Overcharging by creditors

The court papers filed in the Western Cape High Court last week by the University of Stellenbosch’s Law Clinic and Summit Financial Partners are asking the court to stop creditors loading unlawful costs onto the accounts of distressed debtors, which it reckons has cost debtors R1 billion in unlawful fees.

The so-called double rule was written into the National Credit Act (NCA) in 2007, and means once a borrower is in default, the outstanding amount payable can never be more than double the outstanding debt at the time of default. In other words, if you borrow R1 000, repay R400 of this and then default, the outstanding amount is R600.

Under law, a debtor is not obliged to pay more than double this amount, no matter how much interest supposedly accumulates, as long as you remain in default.

Some creditors saw what looks like a loophole in the NCA, and added service, administration and legal fees, claiming these fell outside the Act.

The applicants want the court to rule that the services, legal and other fees should form part of the in duplum definition.

“The problem that debtors are facing is one of inconsistent judgments around the interpretation of the National Credit Act,” says Stephan van der Merwe, senior attorney at the Law Clinic.

“The law, in our view, is clear enough. You cannot load these unlawful charges onto a client’s account as a way of side-stepping the in duplum rule.

“We need a healthy credit industry in SA, and we support those who abide by the rules.”

Dr Theo Broodryk, head of the Law Clinic, says: “The fact that 49 respondents, including all the main banks and major lending institutions, have been joined to the application, is indicative of the impact that this case could have on the South African credit market.”

In an affidavit before the court, Van der Merwe says section 103(5) of the NCA places a limit on the costs a creditor can claim in enforcing its agreement.

Moneyweb

Last month Moneyweb revealed that according to Medscheme’s own court papers, the AfroCentric subsidiary faces a potential R1 billion legal liability. The company has, however, only made provision for R8.25 million on its balance sheet.

The amounts relate to a claim by Neil Harvey & Associates (NHA) in 2007 in which it alleges Medscheme copied source code from its software and misappropriated its intellectual property.

We need a healthy credit industry in SA, and we support those who abide by the rules.

Stephan van der Merwe Senior attorney at Law Clinic