JOHANNESBURG, SOUTH AFRICA - AUGUST 14: A general view of First Rand Bank on August 14, 2020 in Johannesburg, South Africa. It is reported that two of the country's largest banking groups - FirstRand and Absa stated that earnings will fall more than a third on a like-for-like basis for the year to end-June due to rising bad debt expenses linked to Covid-19. The banking sector warned investors of falls in earnings attributable largely to the economic fallout associated with the hard lockdown that b
Homeowner Rajendra Pillai appeared alone in the Durban High Court to defend a claim by FirstRand, which alleged he owed R108 000 on a home loan and also asked the court for an order to sell the property at auction.
Pillai successfully defeated the bank’s claim, arguing that he had already paid R114 000, but that the payment had not been properly credited to his account.
The court ruled in the homeowner’s favour and ordered the bank to debate the home loan account with Pillai to see what had happened to his R114 000 payment.
The bank claimed it had lent Pillai R250 000 in July 2005 and extended the loan by another R112 000 five months later. It alleged that he had fallen into arrears and issued a summons against him.
Pillai disputed the bank’s version, arguing he had paid more than the bank demanded.
The bank initially responded that Pillai had not provided any documentary proof of the payment, “the inference being that the respondent [Pillai] should not be believed in the absence of such documentation. This would appear to include sowing doubt over the correctness of the allegations regarding the pre-payment”, according to the court judgment by Judge Robin Mossop.
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The court found difficulties with both versions. The judge said FirstRand had not satisfactorily dealt with the R114 000 prepayment, but also observed that Pillai had failed to provide proof of the payment made in 2018.
Despite the bank’s “huffing and puffing” over the lack of documentation to support the payment, it later admitted to receiving it into Pillai’s bond account.
The bank indicated it would use this prepayment to make periodic drawdowns in settlement of the monthly bond payments.
The bank provided account extracts to the court, but these did not show the drawdowns the bank said it made into Pillai’s bond account.
“I confess that I have some difficulty with the idea that drawdowns were made from the prepayment because the account extract reveals a balance owing of R81 345.49 as at 25 December 2017, and payment of R114 000 into the bond account would have settled the balance immediately. There would logically be no further instalments due after the prepayment and no need for any drawdowns,” the ruling stated.
Despite the R114 000 payment, the bank says Pillai failed to make further payments towards his home loan account, which allegedly resulted in the account falling into arrears.
The bank claimed the prepayment was depleted in its entirety, but the accounts it presented to the court did not substantiate this.
Pillai was found to have made further payments into his bond account, but these were often less than the monthly instalment. Despite this, these amounts could not be ignored.
“In the circumstances, I cannot safely conclude that the respondent was, indeed, in arrears as claimed by the [bank] and that he remains in arrears,” continued the court ruling.
The bank’s application was dismissed, and Pillai’s counterclaim for the bank to provide a true and proper statement of account, with substantiating documents, was granted.
The bank was further ordered to provide Pillai with proof of how and when the payment of R114 000 was received and then depleted. No order was made as to costs.
Bank sticks to its story
Asked for comment on the case, FNB sent the following response to Moneyweb, on behalf of FirstRand.
“FNB confirms that, in line with the terms of its home loan agreements, any prepaid amounts paid into a home loan account are, unless otherwise instructed by the client, automatically applied to meet monthly instalments should a scheduled payment be missed.
“This ensures that contractual obligations continue to be met, while the prepaid balance is reduced accordingly. In this matter, the client made excess payments on his home loan, resulting in a prepaid balance of approximately R114 000.
“From January 2018 onwards, the client’s payments became irregular and, at times, ceased altogether. As a result, the prepaid funds were progressively applied to cover monthly instalments.
“Once the prepaid balance was fully depleted due to continued non‑payment, the account fell into arrears.
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“After the account entered arrears, the client was contacted through the bank’s standard collections processes. During this period, the client entered into a number of payment arrangements, which were unfortunately not adhered to.
“In 2023, the client requested a reconciliation of the home loan account. This reconciliation was provided and was referenced by the client in subsequent court papers, although it was not attached to those court papers.
“Litigation was initiated in September 2024 to recover the outstanding amount in terms of the loan agreement. The court did not grant judgment at this stage and instead directed the bank to provide the client with an updated reconciliation, including a detailed explanation of how the prepaid amount was applied, and to engage further with the client.
“The bank has complied with the court’s directive and will engage with the client to reach an amicable resolution.”
Keep your records
Consumer legal advisor Leonard Benjamin commented that it would have been a travesty if judgment had been granted in the bank’s favour, despite the available evidence suggesting no debt was owed.
“I am aware of one other case where judgment was granted to the bank even though the debt had been repaid in full and, in fact, the bank owed the consumer money. Although here, the judge did the right thing by dismissing FirstRand’s application.
“But it was a close call because the consumer had alleged the payment, but failed to attach proof thereof. The only reason why the judgment was not granted was because FirstRand admitted that the payment had been made.”
The case further highlights the importance of accurate record-keeping by the banks and serves as a cautionary tale for lenders pursuing arrears claims without ironclad proof of the claimed arrears.
Benjamin says borrowers, too, should ensure they keep all records of payments made to the bank so they are better positioned to challenge discrepancies that frequently arise between consumers and lenders.
This article was republished from Moneyweb. Read the original here.
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