrawals in several other pertinent cases, which lends credence to our class action however in these matters we are extremely conservative, given the fact that we believe that the credit providers still have ear of the judiciary in securitisation cases.
 
Acts: Any final words of advice for readers, whether under legal threat or not? How should they interact with their banks, and what kind of information should they be asking for?

Securitisation should not be the go–to defence. However, if you suspect your agreement has been securitised, send letters to the bank requesting information, send letters to the banks’ auditors requesting them to confirm whether your agreement falls within the securitised matters they have declared therein. Enquire about synthetic securitisation, ask the Consumer Commission to investigate whether this is indeed the situation as given the Annual Financial Statements of the bank.  Require the Commission to subpoena the auditors to obtain the evidence if the bank is equivocal in its answer. Request that the matter immediately be referred to the (Consumer) Tribunal for adjudication, and that the Commission conduct the investigations pursuant to the referral.

The more the bank denies securitisation on any single matter, the more unlikely it is that the courts will believe them where the financial statements contradict the averages contained therein. 

All this information needs to be pooled, assessed and driven into the public domain.  Once this is so the courts can be approached by way of class to instruct on the way forward given the contradictions which has been proven in the light of the pooled evidence. 

If you are under legal threat, and you have sent all the documentation and conducted investigations (as per the above), it will not seem like securitisation is a frivolous defence, as you may have pursued this avenue prior to the institution of legal proceedings.  Also remember once your matter is referred to Tribunal, legal action cannot be commenced until the matter is resolved.

Acts: Thank you Robyn.

Lodge a complaint with the Consumer Commission

You can lodge a complaint with the Consumer Commission at:  complaints@thencc.org.za or NNetshitomboni@thencc.co.za.

You can reach Robyn at robyn@liddles.co.za.


Related stories:

The tide is turning against the banks - Part 1
Cape Town couple lay fraud charges against FNB for attempted home repossession

Is this the biggest fraud in history?
Judgment opens up a world of trouble for the banks
New Economic Rights Alliance brings heat to the banks
 

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