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The com­mon law in du­plum rule says that in­ter­est can­not ac­crue to more than the capital amount. Since 2007, when the Na­tional Credit Act (NCA) came into ef­fect, the statu­tory in du­plum rule has been in­ter­preted by in­sti­tu­tions in a myr­iad ways.

“This is why we are go­ing to court: to re­quest a declara­tory or­der that the statu­tory in du­plum is ap­pli­ca­ble to all the in­ter­est, the costs, in­clud­ing the le­gal fees that are levied against the debtor – ir­re­spec­tive of whether a judg­ment has been granted.”

Van der Merwe says on a proper in­ter­pre­ta­tion of the rel­e­vant sec­tions of the NCA, it would mean that if the debtor is in de­fault un­der the credit agree­ment these amounts may not ex­ceed the un­paid bal­ance of the prin­ci­pal debt at the time of de­fault.

“When a con­sumer is in de­fault all the com­bined in­ter­est, the col­lec­tion costs and so on cease to run when they reach the un­paid bal­ance of the prin­ci­pal debt.”

“The prob­lem is cred­i­tors say le­gal costs don’t form part of it, or that this isn’t ap­pli­ca­ble af­ter judg­ment.”

In ad­di­tion to the two declara­tory or­ders, ask­ing for clar­ity on how of Depart­ment 2 on Af­fairs Home Cen­tre juicer 1 on Nutri and Cur­tain 1 on Ware­house Uphol­stery Edgars 2 on South Africa 1 on Se­eff Glen­vista Len­car 1 on Sam­sung 1 on Telkom 7 on sec­tions 101 and 103 of the NCA are in­ter­preted, the clinic is also ask­ing that the court de­clare that le­gal fees may not be re­cov­ered from the debtor un­less they have been taxed.

“Nowhere in the Na­tional Credit Act is a dis­tinc­tion drawn be­tween le­gal fees and col­lec­tion costs. What we’re say­ing is that cred­i­tors want to use ex­pen­sive at­tor­neys to col­lect on minis­cule debts; debtors can’t be ex­pected to pay those fees. We shouldn’t al­low debtors to be abused in this way – we need to the court to make a rul­ing.”

Once the court has clar­i­fied al­low­able col­lec­tion costs, the clinic wants it to or­der that an in­de­pen­dent ex­pert re­cal­cu­late the ap­pli­cants’ in­debt­ed­ness and then or­der that if there is an over­pay­ment, the money must be re­paid to the debtors.

But be­fore con­sumers get ex­cited about hav­ing col­lec­tion fees and in­ter­est re­paid, Van der Merwe says pre­scrip­tion might be at play. “You might have trou­ble in court claim­ing that money back be­cause pre­scrip­tion would have to be taken into con­sid­er­a­tion.

“There will be clar­ity: ev­ery­one will know what is ex­pected and peo­ple won’t be abused fi­nan­cially as a re­sult of un­cer­tain Damelin 2 on Na­tion 1 on New De­vel­op­ment Post Of­fice 3 on SA Le­gal Life­style Med­i­cal 12 on Dis­cov­ery 1 on Aid le­gal in­ter­pre­ta­tion.”

Van der Merwe says they are not at­tempt­ing to vil­ify small cash loan providers, the credit in­dus­try or at­tor­neys in gen­eral: “We ap­plaud those cred­i­tors who are hon­est, give loans re­spon­si­bly and col­lect re­spon­si­bly: they play an im­por­tant part in our econ­omy.

“We are not tack­ling the in­dus­try in gen­eral – we have an is­sue with un­scrupu­lous guys who don’t play by the rules. We are not go­ing to as­sist so called ‘pro­fes­sional debtors’ ei­ther, who abuse the sys­tem by get­ting loan af­ter loan at cred­i­tors’ ex­pense if there are no mer­its in their cases.

“We have a prob­lem with cred­i­tors who abuse low-in­come earn­ers by coax­ing them into en­tic­ing loans which they would never be able to ser­vice based on their lim­ited wages.”

In 2016, the law clinic won a land­mark case in the Con­sti­tu­tional Court, which found that sev­eral prac­tices re­lat­ing to the abuse of emol­u­ment at­tach­ment or­ders were un­con­sti­tu­tional.

“The court also con­sid­ered the va­lid­ity of the ini­tial loan agree­ments which reg­u­larly in­cluded in­ter­est of 60% an­nu­ally and they were con­cluded ab­sent of any, or al­ter­na­tively af­ter se­verely de­fec­tive, af­ford­abil­ity as­sess­ments. Those trans­ac­tions were con­ducted in breach of sec­tion 81 of the NCA which talks about reck­less credit.

“Those spe­cific cred­i­tors want to ex­tend reck­less credit to con­sumers, who they know won’t be able to re­pay the loans, and then they abuse the sit­u­a­tion by put­ting debtors into a debt trap that they’ll never be able to get out of.

“Peo­ple like that shouldn’t be able to shirk re­spon­si­bil­ity in their col­lec­tion when they use il­le­gal prac­tices. They cause eco­nomic catas­tro­phe in the lives of those clients.”

Van der Merwe says that af­ter the Marikana mas­sacre of Au­gust 16, 2012, clear link­ages were drawn be­tween the de­mands for higher wages and the abuses in the credit in­dus­try.

“Those work­ers de­manded more money to al­low them and their fam­i­lies to make a liv­ing be­cause their salaries were se­verely gar­nished by credit providers that were in­sti­tut­ing emol­u­ment at­tach­ment or­ders that were il­le­gal and un­con­sti­tu­tional. We are try­ing to avoid those sit­u­a­tions aris­ing in the fu­ture, by ask­ing the court to as­sist us in fos­ter­ing a healthy and re­spon­si­ble credit en­vi­ron­ment.”

SEEK­ING CLAR­ITY: Stel­len­bosch Law Clinic be­lieves debt col­lec­tion needs to be reg­u­lated and that costs must be capped.

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