Major relief ahead for indebted consumers?

The days of debt collectors adding to the woes of the financially strapped could be over

THE WILD WEST days of debt collecting, where predatory debt collectors could pretty much charge as much as they wanted to collect outstanding debt, may soon be over, thanks to a landmark case about to be heard in the Western Cape High Court.

Brought by the Stellenbosch Law Clinic and Summit Financial Partners which are seeking the court to intervene in the manner in which debt is collected, the verdict may mean the end to the reckless and predatory way in which many debt collectors operate.

Neil Roets, the chief executive of one of the largest debt counselling companies in South Africa, Debt Rescue, said the objective of seeking the intervention is to enforce the in

duplum rule, which forms part of the National Credit Act (NCA). The rule decrees that interest cannot accrue to more than the capital amount.

“The applicants will most likely argue that debt collectors have added unnecessary costs (such as legal and administration fees) to the point where the debt they seek to collect is many times the amount of the principal debt, which is in direct contravention of the in duplum rule.

“It has been a curious dichotomy that debt collectors have so far been absolved from this legislation. This has led to the financial ruin of many indebted consumers, who discovered that the amount debt collectors wanted to recover from them was many times the original amount,” Roets said.

He said credit providers were already subject to this rule, and all charges and fees, as well as interest, could not exceed double the amount of the debt.

Roets said it was important to clarify the interpretation of the in duplum rule, because the various interpretations were leading to consumers possibly paying excessive amounts in fees and charges for which they were not liable.

“There is a very clear need to ensure that all parties know what their rights are in this case, with clear rules to avoid uncertainty and confusion.

“As it stands, a consumer can potentially repay 10 times the amount of the loan that was originally taken.

“It’s estimated more than R1 billion has been illegally over-deducted from thousands of distressed debtors by unscrupulous credit providers,” Roets said.

Following hot on the heels of an amendment to the NCA that will seek to bring relief to heavily indebted consumers by extinguishing unsecured debt of no more than R50 000 for consumers who earn a maximum of R7 500 a month, the overall debt recovery landscape may be in for a radical change.

The so-called debt forgiveness bill has been heavily criticised by banks and other financial institutions, which would be substantially out of pocket if it becomes law.

“We foresee major obstacles for this amendment, because it is manifestly unfair to institutions that provided the finance in the first instance.

“It could also have severe unintended consequences, in that the cost of borrowing money could increase substantially, as lenders would price in the cost of having debt written off by an act of Parliament,” Roets said.