How a R6 000 debt became a R18 000 millstone

Lewis Stores says it is owed more than R7 000 by a domestic worker who has already paid the company in excess of R11 000 for a stove she bought for R4 200 in 2012.

Let that sink in: the appliance cost R4 200 (once you add the initiation fee, maintenance contract and transport costs, the principal debt comes to R6 169). The consumer has paid more than R11 000, but she allegedly still owes R7 000-odd. If R18 000 – three times the principal debt – sounds excessive to you, that’s because it is.

Lewis maintains that its fees and charges comply with the National Credit Act (NCA). In its explanation to the consumer’s debt counsellor about the outstanding amount, it says it disagrees with the debt counsellor’s application of the section of the Act that caps the interest and fees that a consumer who is in default can be charged.

This section of the NCA is colloquially referred to as the “statutory in duplum rule”, because it differs from the common-law in duplum rule. The latter states that interest on a debt in default stops running once it equals the outstanding capital amount at the time of the default. So if your outstanding balance was R4 000 when you defaulted, you cannot be charged more than R4 000 in interest, in which case you would owe a total of R8 000 before all collection fees and charges.

However, the NCA is more consumer-friendly. Section 103(5) of the Act says that all amounts – such as service fees, interest (contractual and default), credit insurance, default administration charges and collection costs – must cease if, in total, they exceed the outstanding principal debt when you default.

Philip Nortje, a debt counsellor who is helping the consumer, says she defaulted two months into the contract, when the unpaid balance of the principal debt was R5 755. Therefore, the amount due could not exceed R11 510, he says. While still in default, the consumer paid Lewis R10 377, so, if she did owe anything, it would be the difference between R11 510 and R10 377.

But Nortje maintains that the consumer is a victim of reckless lending, because, he says, Lewis did not perform a proper affordability assessment when it granted the credit. The consumer is married in community of property, which means that, in terms of the Matrimonial Property Act, “a spouse shall not without the written consent of the other spouse enter into a credit agreement to which the provisions of the NCA apply”.

Lewis has told Nortje that it cannot find the “original documents”. Lewis does, however, have the affordability assessment, which shows that the credit provider took the income of the consumer’s spouse into account, but not his credit obligations. “The agreement is thus reckless,” Nortje says.

Furthermore, the consumer is Xhosa-speaking and her command of the English language is poor, according to Nortje. “To aver that she read and understood the agreement and had ‘a general understanding of the risks and costs of the proposed credit, and the rights and obligations of a consumer under a credit agreement’, is far-fetched. The NCA states that a credit provider must not enter into a credit agreement without first taking reasonable steps to assess that this does not happen. The agreement is thus reckless,” he says.

Lewis Stores has made the consumer a “without prejudice” offer to reduce the outstanding balance substantially, but Nortje says it is not acceptable.

This week, Lewis took exception to the publication of the amount that it had offered without prejudice and contended that the credit extended to the consumer was not granted recklessly. Furthermore, it says that all documentation provided to the consumer was in Xhosa. “We were unable to locate our copy of the signed agreement. However, we do have unsigned copies of the credit agreement and other documentation in Xhosa on file.”

Clive Rosenberg, the consumer’s employer, says: “This is truly a horror story that a poor simple person has paid two and a half times the original purchase price and is still left owing almost twice the price.”

In the spirit of Treating Customers Fairly, Lewis should refund the consumer, he says.

angelique.arde@inl.co.za