The lowdown on lawyers’ fees
A reader wants to know why he still owes so much money
AREADER thought he was going to clear his mountain of debt when he came to a repayment agreement with the lawyers of the company he owed. Yet three years after paying R36 000 to cover his initial R32 000 loan, he still owed a whopping R20 000. He thinks lawyers’ fees could be the cause. We look at how lawyers’ fees work and what else could’ve contributed to his debt. IT’S LEGAL Lawyers who are registered with the Law Society of South Africa are permitted to recover debt. They aren’t governed by the Debt Collectors Act, but by the Magistrates’ Court Act.
Their rates therefore aren’t the same as those of ordinary debt collectors. COLLECTORS’ COMMISSION A lawyer can charge a debt collectors’ commission of 10% plus VAT (if they’re registered for VAT) on each payment they collect.
For example, if a monthly payment of R500 must be collected, the lawyer can charge 10% (R50) plus R7 (14% VAT). So for every R500 monthly payment, the lawyer charges an additional R57. That means you’re already paying R557 monthly, above and beyond other legal costs that may be involved. LEGAL COSTS There are two kinds of fees when an attorney gets involved in debt recovery: Prescribed fees: The legal expenses will depend on the debt amount and the amount of work that’s done to collect the debt. Charl Marais of JS Marais & Co Attorneys explains that the charges, which are part of the Magistrates’ Court Rules, work on a sliding scale – the higher the debt, the higher the rate for the attorney’s work.
To hand over a sentence, for example, could cost between R121 and R654 and just the basic drafting of a summons costs between R121 and R779.
There are a lot of things for which debtors are liable when the collection goes to an attorney. If you don’t pay, you might be required to go to court so that your circumstances can be investigated – this may cost between R300 and R500. Agreed fees: Attorneys can agree with their clients that, despite the prescribed fees, they work at a different, usually higher rate, known as attorney and client fees. Suppose the prescribed rate is that a telephone call with a debtor costs R23,50. The lawyer might agree with his client that he’ll request R100 a call – and if the debtor has signed something in which he agrees to this rate, he’ll have to pay it.
If the debtor doesn’t pay their debt, the legal fees can accumulate, because then the attorney will have to issue notices or warrants again – and each reissue costs money. The legal costs are added to the debtor’s outstanding debt amount. WHEN CAN YOU QUESTION THE ACCOUNT? If you dispute the cost account of the lawyer who’s doing the debt collection, you can approach either the court that passed the sentence or the Law Society of the province in which the lawyer practises (go to lssa.org.za to find the websites of these societies) and ask them to evaluate the account. OTHER FACTORS THAT MIGHT INFLUENCE THE AMOUNT OWED It’s not clear from the reader’s letter whether it’s indeed the lawyer’s fees that are responsible for his debt increasing by so much – he needs to check if the correct interest rate was applied to his original debt. Interest can be high and is charged above and beyond debt collection fees. There are two types of interest rates. 1. If the loan is taken with a credit provider such as a bank, an interest rate at which the loan is repaid is usually agreed upon. The lawyer who collects the debt must stick to that and can’t apply a different interest rate, says Sunél Beeselaar of SP Beeselaar Attorneys.
The National Credit Act stipulates that the maximum interest rate on a short-term loan is equal to the repo rate x 2,2 + 10%. (The current maximum interest rate on short-term loans is 24,85%.)* 2. Sometimes a loan is taken from an individual or business that’s not a registered credit provider. If a lawyer sues a debtor on behalf of a client who isn’t a registered credit provider, so-called mora interest is applicable. This can change, but currently it’s 10,25%.* Mora interest accrues from the date the debtor falls behind on payments and the creditor formally demands payment of the outstanding debt. WHAT CAN BE DONE ABOUT INTEREST RATES? Contact the NCR at ncr.org.za or 0860-627-627 or the office of the credit ombudsman (creditombud.org.za or 0861662-837). *Correct at time of going to print.